Kid’s Protection Plan

What is a Kid’s Protection Plan™?

A Kids Protection Plan™ is a set of instructions and legal documents (that even include an ID card for your wallet) that identifies for the authorities both your short-term and long-term guardians in case something happens to you.

This way, your Kids Protection Plan™ will make sure your children are never taken into the custody of Child Protective Services, and only you determine who will take care of your children, not someone chosen by the State.

We are one of a limited number of firms that offer the Kids Protection Plan™, which provides for the maximum protection of minor children.

Why do I need one?

If you are a parent with minor children at home, you need a Kids Protection Plan™. If you do not have one in place and you are in an accident, when the police show up at your house, they are required by law to call in Child Protective Services and have your kids removed from your home until they can figure out what to do. This is just your children’s short-term care.

For their long-term care, the court has sole discretion in determining who will care for your children. It is likely that a court would not choose the same person or people you would choose. If you have a Kids Protection Plan™, you get to choose a guardian that would make the same choices and decisions you would make in raising your children. Isn’t that a lot more comforting than having a court with an overcrowded docket determine who raises your children?

Advanced Estate Tax Planning

Our law firm discovers opportunities for clients to take advantage of the unique income tax or asset protection benefits associated with a variety of domestic and offshore planning structures, including asset protection trusts, limited liability entities, captive insurance companies, offshore private placement life insurance, annuities and premarital trusts, just to name a few. Using these structures and others, clients are able to build sophisticated asset protection and tax planning strategies to meet their specific goals.

A great way to reduce estate taxes is to reduce the size of your estate before you die. Thus, it is perfectly fine to spend some of your hard earned money, take a vacation or two, or make a gift following certain guidelines. Appreciating assets are usually best to give, because the asset and future appreciation will be out of your estate.

Assets you give away keep your cost basis (what you paid), so the recipients may have to pay capital gains tax when they sell. But the top capital gains rate is only 15% (on assets held at least 12 months). That is far less than estate taxes (45%) would cost you if you keep the assets until you die. Some of the most commonly used strategies to remove assets from estates are explained below. Note that these are all irrevocable, so you cannot change your mind later.

Tax-Free Gifts:

This is simple method of distribution that does not incur any tax. Each year, you can give up to $13,000 ($26,000 if married) to as many people as you wish. So if you give $13,000 to each of your two children and five grandchildren, you will reduce your estate by $91,000 (7 x $13,000) a year, or $182,000 if your spouse joins you. (This amount is tied to inflation and may increase every few years.) If you give more than this, the excess will be considered a taxable gift and will be applied to your $1 million gift tax exemption. Charitable gifts, medical expenses, and tuition (if you give directly to the institution) are unlimited.

Irrevocable Life Insurance Trust (ILIT):

An easy way to remove life insurance from your estate is to make an ILIT the owner of the policies. As long as you live three years after the transfer of an existing policy, the death benefits will not be included in your estate. Usually the ILIT is also the beneficiary of the policy, giving you the option of keeping the proceeds in the trust for years, with periodic distributions to your spouse, children and grandchildren. Proceeds kept in the trust are protected from irresponsible spending and creditors, even ex-spouses.

Qualified Personal Residence Trust (QPRT):

A QPRT lets you save estate taxes by removing your home (a substantial asset) from your estate now; yet you can continue to live there. Here’s how it works.

You transfer your home to a trust for a period of time, depending on the particular circumstances. During this time, you continue to live in your home. When the time is up, it transfers to the trust beneficiaries, usually your children. If you wish to stay there longer, you may make arrangements to pay rent. If you die before the trust ends, your home will be included in your estate, just as it would without a QPRT.

There’s more. A QPRT “leverages” your estate tax exemption. Since your children will not receive the house until the trust ends, its value as a gift is reduced. For example, if the current value of your home is $250,000 and you put it in a QPRT for 15 years, its value for tax purposes could be as little as $75,000. That leaves much more of your exemption for other assets.

Grantor Retained Annuity Trust (GRAT) and Grantor Retained Unitrust (GRUT):

These are much like a QPRT. The main difference is that a GRAT or GRUT lets you transfer an income-producing asset (e.g., stock, real estate, business) to a trust for a set number of years, removing it from your estate, and still receive the income. (If the income is a set amount, the trust is called a GRAT. If the income fluctuates, it’s called a GRUT.) When the trust ends, the asset will go to the beneficiaries of the trust. Since they will not receive it until then, the value of the gift is reduced. If you die before the trust ends, some or all of the assets may be in your estate.

Family Limited Partnership (FLP) and Limited Liability Company (LLC):

FLPs and LLCs let you reduce estate taxes by transferring assets like a family business, farm, real estate or stocks to your children now and still keep some control. They can also protect the assets from future lawsuits and creditors.

Here’s how it works. You and your spouse can set up an FLP or LLC and transfer assets to it. In exchange, you receive ownership interests. Though you have a fiduciary obligation to other owners, you control the FLP (as the general partner) or LLC (as manager). You can give ownership interests to your children, which removes value from your taxable estate. These interests cannot be sold or transferred without your approval, and because there is no market for these interests, their value is often discounted. This lets you transfer the underlying assets to your children at a reduced value, without losing control.

