Avoid This Major Mistake When Adding an IRA to Your Estate Plan

September 18, 2018

Some people assume that because they’ve named a specific heir as the beneficiary of their IRA in their will or trust that there’s no need to list the same person again as beneficiary in their IRA paperwork. Because of this, they often leave the IRA beneficiary form blank or list “my estate” as the beneficiary. But this is a major mistake—and one that can lead to serious complications and expense. IRAs aren’t like other estate assets First off, your IRA is treated differently than other assets, such as a car or house, in that the person you name on your IRA’s beneficiary form is the one who will inherit the account’s funds, even if a different person is named in your will or in a trust. Your IRA beneficiary designation controls who gets the funds, no matter what you may indicate elsewhere. Given this, you must ensure your IRA’s beneficiary designation form is up to date and lists either the name of the person you want to inherit your IRA, or the name of the trustee of your trust, if you want it to go to a revocable living trust or special IRA trust you’ve prepared. For example, if you listed an ex-spouse as the beneficiary of your IRA and forget to change it to your current spouse, your ex will get the funds when you die, even if your current spouse is listed as the beneficiary in your will. Probate problems Moreover, not naming a beneficiary, or naming your “estate” in the IRA’s beneficiary designation form, means your IRA account will be subject to the court process called probate. Probate costs unnecessary time and money and guarantees your family will get stuck in court. When you name your desired heir on the IRA beneficiary form, those funds will be available almost immediately to the named beneficiary following your death, and the money will be protected from creditors. But if your beneficiary has to go through probate to claim the funds, he or she might have to wait months, or even years, for probate to be finalized. Plus, your heir may also be on the hook for attorney and executor fees, as well as potential liabilities from creditor claims, associated with probate, thereby reducing the IRA’s total value. Reduced growth and tax savings Another big problem caused by naming your estate in the IRA beneficiary designation or forgetting to name anyone at all is that your heir will lose out on an important opportunity for tax savings and growth of the funds. This is because the IRS calculates how the IRA’s funds will be dispersed and taxed based on the owner’s life expectancy. Since your estate is not a human, it’s ineligible for a valuable tax-savings option known as the “stretch provision” that would be available had you named the appropriate beneficiary. Typically, when an individual is named as the IRA’s beneficiary, he or she can choose to take only the required minimum distributions over the course of his or her life expectancy. “Stretching” out the payments in this way allows for much more tax-deferred growth of the IRA’s invested […]

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Caregivers

Do Your Homework to Ensure Your Kids Are Properly Cared For No Matter What Happens

September 11, 2018

It’s back-to-school time again, and when it comes to estate planning you may have homework to do. As a parent, your most critical—and often overlooked—task is to select and legally document guardians for your minor children. Guardians are people legally named to care for your children in the event of your death or incapacity. If you haven’t done that yet, you should immediately do so using our easy-to-use (and absolutely free) website, where you can create legal documents naming the long-term guardians you’d want to care for your children if you could not: www.protectmykidsma.com Don’t think just because you’ve named godparents or have grandparents living nearby that’s enough. You must name guardians in a legal document, or risk creating conflict and a long, expensive court process for your loved ones—and this can be so easily avoided. Covering all your bases However, naming permanent guardians is just one step in protecting your kids. It’s equally important to have someone (plus backups) with documented authority, who can stay with your children until the long-term guardians can be located and formally named by the court, which can take months. The last thing you want is for police to show up at your home and find your children with a caregiver, who doesn’t have documented or legal authority to stay with them and doesn’t have any idea how to contact someone with such authority. In such a case, police would have no choice but to call Child Protective Services. Closing the gap This is a major hole in many parent’s estate plans, as we know you’d never want your kids in the care of strangers, even for a short time. To fix this, we’ve created a comprehensive system called the Kids Protection Plan®, which lets you name temporary guardians who have immediate documented authority to care for your children until the long-term guardians you ‘ve appointed can be notified and get to your children. The Kids Protection Plan® also includes specific instructions that are given to everyone entrusted with your children’s care, explaining how to contact your short and long-term guardians. The plan also ensures everyone named by you has the legal documents they’d need on hand and knows exactly what to do if called upon. We even provide you with an ID card for your wallet and emergency instructions to post on your refrigerator, so the contacts and process are prominently available in case something happens to you. A foolproof plan With the Kids Protection Plan®, you’ll name one permanent guardian and one temporary guardian, along with two or more backups, in case the primary isn’t available or cannot serve. And we instruct caregivers to NEVER CALL POLICE IF YOU CANNOT BE REACHED UNTIL ONE OF THE NAMED GUARDIANS ARRIVES AND IS PRESENT WITH YOUR CHILDREN. Finally, if there’s anyone you’d never want raising your children, we confidentially document that in the plan, preventing them from wasting the time, energy, and assets of the people you do want caring for your children. With us as your Personal Family Lawyer®, you have access to the entire Kids Protection Plan® system to ensure the well-being […]

