R.C. Lim Attorney at Law | Estate Planning, Asset Protection Planning, and Bankruptcy Lawyer | Title | Pasadena, Los Angeles, La Canada, San Marino

529 College Savings Plans
A 529 plan is an easy way for a parent or grandparent to set aside money to be used for a child’s or grandchild’s college tuition or any other “qualified educational expense.” Money in the account can grow tax free, is tax deductible on the donor’s state taxes, and remains under the control of the donor.

AB Trust
See credit shelter trust.

Accumulation Trusts
Accumulation trusts, a type of IRA continuing trust, are trusts that, unlike a conduit trust, are entitled to accumulate the required minimum distribution within the trust.

Advanced Health Care Directive
A legal form specifying what health care procedures you want or don’t want to receive at the end of your life. Technically, there are two advanced directives – the living will and the durable power of attorney. However, the advanced health care directives often include considerably greater detail than that included in a living will.

Alter-Ego
A type of creditor challenge in which the creditor claims that a corporate structure is merely an alter ego of the owner so that a court will disregard the limited liability of a corporation and the owner will be responsible for the corporate debts.

Alternate Valuation Date
For estate and gift tax purposes, the a person’s the value of a person’s assets are determined on the date of death or on the alternate valuation date exactly six months later.

Amendment
If the trustee requires changes to debtor’s paperwork after the meeting of creditors, an amendment may be filed to alter the previous filings with the court.

Antenuptial Agreement
Also called a prenuptial agreement, an antenuptial agreement is an agreement between two person in anticipation of marriage. The agreements specify limits on the transfer of property between the two parties.

Ascertainable Standards
“Ascertainable standards” is the language, usually stated for “health, education, support, and maintenance,” that allows for a married person to receive the benefit of marital trust assets without including those assets into his or her estate.

Asset Protection Planning
Asset protection planning attempts to place assets outside the reach of creditor’s claims while retaining a substantial portion of those funds.

Automatic Stay
When a debtor files for bankruptcy, an automatic stay is issued by the bankruptcy court. The automatic stay prevents the creditor from continuing with collection activities.

Badges of Fraud
The badges of fraud are the factors courts use to determine whether a transfer was fraudulent.

Bankruptcy Abuse Prevention and Reform Act of 2005
Sometimes called “the new bankruptcy law,” the BAPRA imposes a means test, limits the homestead exemption, and adds additional requirements on those filing for bankruptcy, such as mandatory credit counseling.

Bankruptcy Estate
All of the property of the debtor at the time he or she files for bankruptcy.

Bankruptcy Petition
The filing with the court that initiates the bankruptcy process and creates an automatic stay for the debtor against his creditors.

Bankruptcy Trustee
An official appointed by the court to carry out the administrative tasks of the bankruptcy.

Basis-Step-Up
A feature of marital planning, the basis-step-up creates a new a cost basis in an asset that is transferred from a deceased to a surviving spouse.

Beneficiary
A beneficiary is the person who is entitled to the benefit of a trust arrangement.

Blend Trust
Blend trusts are trusts in which two or more beneficiaries have such entwined interests in the same trust that their interests have “blended” such that neither can claim any single interest in the trust.

Business Succession Planning
Business succession planning is an extremely important issue in any family operated business and includes the tax, regulatory, and practical issues arising from the intergenerational transfer of an operating business.

Bypass Trust
See credit shelter trust.

Captive Insurance Company
A captive insurance company is one that is restricted to underwriting insurance for the needs of the business owner who created the captive insurance company.

Chapter 7
Chapter 7 involves the liquidation by the bankruptcy trustee of the nonexempt property from the debtor’s estate, and the distribution of those assets to the creditors of the debtor. At the end of a Chapter 7 filing, the debtor is discharged of all non-dischargeable debts.

Chapter 11
A Chapter 11 bankruptcy is one in which a business reorganizes its debts in order that it continue to operate as a business.

Chapter 12
A Chapter 12 bankruptcy is one in which a small farm reorganizes its debts in order that it can continue to operate as a farm.

Chapter 13
A Chapter 13 bankruptcy is a consumer bankruptcy in which a debtor reorganizes debts over a three to five year period.

Charging Order
Rather than being able to reach the assets of a business entity, creditors are often only able to obtain a charging order, which is a court order that grants a creditor the right to any distributions to be received by a debtor from business interests of the debtor.

Charging Order Protected Entities (COPEs)
COPEs are those legal entities that limit a creditor of an owner to a charging order – the right to distributions from the entity – but do not permit the creditor to take an actual ownership interest. COPEs include both partnerships and LLCs.