Charitable Remainder Trust (CRT)

A CRT lets you convert a highly appreciated asset (like stocks or investment real estate) into a lifetime income without paying capital gains tax when the asset is sold. It also reduces your income and estate taxes, and lets you benefit a charity that has special meaning to you. With a CRT, you transfer the asset to an irrevocable trust. This removes it from your estate. You also get an immediate charitable income tax deduction. The trust then sells the asset at market value, paying no capital gains tax, and reinvests in income-producing assets. For the rest of your life, the trust pays you an income. Since the principal has not been reduced by capital gains tax, you can receive more income over your lifetime than if you had sold the asset yourself. After you die, the trust assets go to the charity you have chosen.

Charitable Lead Trust (CLT)

A CLT is just about the opposite of a CRT. You transfer an asset to the trust, which reduces the size of your estate and saves estate taxes. But instead of paying the income to you, the trust pays it to a charity for a set number of years or until you die. After the trust ends, the trust assets will go to your spouse, children or other beneficiaries.

Buying Life Insurance:

Depending on your age and health, buying life insurance can be an inexpensive way to replace an asset given to charity and/or to pay any remaining estate taxes. You should not be the owner of the policy - that would increase your taxable estate and estate taxes. To keep the death benefits out of your estate, set up an ILIT and have the trustee purchase the policy for you.

For some of our clients, “Premium Financing” proves to be the optimal method to purchase life insurance. People who need substantial life insurance coverage for estate planning are often faced with a dilemma: Does it make sense to use current cash flow or to liquidate investments in order to pay the premiums? Premium financing offers certain individuals the ability to borrow the premiums to pay for an insurance policy. This method allows them to continue to use the funds that they might have otherwise used to pay for the insurance.

In most premium financing arrangements, an individual applies for an insurance policy. Simultaneously, the individual applies for a loan from a lender. While the individual is being medically underwritten for the insurance policy, they are also being financially underwritten for the loan. Assuming the individual passes both tests, the policy is put in force and the financing is put in place.

Business Planning:

Our business planning practice focuses on understanding the tax consequences of your personal or business transaction and structuring it to minimize the adverse tax consequences. In providing an array of prudent choices for our clients regarding business entity, business succession planning, and wealth planning, we offer significant value by limiting your tax exposure, while allowing you to make the choice most suitable for your business. We offer sophisticated individual and corporate business tax planning advice for:

  • business organization analysis for liability and tax attributes
  • sole proprietorships
  • joint ventures
  • partnerships
  • limited liability companies (LLCs)
  • S-corporations
  • C-corporations
  • professional corporations (PCs)
  • offsetting capital gains and losses
  • minimizing taxation at the sale or dissolution of a business
  • minimizing exposure to estate taxes

Business & Tax Planning for Estate Plans

In California, business and tax planning is an important part of any comprehensive estate plan. Whether you are getting ready to start your own business, or if you are purchasing an existing business, the structure you choose for your entity impacts your taxes and your ability to pass-on your business’ assets to your heirs. One of the best things you can do when you are planning your business is to speak with a skilled estate planning attorney.

At Chhokar Law Group, P.C., we provide a range of business and tax planning services. Our attorneys work closely with our clients to select the proper entity, including advice and guidance on:

  • Drafting and Filing Articles of Incorporation
  • Designing Partnership Agreements
  • LLC and LLP Formation, including Family Limited Partnerships
  • Non-Profit Organization Formation and Charitable Tax Planning

Our attorneys also help clients with the following matters:

Entity Formation, including LLCs, Corporations, Partnerships

Creating a California LLC, or Corporation, is part of our practice. We not only create the requested LLC or Corporation, we assist you with critical advice regarding how to manage your entity and protect your other assets from the threat of lawsuits. Our corporation and LLC creation structure is complete and customized to your needs.

Family Limited Partnerships?

This entity is useful for estate tax planning purposes as well as asset protection purposes. Many of our clients manage multiple real property parcels, and can benefit from the estate tax discounts which are available through a properly establish FLP. It is important to discuss the suitably of various assets for this entity with your estate planning attorney because it cannot contain any personal assets.

Charitable Tax Planning?

Substantial tax benefits can be obtained by properly planning for charitable entities, such as Charitable Remainder Trusts and Charitable Lead Trusts. If you own assets which have highly appreciated, and if sold will cause a significant capital gains tax, you may benefit by creating a charitable trust and avoiding the capital gains tax, as well as any associated estate taxes relating to that asset. A tax saving opportunity will also give you the control as to how your money is used by the charity. Failing to properly plan will mean that you left the decision of how your money is to be used in the community to the IRS.

Owning your own business requires maintaining an estate plan that preserves and passes on the rewards of your hard work. Through business succession planning we will develop a system for the protection of your business as a component of your complete estate plan, and help you minimize your tax liabilities whenever possible.

As our business client, you will benefit from our Law Firm’s ability to provide business and tax planning services in conjunction with our comprehensive estate planning services. Many estate planning attorneys do not provide business or tax services, and many business and tax planning attorneys do not provide estate planning services. Chhokar Law Group, P.C. provides all of these services to ensure our clients receive the most thorough estate plan.