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Filing Claim for Life Insurance Policy

The Ins and Outs of Collecting Life Insurance Policy Proceeds

September 4, 2018

Unlike many estate assets, if you’re looking to collect the proceeds of a life insurance policy, the process is fairly simple provided you’re named as the beneficiary. That said, following a loved one’s death, the whole world can feel like it’s falling apart, and it’s helpful to know exactly what steps need to be taken to access the insurance funds as quickly and easily as possible during this trying time. And if you’ve been dependent on the deceased for regular financial support and/or are responsible for paying funeral expenses, the need to access insurance proceeds can sometimes be downright urgent. Here, we’ve outlined the typical procedure for claiming and collecting life insurance proceeds, along with discussing how beneficiaries can deal with common hiccups in the process. However, because all life insurance policies are different and some involve more complexities than others, it’s always a good idea to consult with a Personal Family Lawyer® if you need extra help or guidance. Filing a claim To start the life insurance claims process, you first need to identify who the beneficiary of the life insurance policy is—are you the beneficiary, or is a trust set up to handle the claim for you? We often recommend that life insurance proceeds be paid to a trust, not outright to a beneficiary. This way, the life insurance proceeds can be used by the beneficiary, but the funds are protected from lawsuits and/or creditors that the beneficiary may be involved with—even a future divorce. In the event that a trust is the beneficiary, contact us so that we can create a certificate of trust that you (or the trustee, if the trustee is someone other than you) can send to the life insurance company, along with a death certificate when one is available. In any case, you (or the trustee) will notify the insurance company of the policyholder’s death, either by contacting a local agent or by following the instructions on the company’s website. If the policy was provided through an employer, you may need to contact their workplace first, and someone there will put you in touch with the appropriate representative. Many insurance companies allow you to report the death over the phone or by sending in a simple form and not require the actual death certificate at this stage. Depending on the cause of death, it can sometimes take weeks for the death certificate to be available, so this simplified reporting speeds up the process. From there, the insurance company typically sends the beneficiary (or the trustee of the trust named as beneficiary) more in-depth forms to fill out, along with further instructions about how to proceed. Some of the information you’re likely to be asked to provide during the claims process include the deceased’s date of birth, date and place of death, their Social Security number, marital status, address, as well as other personal data. Your state’s vital records office creates the death certificate, and it will either send the certificate directly to you or route it through your funeral/mortuary provider. Once you’ve received a certified copy of the death certificate, you’ll send it […]

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Before Agreeing to Serve as Trustee, Carefully Consider the Duties and Obligations Involved—Part 2