Charitable Remainder Trust (CRT)
An arrangement in which a donor gives property to a charitable organization but continues to receive income from the same property while he or she lives. This arrangement, which is typically performed as a bequest to an irrevocable trust, has three tax motivations. First, it can create an immediate income tax deduction. Second, the donor can avoid capital gains tax on the donated assets. Third, the assets are removed from the donor’s taxable estate.

Claim
A creditor’s assertion that a bankruptcy filer owes it a debt.

Clayton Election
The “Clayton Election” strategy provides that the decedent give his or her estate to single QTIP trust for the benefit of the surviving spouse to the extent that the decedent’s personal representative elects to qualify it for the marital deduction.

Closely Held Insurance Company (CHIC)
A CHIC is a captive insurance company for a privately held business. A CHIC can be used as part of an intergenerational estate plan.

Collateral
Property that was offered by a borrower as security for a loan.

Common Pot Trusts
Pot trusts hold assets for the benefit of multiple children and are especially appropriate in cases where one or more children have not had the benefit, such as a college education, that older children have already received.

Conduit Trusts
Conduit trusts, a type of IRA continuing trusts, are those that make all required minimum distributions from an IRA immediately to the beneficiary.

Continuing Trusts
Continuing trusts as opposed to outright inheritances are trusts for children and descendents that specify how long assets are to remain in trust. Continuing trust are often used for young or immature children who might need care or be tempted to waste assets. Continuing trusts are also sometimes created for competent and financially-savvy descendents solely for their asset protection benefits. Such planning might be appropriate for descendents with significant malpractice liability such as doctors and lawyers.

Cramdown
Reducing the full amount that a debt during a reorganization.

Credit Insurance
An insurance policy that covers a borrower for an outstanding loan should the borrower die, become disabled, or lose his or her job.

Creditor
The person, institution, or entity to which money is owed.

Creditor Matrix
The matrix is a list of creditors that is filed with the bankruptcy petition.

Credit Shelter Trust
Sometimes called an AB trust, the credit shelter trust passes assets to heirs but gives the income from those same assets to the surviving spouse while he or she is still alive.

Crummey Powers
Crummey powers are the right an individual has to withdraw the amount given to an ILIT so that gift qualifies as for the annual gift exclusion.

Decoupling
Decoupling is an emerging issue in estate planning that has been created by the EGTRRA. Historically, most States had tied their estate and gift tax to the federal estate and gift tax. Since EGTRRA provides for the phased termination of the estate tax, States have responded

Disclaimer Trust
A disclaimer trust is a marital trust that is funded with assets that the surviving spouse disclaims. The trust provides flexibility in that it is up to the surviving spouse to determine which assets will go where. The disclaimer trust then takes any assets it receives as if it were the original beneficiary.

Domestic Asset Protection Trust (DAPT)
Also known as a self-settled spendthrift trust, a DAPT is an irrevocable trust with a spendthrift provision that you create for yourself to protect your assets against any future creditors. DAPTs were first created in Alaska but can now also be created under the laws of Delaware, Nevada, Rhode Island, and several other states.

Durable Power of Attorney
A durable power of attorney appoints a family member or friend, your agent, to manage your financial affairs should you become incapacitated.

Dynasty Trusts
A dynasty trust is a generation skipping transfer trust which often contains an annuity that pays income to future generations. The trust are usually structure to last as long as the rule against perpetuities allows since the amount of tax-savings increase as the trust matures. Dynasty trusts are also an extremely effective asset protection device for beneficiaries.

Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
EGTRRA made sweeping changes to the estate, gift, and GST tax, providing for a phased withdrawal of the tax by 2010. There is currently much uncertainty regarding the future of the estate tax in the U.S., however, most estate planning professionals believe it unlikely that EGTRRA’s suspension of the estate tax will be renewed.

Estate Tax
When a person dies in the United States, the sum of a person’s assets and debts becomes his or her estate. Death taxes are made on the estate. This is different than an inheritance tax, which taxes the beneficiaries of an estate.

Exempt Property
Property that is protected under state and federal laws from liquidation in a Chapter 7 bankruptcy. This is property that you can keep, such as cars, housing, and the tools of your trade – even though most of your assets must be sold to satisfy your debts.

Exemption Trust
In marital trust planning, an exemption trust is a trust that is an irrevocable trust that will hold the assets of the first spouse to die.

Family Limited Partnership (FLP)
A limited partnership that pools family assets and reduces any applicable estate tax. FLPs are used to lower estate taxes since partnerships interest are valued less than direct ownership of the partnership assets to account for discounts from lack of control and minority interest.

Family Limited Liability Corporation (FLLC)
A LLC that pools family assets and reduces any applicable estate tax. FLLCs are used to lower estate taxes since LLC shares are valued less than direct ownership of the partnership assets to account for discounts from lack of control and minority interest.

Filing Date
The date a bankruptcy petition is filed with the court. The filing date determines the date for the automatic stay, the bankruptcy estate, and the debts to be included in the bankruptcy.

Foreclosure
The process by which a creditor with a lien on real estate forces the sale of the property to collect on the lien.

Foreign Asset Protect Trust (FAPT)
A foreign asset protection trust is similar to a DAPT, but its situs is located overseas, outside of the United States. FAPTs create a second layer of protection since overseas courts are not required to abide by U.S. court rulings, and in most cases, legal issues must be relitigated before a creditor can obtain satisfaction of a debt.

Fractional Share
Marital share formulas are either fractional or pecuniary

Fraudulent Conveyance
A fraudulent conveyance is the transfer of any asset by a debtor to avoid the claims of a past or future creditor. The laws against fraudulent transfers are what prevent debtors from preferentially gifting away their assets to avoid the claims of creditors. The test used to determine if a transfer was a fraudulent conveyance is the badges of fraud test.

Generation Skipping Tax (GST)
The generation skipping tax imposes a tax on transfers to persons who are two or more generations younger than the donor, such as grandchildren or great-grandchildren. The GST has a separate exemption amount.

Gift Tax Exemption
There are two gift tax exemptions. There is one gift tax exemptions, the annual exclusion amount, which in 2008 is $12,000 per person. Separately, there is also a lifetime gift tax exemption that is currently $1,000,000. This amount has not been set to increase with the estate tax exemption.

Grantor
The grantor, also called the settlor, is the person who creates the trust.

Grantor Retained Annuity Trust (GRAT)
GRATs reduce the estate tax for intergenerational transfers. In a GRAT, an irrevocable trust is created that is funded with assets that pay an annuity. At the settlor’s death, the trust passes the assets tax free.

Guardianship
Guardianship documents are important for both minor children and incapacitated persons, such as those suffering from dementia.

Health Care Agent
A person who is authorized by you to make medical decisions on your behalf should you become incapacitated.

HIPAA Authorization
A health care power of attorney needs a HIPAA authorization in order that the health care agent may make informed decisions on your behalf.

Homestead Exemption
A State and Federal exemption that removes property or some of an interest in property where the debtor lives, typically a house, but also a mobile home or boat.

Incapacity Planning
Just as it sounds, incapacity planning includes executing living will, durable power attorney, and health care surrogates, and guardianship documents. In addition, incapacity planning may include Medicaid planning.

Incidents of Ownership
To avoid the accidental inclusion of prior gifts into your gross estate, a person must not possess any incidents of ownership that could undo the gift.

Income in Respect of a Decedent (IRD)
Income earned prior to death but received after death – notably installments from an IRA – constitute income in respect of a decedent.

Intentionally Defective Grantor Trust (IDGT)
The IDGT allows a person to lower his or her estate tax while also locking what will hopefully turn out to be a lower value for an appreciating asset. An IDGT is a grantor trust that contains an intentional flaw that ensures that the a person pays income taxes on the trust assets even though those trust assets are no longer a part of the person’s taxable estate. Typically, the trust is funded by an individual’s assets in exchange for a promissory note against those assets.

Intestacy
The condition of an estate when a person dies without an effective will. In such cases, property passes according to California common law.

IRA Continuing Trusts
IRA continuing trusts are those trusts in which a trust is named as the beneficiary of an IRA inheritance. In these situations, it is important to attempt to “stretch” the IRA. IRA continuing trusts can be either conduit trusts or accumulation trusts.

Irrevocable Life Insurance Trust (ILIT)
As its name suggests, an ILIT is an irrevocable trust created to hold life insurance. Typically, a mother or father would purchase life insurance on their lives for the benefit of children. The annual life insurance premiums are paid with annual gift exclusions and do not count against the lifetime gift exclusion.

Irrevocable Trust
A trust that cannot be modified or ended without the permission of the beneficiary. Unlike a revocable trust, the grantor removes some of his or her rights to the assets in the trust.

Lapse
The failure to exercise a power of appointment.

Limited Liability
Limited liability is the situation in which a person’s financial liability, either through a limited partnership, an LLC, or a corporation, is limited to a fixed amount.

Limited Liability Corporation (LLC)
An LLC is a legal entity that is a hybrid between a partnership and a corporation. An LLC has limited liability protection for its shareholders like a corporation and pass-through single level taxation like a partnership.

Limited Partnerships
A limited partnership is partnership comprised of general partners, with unlimited liability, and limited partners with limited liability.

International Business Corporation (IBC)
An IBC is an offshore corporation that is expressly precluded from operating within its jurisdiction of formation. The IBC has numerous asset protection and tax planning purposes.

Living Will
A living will is document that specifies which life-prolonging medical treatments, if any, a person wants to receive should they become incapacitated. Typically, a living will covers only whether a person wants life-sustaining treatment should they become terminally ill or permanently unconscious.

Marital Deduction
Under the marital deduction, one spouse may pass money on his or her death to a surviving spouse without taxation.

Marital Trusts
There are two types of marital trusts. Marital trust are either QTIP trusts or credit shelter trusts (AB trusts). Marital trusts retain the first deceased spouse’s lifetime exclusions but provide income to the surviving spouse for the remainder of his or her life.

Means Test
A formula that is used to determine whether a debtor is above or below the median income for an area and hence able to file directly for Chapter 7.

Meeting of Creditors
Also called a 341 Meeting. The meeting of creditors is one in which the debtor must meet his or her creditors, their representatives, and the bankruptcy trustee to answer questions about his or her property and information included in the bankruptcy filing.

Motion to Lift Stay
A motion in which a creditor asks the court to continue collection actions in spite of the automatic stay.

Offshore LLCs
An offshore LLC is simply an LLC that has been incorporated under one of the offshore LLC acts, such as in the Isle of Man or Nevis, which is located in the Caribbean.

Offshore Planning
Planning that involves the transfer of assets to offshore locales where the enforcement of U.S. judgments is not easily accomplished.

Pecuniary Formula
Marital share formulas are either fractional or pecuniary. Pecuniary formulas fund a specific dollar amount.

Poison Pill
A common anti-takeover device among public companies, a poison pill may be added to any operating entity or note to discourage the acquisition by a creditor.

Pour-Over Will
A pour-over will directs that any assets that were not in the decedent’s trust be sent to his or her trust upon death.

Power of Appointment
Powers of appointment are the name for the ability to appoint property to oneself or to another. Powers of appointment are an important issue in estate planning because of their estate and gift tax consequences.

Pre-Petition Counseling
Credit counseling that occurs prior to the filing of the bankruptcy petition.

Presumed Abuse
If a bankruptcy filer fails the means test, then he or she must demonstrate that a Chapter 7 filing is not abusive to receive Chapter 7 relief.

Priority Debt
A type of debt that is paid first if there are distributions to be made from a bankruptcy estate, including child support, alimony, and employee wages.

Probate
The legal process for submitting a will to settle the estate of a decedent. Although probate serves to protect the heirs, probate is often disfavored because it is time-consuming, public, expensive, and avoidable. Much of estate planning involves creating trusts and titling assets so as to avoid the probate process.

Purchase Money Loans
Loans that are made to purchase specific property like car loans or mortgages.

Pure Discretionary Trust
Such trusts provide the trustee with absolute and uncontrolled discretion to pay and apply trust income and principal to or for the benefit of beneficiaries without regard to any ascertainable standard. Such trusts are useful where beneficiary has a high degree of financial risk and the grantor is confident that the trustee will act in accordance with the beneficiary’s best interests.

Qualified “Designated Beneficiaries”
Qualified designated beneficiaries are the persons (or trusts) who may inherit an IRA that certain preferential rules allow to use their own life expectancies to determine the required minimum distributions.

Qualified Domestic Trust (QDoT)
The QDoT is an estate planning tool that secures the marital deduction for persons whose surviving spouse is not a U.S. citizen.

Qualified Personal Residence Trust (QPRT)
The QPRT is allows a person to gift interests in a home and thereby remove the home from his or her taxable estate while also continuing to live there.

Qualified Terminable Interest Property Trusts (QTIP Trusts)
A QTIP Trust provides an income interest to a surviving spouse for life, but it allows the decedent – and not the surviving spouse – to decide who will receive the remainder interest when the surviving spouse dies.

Rabbi Trust
An irrevocable trust used by a business to defer taxes on its employees. Rabbi trusts also protect trust assets from the employee’s creditors.

Reaffirmation
An agreement that is entered into after a bankruptcy filing in which a debtor agrees to pay all or part of a pre-petition debt after a bankruptcy is over.

Required Minimum Distributions (RMD)
The amount that an IRA owner, or the inheritor of an IRA, must withdraw from an IRA account annually.

Revocable Living Trust
A revocable living trust, like its name implies, is a trust created during a person’s lifetime that can be revoked.

Risk Retention Group (RRG)
Like captive insurance companies, RRGs are insured-owned insurance companies and are increasingly common among physicians.

Schedule A
The form a debtor files describing all of his or her real property.

Schedule B
The form a debtor files describing all of his or her personal property

Schedule C
The form a debtor files describing any property that he or she claims is exempt.

Schedule D
The form a debtor files describing any secured debts, such as car notes, mortgages, or other purchase money loans.

Schedule E
The form a debtor files listing priority debts, such as child support or taxes.

Schedule F
The form a debtor files to describe all non-priority, unsecured debts –including most credit card debts and medical bills.

Schedule G
The form debtor files to describe all leases and executory contracts

Schedule H
The form a debtor files any codebtors who may be affected by his or her bankruptcy filing.

Schedule I
The form a debtor files stating his or her income.

Schedule J
The form a debtor files stating his or her monthly expenses.

Series LLC
A series LLC, such as the type authorized under Delaware law, permits the segregation of assets within an LLC such that debts and liabilities of one LLC are unenforceable against another series within the same LLC. Hence, one owner can prevent a debt associated with one asset from making claims on his or her other assets.

Settlor
The settler, sometimes called the grantor, is the person who creates the trust.

Shifting Trusts
Although shifting trusts are largely untested, they are thought to provide strong assets protection against potential creditors while maintaining flexibility. A shifting trust is simply any trust that is designed to convert from one type of trust to another after some specified event. The trust can shift its purpose, terms, or beneficiaries.

Special Needs Trusts
Also sometimes called a supplemental needs trust, a special needs trust is an irrevocable trust in which the beneficiary is a person with a disability. Such trusts are drafted so that property will not be a countable asset for governmental benefits, such as Medicaid, Supplemental Social Security, vocational rehabilitation, or subsidized housing.

Spendthrift Trusts
These trusts restrict the ability of a beneficiary to sell trust assets. Although there are limits, such as for taxes, alimony, or child support, spendthrift trusts limit creditor’s ability to reach trust assets.

Sprinkling Trust
Also sometimes called spray trusts, sprinkling trusts include provisions that allow the trustee to be flexible in his or her distributions to the beneficiaries. Under a sprinkling trust, a trustee is free to decide which beneficiary most needs or deserves a distribution or whether a beneficiary has creditor problems.

State Exemptions
State laws specify the types of property that creditors are not able to take to satisfy debts.

Statement of Intention
The form a debtor files in a Chapter 7 case to state how the debtor will treat his or her debts.

Strip Down of Lien
In a reorganization filing, reducing the lien on property to the collateral’s replacement value.

Taxable Estate
The gross estate minus the exclusion amounts appropriate for the estate, gift, and generation skipping taxes is the taxable estate.

Three-Year Rule
The three-year rule is designed to prevent gifting of assets in situations of imminent death. The three-year rule requires that transfers of ownership within three years of death are to be included in the decedent’s gross estate.

Tools of the Trade
Items that are needed to perform a trade that the debtor is relying upon for support.

Trust
A trust is simply a legal entity that is created by for the purpose of holding property. Trusts can be made during lifetime, which are called living, or created at death, which are called testamentary.

Trustee
A trustee is the person who oversees trust property for the beneficiary according to the terms of a trust instrument.

Trust Protector
A trust protector is someone appointed in a trust instrument to oversee the operation of a trust by a trustee.

Umbrella Insurance
Insurance is the first line of defense in an y asset protection plan. Umbrella coverage extends beyond the coverage provided within ordinary homeowner and auto liability policies.

Undue Hardship
The conditions a debtor must demonstrate to discharge a student loan.

Undersecured Debt
Debt that is secured by collateral that is worth less than the outstanding debt.

Unified Credit
The unified credit is the exemption equivalent amount against the taxable estate and taxable lifetime gifts to arrive at the taxable estate.

Veil Piercing
A creditor can “pierce” the corporate veil and deny limited liability despite a corporate structure in cases where the shareholders have failed to keep up the corporate formalities such as board meetings.

Wealth Replacement Trust
A trust that is created to replace the money that would otherwise be lost to the estate tax. Wealth replacement trusts are typically funded by a life insurance policy in which the heirs are names as beneficiaries.

Will
A will is the document that controls the disposition of a decedent’s assets at his or her death.