WHAT IS A LIVING TRUST? A revocable, "Intervivos" trust is a written legal document where assets are placed in trust to avoid probate fees and mitigate capital gains taxes. It is created during your lifetime and you have complete control of your assets. Your assets are placed into a Trust for your benefit during your lifetime and then transferred to designated beneficiaries at your death by your chosen representative, a Successor Trustee. It sets forth your wishes regarding the distribution of your property and the care of your minor children. A Trust gives detailed instructions to your Successor Trustee and, unlike a will, it is not a public document.
WHAT IS A WILL? A Will is a legal document that sets forth your wishes regarding the distribution of your property and the care of your minor children. It is subject to probate, which is an expensive, public process.
WHAT IS INTESTACY? Intestacy occurs when a person dies without a will or trust. In this case, the Probate Court decides who receives your money and assets, who will administer your estate and, if applicable, who will become the guardian of your minor children. The Probate Court's decisions may not coincide with your family's needs and desires. The documents are public.
WHY NOT LEAVE IT TO PROBATE? There are several unfavorable outcomes that may occur when leaving things to Probate such as:
The wrong individual may be selected by the courts to administer your estate.
It is expensive, complicated and public.
The court may select an unfavorable or even inappropriate guardian for your children.
When children reach the age of eighteen, they automatically receive their share of your assets which is usually an unwise time. Beneficiaries may be those you would have wanted to disinherit.
CAN I USE THE NEW TOD DEED AND NOT DO ANY OTHER ESTATE PLANNING? While this deed can be an estate planning tool under some very limited circumstances, it needs to be used with caution and along with other estate planning tools.
WHY IS HAVING A WILL USUALLY AN INADEQUATE ESTATE PLAN IN CALIFORNIA? A Will does not avoid the Probate process. If the value of your assets exceed $150,000 at your death, Probate will be necessary and will take at least one year and a day. It will cost 4% - 7% of your estate prior to beneficiaries receiving assets or money. Furthermore, you may create an estate tax for your beneficiaries ranging from 3%-50% of the amount of your estate exceeding the estate tax exemption limit.
IS JOINT TENANCY A WISE WAY TO PLAN FOR MY PASSING? It usually is not a wise method and poses inherent risks. Joint Tenancy is a type of ownership of an asset in which all tenants have equal rights to an asset. It also grants survivorship rights in the event of the death of an owner/account holder. Because of this, one may think that Joint Tenancy is a good option to avoid Probate. However, there are pitfalls to taking title to each other's assets as Joint Tenants with Right of Survivorship.
It can be dangerous in an unstable relationship.
A joint owner could jeopardize the entire value the asset.
Neither party can sell or encumber the asset without the other party's consent.
Bank accounts may be frozen.
A Right of Survivorship means that the surviving Joint Tenant will receive the entire asset even if your Will states something to the contrary.
A surviving spouse or business partner may sell the asset, leaving the decedent no control over the final or ultimate disposition of the asset entirely.
Married couples living in a community property state can obtain a step-up in basis in both the decedent's half as well as the survivor's half if assets are titled properly. You may lose this advantage by keeping assets in Joint Tenancy.
WHY WOULD I NEED AN ESTATE PLAN? WHAT ARE THE BENEFITS? Regardless of your status, if your assets exceed $150,000 (or any amount when real estate is involved), your family will need to go through Probate, unless you have a Living Trust.
Take note of the benefits:
Loved ones will save hassle and money.
No Probate means that you can avoid a process which can take years while an estate settles in Probate Court.
A faster time line for a distribution of assets to beneficiaries. No court costs or expenses, including expenses for publication in the local newspaper.
No filing petitions and reports to the Probate Court, as is necessary with a Will. All assets can usually be distributed in a timely manner.
A Living Trust avoids the need for Conservatorship should you become incompetent, injured or incapacitated.
Attorney fees are much less than the fees for a Probate.
A Trust is not challenged or contested as easily as is a Will.
Information concerning the decedent's estate and guardianship choices will not become public.
A Living Trust can and will continue over time for the benefit of your loved ones, whether it be for your minor children, elderly parents, children with drug/alcohol problems or mentally, physically or educationally challenged adult children receiving SSI or Medi-Cal.
IS THERE ANY POINT IN HAVING A WILL IF I HAVE A TRUST? Yes there is. Having a Pour Over Will can serve as a back-up mechanism to add assets to your Trust should you fail to place appropriate assets in your trust. Also, it can be used to make guardianship choices for your minor children and other dependents and give instructions for the disposition of your remains.
I UNDERSTAND THAT I CAN TAKE CARE OF MY MINOR CHILDREN THROUGH A TRUST BUT CAN I ALSO PROVIDE FOR THE SECURITY OF MY PETS? Pets are often an important part of a family and we have ways to provide for them and their care through our living trust.
WHAT IF I BECOME MENTALLY OR PHYSICALLY INCOMPETENT AND CANNOT SERVE AS TRUSTEE? With a Living Trust, you have a built in conservatorship. In the event that you are unable to serve as Trustee, you will have named someone to serve as your Successor Trustee. The appointment will be an individual, bank or Trust company. There are added benefits to your choosing this individual at this time, such as avoiding court actions that declare you incompetent and avoiding actions to choose a designee. By choosing your successor at this time, you will have the opportunity to assess whether a designated Trustee will potentially do a good job for you and, if necessary, adjust your choice. A Trust eliminates the potential cost of a court appointing a guardian for your minor children. It also can eliminate fees from regular accounting by a guardian to the court.
WHAT SHOULD I CONSIDER WHEN CHOOSING EXECUTORS AND TRUSTEES? In choosing Executors and Trustees, you will have two types from which to choose, Corporate Trustees and/or Individual Trustees. There are advantages and disadvantages to each.
Here are some pros and cons:
CORPORATE SUCCESSOR TRUSTEE/ EXECUTOR
Specialists who often have a department trained to handle trusts.
Never passes away.
Payment to the Trustee will be higher.
Typically has very little knowledge of the family.
INDIVIDUAL SUCCESSOR TRUSTEE/ EXECUTOR
Understands the family dynamics.
Payment to the Trustee will usually be lower or nonexistent.
May never have acted as a trustee.
May become injured, incapacitated or move out of the country.
IS THERE ANY TAX SAVING POTENTIAL WITH HAVING A TRUST? Yes. There are several kinds of Living Trusts that can help you avoid, reduce or postpone federal estate and income tax. Estate tax options can be included in a Living Trust.
WHAT SHOULD I DO WITH MY RETIREMENT ACCOUNTS? We will be advising you about the proper way to title and retitle assets and will provide the correct document to complete these tasks. Usually, it is advised that you do not change ownership of retirement accounts to the trust. If you do, the entire amount of your retirement account could be immediately taxable. With a "Roth" IRA, its benefits will not be taxable to your children or your estate. With a "Non-Roth" IRA, your children or non-spouse beneficiary will likely need to pay a tax. If you are married and your spouse is the single beneficiary of your retirement account, taxes can usually be deferred on your "Non-Roth" IRA.
WHAT SHOULD I DO WHEN IT COMES TO MY TRUST AND MY LIFE INSURANCE POLICIES? We typically suggest that, if you are not married, you should name your Trust as the primary beneficiaries of your life insurance policies. This allows your Trustee to manage life insurance proceeds and distribute them to your beneficiaries as provided in the Trust document. For beneficiaries who are minors, this can prove to be very effective and powerful. If you are married, we recommend that you name your spouse as the primary beneficiary and your Trust as the contingent beneficiary of your life insurance policies. When you pass away, your spouse can manage the proceeds. If your spouse predeceases you, then your Successor Trustee manages the proceeds of the life insurance policy and distributes these to your beneficiaries. Should the value of your insurance policies, when added to your estate, cause your estate to exceed the estate tax exemption limit, we recommend that you speak with us about some unique options for your loved ones.
WHAT ABOUT A POWER OF ATTORNEY FOR FINANCES...WILL I NEED ONE? Yes. Even if you have a Trust and a Will, a Durable Power of Attorney is important. A Durable Power of Attorney grants your agent authority to transfer assets, deal with the Social Security Administration and other governmental entities, handle pensions and insurance, deal with creditors and sign income tax returns and legal documents. Everyone needs a Durable Power of Attorney for Financial Purposes.
WHAT IF I AM INCAPACITATED AND CANNOT MAKE DECISIONS REGARDING MY HEALTH CARE? In such a situation, there is a legal document known as either a Durable Power of Attorney for Health Care or an Advanced Health Care Directive. In these types of documents, you will choose who will manage your healthcare and make health care decisions for you if you are unable to make them for yourself. Without it, you may be left at the mercy of an expensive, untimely and public conservatorship process in order to have a loved-one make these types of decisions for you. Everyone needs a Durable Power of Attorney for Health Care or an Advanced Health Care Directive.