August 28, 2018

Last week, we shared the first part of this series explaining the powers and duties that come with serving as trustee. Here in part two, we discuss the rest of a trustee’s core responsibilities. Being asked to serve as trustee can be a huge honor—but it’s also a major responsibility. Indeed, the job entails a wide array of complex duties, and trustees are both ethically and legally required to effectively execute those functions or face significant liability. To this end, you should thoroughly understand exactly what your role as trustee requires before agreeing to accept the position. Last week, we highlighted three of a trustee’s primary functions, and here we continue with that list, starting with one of the most labor-intensive of all duties—managing and accounting for a trust’s assets. Manage and account for trust assets Before a trustee can sell, invest, or make distributions to beneficiaries, he or she must take control of, inventory, and value all trust assets. Ideally, this happens as soon as possible after the death of the grantor in the privacy of a lawyer’s office. As long as assets are titled in the name of the trust, there’s no need for court involvement—unless a beneficiary or creditor forces it with a claim against the trust. In the best case, the person who created the trust and was the original trustee—usually the grantor—will have maintained an up-to-date inventory of all trust assets. And if the estate is extensive, gathering those assets can be a major undertaking, so contact us as your Personal Family Lawyer® to help review the trust and determine the best course of action. The value of some assets, like financial accounts, securities, and insurance, will be easy to determine. But with other property—real estate, vehicles, businesses, artwork, furniture, and jewelry—a trustee may need to hire a professional appraiser to determine those values. With the assets secured and valued, the trustee must then identify and pay the grantor’s creditors and other debts. Be careful about ensuring regularly scheduled payments, such as mortgages, property taxes, and insurance, are promptly paid, or trustees risk personal liability for late payments and/or other penalties. Trustees are also required to prepare and file the grantor’s income and estate tax returns. This includes the final income tax return for the year of the decedent’s death and any prior years’ returns on extension, along with filing an annual return during each subsequent year the trust remains open. For high-value estates, trustees may have to file a federal estate tax return or possibly a state estate tax return. However, Trump’s new tax law of 2017 doubled the estate tax exemption to $11.2 million, so very few estates will be impacted. But keep in mind, this new exemption is only valid through 2025, when it will return to $5.6 million. During this entire process, it’s vital that trustees keep strict accounting of every transaction (bills paid and income received) made using the trust’s assets, no matter how small. In fact, if a trustee fails to fully pay the trust’s debts, taxes, and expenses before distributing assets to beneficiaries, he or she can be […]

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Before Agreeing to Serve as Trustee, Carefully Consider the Duties and Obligations Involved—Part 1

August 21, 2018

If a friend or family member has asked you to serve as trustee for their trust upon their death, you should feel honored—this means they consider you among the most honest, reliable, and responsible people they know. However, being a trustee is not only a great honor, it’s also a major responsibility. The job can entail a wide array of complex duties, and you’re both ethically and legally required to effectively execute those functions or face significant liability. Given this, agreeing to serve as trustee is a decision that shouldn’t be made lightly, and you should thoroughly understand exactly what the role requires before giving your answer. Of course, a trustee’s responsibility can vary enormously depending on the size of the estate, the type of trust involved, and the trust’s specific terms and instructions. But every trust comes with a few core requirements, and here we’ll highlight some of the key responsibilities. That said, one of the first things to note about serving as trustee is that the job does NOT require you to be an expert in law, finance, taxes, or any other field related to trust administration. In fact, trustees are not just allowed to seek outside assistance from professionals in these fields, they’re highly encouraged to, and funding to pay for such services will be set aside for this in the trust. To this end, don’t let the complicated nature of a trustee’s role scare you off. Indeed, there are numerous professionals and entities that specialize in trust administration, and people with no experience with these tasks successfully handle the role all of the time. And besides, depending on who nominated you, declining to serve may not be a realistic or practical option. Adhere to the trust’s terms Every trust is unique, and a trustee’s obligations and powers depend largely on what the trust creator, or grantor, allows for, so you should first carefully review the trust’s terms. The trust document outlines all the specific duties you’ll be required to fulfill as well as the appropriate timelines and discretion you’ll have for fulfilling these tasks. Depending on the size of the estate and the types of assets held by the trust, your responsibilities as trustee can vary greatly. Some trusts are relatively straightforward, with few assets and beneficiaries, so the entire job can be completed within a few weeks or months. Others, especially those containing numerous assets and minor-aged beneficiaries, can take decades to completely fulfill. To ensure you understand exactly what a particular trust’s terms require of you as trustee, consult with us as your Personal Family Lawyer®. Act in the best interests of the beneficiaries Trustees have a fiduciary duty to act in the best interest of the named beneficiaries at all times, and they must not use the position for personal gain. Moreover, they cannot commingle their own funds and assets with those of the trust, nor may they profit from the position beyond the fees set aside to pay for the trusteeship. If the trust involves multiple beneficiaries, the trustee must balance any competing interests between the various beneficiaries in an impartial and […]

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Donate Appreciated Assets to Charity Instead of Selling Outright For Tax and Income Benefits Using a Charitable Remainder Trust

August 14, 2018

If you have highly appreciated assets like stock and real estate you want to sell, it may make sense to use a charitable remainder trust (CRT) to avoid income and estate taxes—all while creating a lifetime income stream for yourself or your family AND supporting your favorite charity. A CRT is a “split-interest” trust, meaning it provides financial benefits to both the charity and a non-charitable beneficiary. With CRTs, the non-charitable beneficiary—you, your child, spouse, or another heir—receives annual income from the trust, and whatever assets “remain” at the end of the donor’s lifetime (or a fixed period up to 20 years), pass to the named charity(ties). How a CRT works You work with us to set up a CRT by naming a trustee, an income beneficiary, and a charitable beneficiary. The trustee will sell, manage, and invest the trust’s assets to produce income that’s paid to you or another beneficiary. The trustee can be yourself, a charity, another person, or a third-party entity. However, the trustee is not only responsible for seeing that your wishes are carried out properly, but also for managing the trust assets in accordance with complex state and federal laws, so be sure the trustee is well familiar with trust administration. With the CRT set up, you transfer your appreciated assets into the trust, and the trustee sells it. Normally, this would generate capital gains taxes, but instead, you get a charitable deduction for the donation and face no capital gains when the assets are sold. Once the appreciated assets are sold, the proceeds (which haven’t been taxed) are invested to produce income. As long as it remains in the trust, the income isn’t subject to taxes, so you’re earning even more on pre-tax dollars. Income options You have two options for how the trust income is paid out. You can receive an annual fixed payment using a “charitable remainder annuity trust (CRAT).” With this option, your income will not change, regardless of the trust’s investment performance. Or you can be paid a fixed percentage of the trust’s assets using a “charitable remainder unitrust (CRUT),” whereby the payouts fluctuate depending on the trust’s investment performance and value. Tax benefits Right off the bat, as mentioned above, you can take an income tax deduction within the year the trust was created for the value of your donation—limited to 30% of adjusted gross income. You can carry over any excess into subsequent tax returns for up to five years. And again, profits from appreciated assets sold by the trustee aren’t subject to capital gains taxes while they’re in the trust. Plus, when the trust assets finally pass to the charity, that donation won’t be subject to estate taxes. You will pay income tax on income from the CRT at the time it’s distributed. Whether that tax is capital gains or ordinary income depends on where the income came from—distributions of principal are tax free. If you have highly appreciated assets you’d like to sell while minimizing tax impact, maximizing income, and benefiting charity, consult with us as your Personal Family Lawyer®, so we can find the best […]

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Appoint a Guardian to Keep Your Kids In Safe Hands At All Times

August 7, 2018

Probably every parent who has watched the news lately has felt the heartbreak over what’s happened to immigrant families at the border of more than 2,300 children separated from their parents at the U.S.-Mexico border between May and June 2018 alone. Putting politics aside, with horror stories of toddlers being ripped from their mothers’ arms and audio recordings of children crying and begging for their parents, we imagine it would be hard for anyone with their own kids not to be disturbed. What’s more, perhaps these events have got you thinking about how it would be for your children to be taken into custody of strangers. And if not, let this be the moment you willingly feel the fear and decide to use your privilege of being able to make choices on behalf of your children to ensure their well-being and care by the people you want no matter what happens. It can happen to your family Even though most people think that something like that could never happen to their family, they’re totally wrong. While your kids almost certainly won’t be taken into custody by U.S. border agents, your children could be taken into the care of strangers if something happens to you—even if your family or friends are on the scene. But you can do something to protect your children and ensure they’re always in the care of people you know, love, and trust. If you use this atrocity against families to take action on behalf of your own kids—instead of merely feeling numbness and paralysis over not knowing what to do—these events can inspire you to do the things you know you must in order to properly take care of your family. Understand the risk While it may seem like a long shot, the consequences are serious enough that you must consider the real possibility of what could happen and ensure you’ve taken right actions to protect your loved ones. Let’s say you and your spouse have gone out to dinner together and left the kids with a babysitter. But on the way home, you’re in a car accident. The police will get to your house, find your children home with a babysitter, and have no choice but to take your kids into the care of the authorities (strangers) until they can figure out what to do. This is the case even if you have friends or family living nearby. If you haven’t left proper legal documentation, the authorities have no option but to call child protective services—that is, unless you’ve legally given them an alternative. This is true, for example, even if you have named godparents. You must give the authorities a legal basis for keeping your children with the close friends or family you designate. Without your action, when the babysitter answers the door, she’s in complete shock and willing to stay with your kids while the authorities find a relative to take them. Unfortunately, she doesn’t have the legal authority to care for the children—even temporarily—so the police have no choice but to call child protective services. These authorities will take your children into […]

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Create a Special Needs Trust to Protect the Financial Future of Your Child with Special Needs

July 30, 2018

It always surprises me to hear parents who have a child with special needs tell me that they were not aware of what they needed to do to ensure the future well-being and care of their child is properly handled. Or sometimes, they tell me they didn’t know they needed to do anything at all. If that’s you, and you have a child with special needs at home, this article is for you. And if you have friends or family who have a child with special needs, please share this article with them. Every parent who has a child with special needs must understand what’s needed to provide for the emotional, physical, and financial needs of their child, if and when something happens to them. Naming guardians Of course, the first and most critical step in ensuring the well-being and care of your child with special needs’ future is to name both short and long-term legal guardians to take custody of and care of your child, in the event of your death or incapacity. And as you well know, this responsibility doesn’t end at age 18, if your child will not grow into an adult who can independently care for him or herself. While we understand this lifetime responsibility probably feels overwhelming, we’ve been told repeatedly by parents that naming legal guardians in writing and knowing their child will be cared for in the way they want, by the people they want, creates immense relief. We frequently build in plans where the named guardians are properly instructed—and even incentivized—to give your child the same care you provide. For example, we’ve created plans whereby the named guardian is compensated for taking the child to dinner and the movies weekly, or doing something similar if this is something the child used to enjoy doing with his or her parents. But without written instructions (and perhaps compensation) built into the plan, fun activities like this can often go by the wayside when you’re no longer available. For guidance on selecting legal guardians and properly instructing them to provide your child with special needs the same level of care and attention you do, consult with us as your Personal Family Lawyer®. Beyond naming a guardian, you’ll  also need to provide financial resources to allow your child to live out his or her life in the manner you desire. This is where things can get tricky for children with special needs. In fact, it may seem like a “Catch-22” situation. You want to leave your child enough money to afford the support they need to live a comfortable life. Yet, if you leave money directly to a person with special needs, you risk disqualifying him or her for government benefits. Special Needs Trusts Fortunately, the government allows assets to be held in what’s known as a “special needs trust” to provide supplemental financial resources for a physically, mentally, or developmentally disabled child without affecting his or her eligibility for public healthcare and income assistance benefits. However, the rules for such trusts are complicated and can vary greatly between different states, so you should work with […]

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Squabbles Between Alan Thicke’s Heirs Highlight the Importance of Properly Drafted and Updated Estate Planning

July 23, 2018

In the 1980s, the late actor Alan Thicke played the wise-but-hip father figure and psychiatrist Dr. Jason Seaver in the sitcom Growing Pains. Following Alan’s sudden death in December 2016, with his children and widow battling over his estate, one can only wonder what sage advice Dr. Seaver would have had for Thicke’s heirs. Alan collapsed and died from a heart attack at age 69, while playing ice hockey with his youngest son, Carter. Unlike some celebrities, he had a fairly comprehensive estate plan. But with three marriages, three sons from two of those unions, and an estate worth an estimated $40 million, the planning is proving insufficient to stave off family feuding. Stepmom vs. Stepchildren Specifically, Alan’s two oldest sons—Robin and Brennan—have been fighting his third wife, Tanya Callau Thicke, for almost two years. The first petition filed in California Superior Court in May 2016 by Robin and Brennan—who are co-trustees of their late father’s estate—sought clarification of conflicting terms in Alan’s living trust and a prenuptial agreement he and Tanya signed before getting married in 2005. At issue was the division of Alan’s $3.5 million ranch in Carpinteria, where he and Tanya lived. The prenup states that Tanya would get 25% of his net estate, including a five-acre parcel of the ranch property. However, the trust—last updated in 2016—doesn’t grant her any ownership of the ranch, only the right to live there provided she pays all of the expenses. Robin and Brennan’s petition alleged that Tanya demanded a larger portion of Alan’s estate than she was allocated in the trust and that she planned to contest the validity of the prenuptial agreement. Tanya claimed her stepsons’ legal claim was merely aimed at smearing her in the media, and she never had any intention of challenging the prenup. Other reports allege the petition was retaliation for Tanya’s refusal to allow the brothers to convert the ranch into a medical marijuana farm. In September 2017, a judge rejected the sibling’s petition to block Tanya from challenging the prenup, finding there was no evidence she ever planned to take such action. A Breach of Duties? More recently in May 2018, Tanya filed papers accusing Robin and Brennan of violating their fiduciary duties as co-trustees. She claims they’re spending the estate assets recklessly, failing to pay her share of the inheritance, unfairly saddling her with taxes and other expenses that are not her responsibility, and failing to keep her clearly informed about estate proceedings. One of her specific complaints asserts the brothers refused to reimburse her for a monument she placed at Alan’s gravesite. This claim was exacerbated by reports that the older brother Robin was reimbursed $105,000 for an elaborate memorial party he threw the night before his father’s burial. Tanya plans to file a lawsuit against the siblings if they don’t meet her demands. And her suit may have merit, as trustees owe a fiduciary duty to act in the best interests of beneficiaries and account for all financial transactions related to the trust. Lessons Learned Though we’ll have to wait and see how Robin and Brennan react to Tanya’s […]

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What You Should Know About Guardianship—In Case A Parent or Loved One Becomes Incapacitated

July 16, 2018

Whether through illness, injury, or other means, anyone can require a guardian to become appointed if they become mentally incapacitated. In such cases, if there is no estate planning in place (or insufficient planning) to keep family or other loved ones out of court, a guardianship, or conservatorship as it is sometimes called, must be established via a court process in the county probate court. Obtaining guardianship can be an extraordinarily challenging and expensive process. It begins with filing a petition in court for guardianship and requesting the court declare the incapacitated person incompetent. In some cases, these types of filings are made “ex parte”, or in secret, and a guardianship can be established before family or close friends even know what’s happening. In other cases, such a filing can result in a heated dispute between family members and/or friends, who may claim they’d be better suited for the role. Given this, things can get quite costly very quickly. Of course, this assumes these matters haven’t already been decided through proper and up-to-date estate planning, including a valid durable power of attorney and advance health care directives, which are the best methods for ensuring this massive responsibility is handled as effectively as possible. Sadly, most people don’t think of the costly possibility of incapacity and therefore leave their families at risk. If you do have a loved one who needs a guardian, here are some of the things you’ll need to know: Who can be appointed as guardian? Unless specified in a valid legal document, any family member or other interested person can petition for guardianship—even a close friend can do it if they prove they’re best suited for the position. That said, most courts give preference to the ward’s spouse or other close family members. In some cases, the guardian is required to post a bond, which typically requires good credit and some level of deposit to be held in the event of the guardian’s wrongdoing. This bond requirement often disqualifies friends and family, who either don’t have good credit or the resources to post a bond. If a relative or friend is not willing—or capable—of serving, the court will appoint a professional guardian or public guardian. This is one of the ways that an estate can be drained extremely quickly. If you want to hear more about how this can happen, read this terrifying article about the way public and professional guardians are stealing from our elders. When are guardians appointed? A guardian will only be appointed if a court determines there is enough evidence to show a person is mentally incapacitated, such that they can no longer make legal, financial, and/or health-care decisions. What are a guardian’s responsibilities? Depending on the extent of the ward’s mental capacity, a court-appointed guardian can be given near complete control over a person’s life and finances. Some of the most common duties include: Paying the ward’s bills Determining where they live Monitoring their residence and living conditions Providing consent for medical treatments Deciding how their finances are handled, including how their assets are invested and if any assets should be liquidated […]

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