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1.
WHAT IS ESTATE PLANNING?
Estate planning is the process by which
you decide how you want your legal and
financial decisions to be handled today,
tomorrow and in the future. This involves
arranging your affairs to maximize the
benefit you receive from your hard-earned
assets during your life and for those who
you choose to benefit after your death.
2.
IF I HAVE A WILL, WHY WOULD I WANT A
LIVING TRUST?
Contrary to what many people believe, a
will is probably not the best way to plan
your estate. This is because a will does
not avoid probate. Rather, all wills must
be verified by the court before they can
be enforced.
Also, because a will can only go into
effect after you die, it provides no
protection if you become physically or
mentally incapacitated-a real concern of
millions of people. You could easily end
up under the control of the probate court
before you die.
Fortunately, there is a traditional
alternative to wills and probate. It's
called a revocable living trust. Revocable
trusts avoid probate and ensure your plan
won't be altered by the court or anyone
else at your death or disability.
3.
WHAT IS PROBATE?
Probate is the legal process through which
the court makes sure that, when you die,
your debts are paid and your property is
distributed according to your will. If you
do not have a will, the state in which you
live has written one for you. Probate can
also take control if you become physically
or mentally incapacitated.
4.
WHAT IS SO BAD ABOUT PROBATE?
It's expensive. Legal/executor fees and
other costs are usually estimated at 4-10%
or more of an estate's gross value (before
debts are paid). An estate’s gross asset
value includes all that you own...yes,
including any mortgage value (debts are
not excluded when valuing your estate).
These debts must then be paid before your
estate can be fully distributed to your
heirs.
If you own real property in other states,
your estate may be subject to multiple
probate court proceedings in these other
states. A revocable living trust can solve
this problem and avoid these probate
proceedings.
It takes a long time, often 1-2 years.
During part of this time, the assets are
usually frozen so an accurate inventory
can be taken. Nothing can be distributed
or sold without the court's and/or
executor's approval. If your family needs
money on which to live, they must request
a living allowance, which may be denied.
Your family has no privacy. Probate files
are open to the public. Anyone (including
a business competitor) can see what you
owned and who you owed. This also invites
disgruntled heirs to contest your will and
exposes your family to unscrupulous
solicitors.
Your family has no control. The probate
process has control. Having someone tell
them who gets what and when, and having to
pay for this outside supervision, can be
very frustrating for your family, and
often leads to disputes.
5.
BUT I DON'T HAVE THAT MUCH. WHY SHOULD I
BE CONCERNED ABOUT PROBATE?
Depending on how title is held to your
assets, if your gross (not net) estate is
over $100,000.00 it is subject to probate.
That means practically anyone who owns
real property in California.
6.
DOESN'T JOINT OWNERSHIP OF ASSETS AVOID
PROBATE?
No, it usually just postpones it. When one
of the joint owners dies, ownership will
transfer to the other without probate. But
when the "second" owner dies, or if both
should die at the same time, the property
must be probated before it can go to the
heirs.
Watch out for other risks, too. When you
add someone as a co-owner of your
property, you lose control. You expose it
to the other owner's signature to sell or
refinance, and if he/she is incapacitated,
you'll have to get approval from the
probate court-even if your co-owner is
your spouse. And, if your joint owner is
not your spouse, you run an additional
risk of your assets being exposed to
judgment creditors of the joint owner's.
Further, you lose the full "step-up" in
basis, meaning the current fair market
value at the date of death. Only the
decedent's share of the property is
stepped-up to the current fair market
value. If the property is appreciated, the
survivor will be subject to capital gains
taxes on the appreciation of the
survivor's share.
7.
WHY WOULD THE PROBATE COURT GET INVOLVED
IF SOMEONE IS INCAPACITATED?
If your property must be sold or
refinanced but you are incapacitated, only
the probate court can sign for you through
a conservatorship. This process does not
replace probate at death. This means your
family would have to deal with the probate
court twice.
8.
WHAT IS A LIVING TRUST?
A living trust is a legal document that
looks a lot like a will. It does what most
people think a will does...and much more.
Because there is no probate with a living
trust, all expensive court proceedings and
delays are eliminated, your privacy is
preserved, and emotional stress on your
family is minimized. It can
reduce/eliminate estate taxes and is
extremely hard to contest.
9.
WHO SHOULD HAVE A LIVING TRUST?
Married or single, old or young, just
about everyone can benefit from a living
trust, especially if you have children
(even more so if you are a single parent)
or own any titled property. If you have
gross assets (this includes any mortgage
balance) over $100,000.00 and you want to
make sure your loved ones (spouse,
children, parents or cherished friends)
will be spared from probate if something
happens to you, you should have a living
trust.
10.
HOW DOES A LIVING TRUST AVOID PROBATE?
When you set up a living trust, you
transfer all of your property from your
individual name to the name of your trust,
which you control-such as from "John and
Mary Smith, husband and wife" to "John and
Mary Smith, Trustees Under Trust Dated
1/1/02."
Legally you no longer own anything
(everything now belongs to your trust), so
there is nothing to probate when you die
or if you become disabled. The concept is
very simple, but this is what keeps you
and your family out of probate court. You
still have control over all of your
assets.
11.
IS IT DIFFICULT TO TRANSFER PROPERTY INTO
MY TRUST?
No, your attorney, banker, trust officer,
financial advisor, investment agent,
etc...can help you. Make sure you change
titles on all real estate (local and
out-of-state) and other property with
formal titles (checking and savings
accounts, stocks, CDs, insurance, mutual
funds, etc.). Thus, changing title from
your individual name - to your name as
“trustee”. Most properly drafted trust
documents automatically include personal
property without formal titles (jewelry,
clothing, art, home furnishings, etc.).
12.
DO I LOSE CONTROL OF THE PROPERTY IN MY
TRUST?
No. You keep full control over your
property. As trustee of your trust, you
can do everything you could do
before...sell property, make changes, even
cancel or change your trust at any time
(remember, it is revocable). Nothing
changes but the names on the titles.
13.
SHOULD I CONSIDER A CORPORATE TRUSTEE?
Although you can be trustee of your own
trust, some people select a corporate
trustee (bank or trust company) to act as
their trustee or co-trustee now,
especially if they don't have the time,
ability or desire to manage their own
trusts, or if one or both spouses are ill.
Corporate trustees are in the business of
managing trusts, they are reliable,
objective, government regulated, and
experienced investment managers. