Congratulations, KMO!

October 17th marked the 32nd birthday of our law firm! (That's a photo of our birthday cake.)

Time surely does fly by!

birthdaycake

During these past 32 years, we've grown to become one of the largest estate planning law firms in Southern California, serving countless thousands of clients and their loved ones throughout the community.

We couldn't have done all this without the wonderful support of our clients, outside referring professionals and of course, all those who have worked for our firm over these many years (which leads us right into our next article).

Where Is He Now?

Roger L. Minor

Otis

From time to time, we look back and honor those individuals who have helped build our firm and have specially touched our clients' lives. Estate planning attorney, Roger L. Minor, is one such person. In the 1980's, Roger developed a thriving practice in the South Bay and in 1991 he merged his firm with that of Philip Kavesh. Roger continued on with our firm until 1995, when he retired and moved to Grass Valley, near Sacramento. Phil caught up with him recently and found out about Roger's many interesting pursuits, both past and present. Even if you never met Roger, we're sure you'll find his life's story fascinating.

Phil: What happened after you left our firm and moved to Grass Valley?

Roger: Well, when I moved up there, I wasn't intending to go back into practice but I couldn't help myself - - especially after I convinced two people on the plane ride up that they needed a Living Trust! So I opened an office and basically kind of used the same strategies and speeches that I used down there and it just seemed to go over well. One day a guy came up to me, he was the head of the local radio station and he said, "you know, you ought to advertise on Rush Limbaugh". And I replied, "Rush Limbaugh, why?" He then went on to explain that most of the people in Grass Valley listened to Rush! So I advertised on the Rush Limbaugh show and it was really kind of phenomenal!

I had a great setup. Our office was just about six doors from where my wife Barbara and I were living, a beautiful place where we had a stream going through our property. Unfortunately, I had to sell the practice and we moved to Sahuarita, Arizona in 2003 because I had a problem with the barometric pressure in Northern California! It would give me inner ear problems. So we had to come to the desert, like many of Arizona's first settlers - - for the therapeutic climate!

Phil: Well, interestingly enough, you've now come full circle, back to Arizona where your law career started.

Roger: Yeah, I started here in 1958 on Scottsdale Road when Phoenix's population was only 250,000, believe it or not. Could anyone have imagined how much it's grown since then?

Phil: When did you leave Arizona to Southern California?

Roger: It was early 70's. I went to USC for an advanced tax degree. That's where I got into representing athletes. Amongst other things, I negotiated the first guaranteed contract in the history of professional football, for Rich Saul, who was the starting center for the LA Rams. I first worked at a South Bay law firm, then went off to do my own thing. I was doing well, had a lot of clients (more than I could even handle) and that's when you and I first met and I said, you know, I can bring in clients and with your knack for coordinating and processing the work it makes sense for both of us to get together. And that's what we did!

Dogs

Phil: I recall you lived in Palos Verdes at the time when the South Bay was just starting to develop. And that you were personally very instrumental in the community's development.

Roger: I was active with a lot of community organizations, for example the Norris Theater, where I was the Chairman of the Board for a while and helped build it into a state-of-the-art legitimate theater.

Phil: You also helped found a number of charitable organizations or nonprofits in the area, didn't you?

Roger: Yeah, I established one of them that's familiar with many people, Focus on the Family, for Jim Dodson. It's now a huge organization and is involved internationally. And then I represented Jimmy and Tammy Baker in helping them set up their organization, which was quite an experience given their very different personalities! I represented a number of other Christian organizations and one of the things I also used to do was give chapel services for local sports teams. I would go down to the Dodgers dugout and they had a room nearby where they kept the bats and I'd get about half of the players into the chapel service, including players from the visiting team. Those services became very revealing and very helpful to a number of the players. I remember there was one player by the name of Dave Concepcion with the Cincinnati Reds who came up to me afterwards and told me how much he appreciated my sermon because he had just been notified he was being sent down to the minors and what I had said made a lot of sense to him at that point in his life. He later made it back to the big leagues and became an All-Star, but I won't take the credit for it!

Phil: You also did invocations for the USC football team, right?

Roger: Right, during the John Robinson glory days. It was great getting to know the guys and seeing them just turn their lives around.

Phil: Now I remember at some point, after you retired from the firm, that you brought your wife Barbara's young granddaughter to live with you as your child, right?

Roger: Yeah. And interestingly enough she is now out in North Dakota and just has had a baby. And my oldest son is also in North Dakota. They all went up there for the oil rush in the northwestern part of the state. All three of our grandkids are up there and two of them are now married and have kids so at my age (79) I have great grandkids!

Phil: You used to do a lot of marathon running when you lived here. Are you still doing that?

Roger: Unfortunately, I hurt my back. Before that, I ran a couple of 100-mile runs from Squaw Valley in Nevada over the mountains all the way down into Auburn, California. And that was on mountain trails, with a horse riding behind us, one in the middle of the pack and one up front! We even had to cross the Sacramento River. It was quite an event. All that running, including the Honolulu marathon I did 6 or 7 times, hurt my back. So no more. When I'm asked, would you do it again, my comment is, well, I probably would have done more 10Ks, or more half marathons rather than full ones!

Phil: So what hobbies do you and Barbara keep yourself busy with now?

Roger: We both are avid readers and I speed read, so I get through a lot of novels. I also read non-fiction, but not as fast. I'm reading a biography on Coolidge now and just finished one on Jefferson. I also work with the local Sahuarita police department, helping as a liaison with families when a runaway is involved. I've also served on the town council of Sahuarita. It's about 13 miles south of Tucson. It used to be a town of about 3,000 and we're now somewhere between 25 and 35,000.

Grass Valley was nice but we were mostly surrounded by retirees. Now we want to be around kids because we like kids, we like the noise of kids playing here in Sahuarita. Our development, known as Rancho Sahuarita, has a big swimming pool facility and a big recreation/workout facility. It's a very nice place to live.

Phil: Do you still have your dogs?

Roger: Yeah, but our dogs are now different. We have two Havanese. Ever heard of a Havanese? Well if you think of a Bichon or Maltese or something like that, the Havanese is a similar hybrid. They were brought to Cuba from Spain and Italy and Fidel Castro basically attempted to kill off the breed because they were considered a dog of the wealthy. And three women in Florida resurrected the breed and they've only been in dog shows since the late 90's. One of ours is a champion. A few years back, when I was going through a bout with cancer and having chemotherapy, he would lay down next to me and keep me company all day. He was just a joy and a comfort. Thanks to him and a higher power, my cancer is now gone.

Phil: Before we go, I want to ask you, and you may have to kind of ponder on this for a second, is whether you have some cute story or remembrance of when you worked with us at Kavesh & Minor.

Roger: I really enjoyed the people, the clients I met with. I always used a personality traits test to determine whether I was dealing with a "lion", a "beaver" or a "golden retriever". By the end of my first meeting with clients I could pretty well tell who was what.

Well, I'll never forget a couple where the husband was in deep despair because he felt he had lost his daughter. She had left the family to go to Denver. I saw that the reason for their rift was he was such a strong lion. A lion is someone who always wants to get something done and usually his way. His daughter, on the other hand, was very easy going like a golden retriever. I showed him and his wife how the situation had occurred and it wound up bringing all of them back together.

Phil: So what's in store for your future?

Roger: Well, between the police department and town council I've kept out of trouble and so now I've kind of pulled back at my age. I'm kind of to a point that I want to relax a little bit. We still go to Hawaii, went there for a 33rd time, just got back. Barbara and I have a time share in Honolulu. I think our next vacation will be a driving one. We're talking about packing the dogs in the car and just taking off to Kentucky, Arkansas, Tennessee and down into the Carolinas and Georgia. I'm not doing a lot else these days but I am singing in our praise team at our church. I never knew I had this kind of talent before! And also I've been painting and I found out I have some artistic ability. The amazing part of this is that my sophomore high school teacher told me, forget about it, you have no artistic talent at all. And just a few years ago over here, we went to this guy and he's an instructor in painting. And now I've painted two or three that we've got hanging in the house!

Phil: Any final thoughts?

Roger: Oh yeah. Absolutely. Say hello to all my old clients and friends in the South Bay!

An Important Follow-up

staff

In last month's newsletter, we warned you to watch out for suspicious phone calls not coming from our office. We would like to introduce you to our client care associates who do legitimately call from our office and may be contacting you to schedule a free checkup meeting with our attorneys. Their names are Aeon Dream, Qiana River and Iris Acosta (from left to right in the photo).

Family Limited Partnerships

Marital Matters

The Family Limited Partnership (FLP) has been a popular business entity for wealth management, tax minimization and wealth transfer maximization. Under the right circumstances, FLPs traditionally helped taxpayers remain in control of their wealth even after transferring it to their loved ones. Additionally, many of these transfers were made at a significant discount, thereby further leveraging wealth transfer tax savings. Not surprisingly, while FLPs have been employed as a planning panacea by taxpayers, FLPs have received additional scrutiny from the IRS and some courts in recent years.

Background

Simply put, a Family Limited Partnership is a Limited Partnership among family members. The FLP is often created by the wealth-owning generation, typically the parents. The FLP creators are initially both the General Partners (GPs) and the Limited Partners (LPs) at the time they contribute assets to the FLP. The lion's share of the contributed assets is thereafter assigned to the LPs shares. Even so, the GPs hold all of the management control over the Family Limited Partnership assets.

When the Family Limited Partnership assets generate income, the General Partners are entitled to compensation for their management services. Limited Partners enjoy an ownership interest only. They have few rights or powers and there are restrictions on the transferability of their Limited Partner interests. This lack of control (minority interest) and inability to transfer the Limited Partner interests freely (lack of marketability) reduces or discounts the value of the FLP assets. In turn, this discounting enables the parents to transfer more wealth (and the future appreciation of that wealth) via their Limited Partner interests to younger family members, yet retain lifetime control over that wealth.

Other benefits include income splitting and asset protection, since Family Limited Partnership income may be spread among multiple family members and creditors of the Limited Partners may be limited in their attempts to reach the underlying FLP assets.

IRS & Judicial Scrutiny

Given the powerful tax and wealth transfer benefits available through FLPs, it is easy to see why the IRS and some courts do not like them. First and foremost, an FLP must be created for a business purpose ... not just for estate planning. For example, a valid business purpose may be to maintain family ownership and control of assets while they are transferred between generations free from the claims of third-party creditors and probate. Any planning with an FLP must begin with a solid business purpose in substance, as well as in form.

Like most legal arrangements that offer both tax minimization and wealth transfer maximization, FLPs are subject to an unwritten rule of law: pigs live and hogs get slaughtered. Some examples of hoggish behavior with FLPs include taxpayers who establish deathbed FLPs and/or taxpayers who transfer substantially all of their personal assets and means of financial support to their FLPs (i.e., leaving themselves no other source for income and sustenance). Result: If an FLP is found to be hoggish, then the entire value of the underlying FLP assets may be included in the estate of the FLP creator by the IRS and some courts.

As you might imagine, in addition to the FLP's business purpose, the IRS has traditionally scrutinized the valuation discountsclaimed by the taxpayer for the LP interests. Once these gifts are made, the taxpayer must ensure that any discounts attributed to the gifts are substantiated in writing by an appropriate valuation expert and that these discounts are reported on a timely gift tax return. Expert professional valuation assistance is critical to successful FLP planning, implementation and maintenance. It is money well spent.

Practical Considerations

FLPs are not for everyone. Between legal fees, valuation fees, required state filings and reports, and tax returns (for the FLP, the GPs and the LPs), FLPs may require a substantial commitment in time and resources.

For many taxpayers, however, the tangible rewards of FLPs far outweigh any potential risks.

Bottom line: Be sure to engage competent legal counsel.

Asset Protection

Non-Citizen Spouses

Statistically and anecdotally, we all know that the number of divorces, lawsuits and bankruptcies is staggering. While no one believes lightning will strike them, wealth created through a lifetime of work, saving and investing can be lost overnight if these forms of man-made lightning do strike. To protect your assets from such disaster, proper risk management strategies should be given careful consideration. These strategies include exempting your assets from the claims of creditors and limiting your liability through legal entities and transferring your risk through insurance.

Exempting Assets

State and federal laws may exempt some of your assets from the claims of creditors. Depending on your state of domicile (i.e., your legal residence), the equity in your primary personal residence may be protected from creditors. Protection also may extend to your retirement funds and even the cash value of your life insurance.

Once you have identified the protected asset classes available to you under applicable law, it may be prudent to maximize your protection by converting non-exempt assets into exempt assets. For example, if the equity in your home is exempt from the claims of creditors under the laws of your domicile, then using non-exempt resources to pay off your mortgage may be a smart move.

Limiting Liability

Many entrepreneurs operate their businesses as sole proprietors rather than through a legal entity, such as through a Corporation or a Limited Liability Company. Whether their business is home-based or in the Fortune 500, these business owners are attracted by the informality of sole proprietorship. They also do not want to incur legal fees to create and maintain a legal entity. However, in addition to other advantages, conducting business through a legal entity may offer substantial risk management benefits.

While lawsuits brought against a sole proprietorship are really lawsuits against the owner's personal assets, lawsuits against a properly created and maintained legal entity are really lawsuits against the entity's assets. Nevertheless, the selection of an appropriate legal entity is critical for managing your risk.

Transferring Risk

When was the last time you reviewed the details of your liability insurance program with your insurance professionals? Are your policies current? Are the coverage limits adequate and are the deductibles reasonable? Have you scrutinized the policies for loopholes? Remember: the fundamental philosophy of any insurance coverage is to pay a premium you can afford, to transfer a risk you cannot afford. Take time to understand both the risks you have retained and the risks you have transferred.

Closing Thoughts

Managing your risk, like avoiding lightning, requires that you make proper plans in advance of the storm. Take time today to protect your wealth tomorrow.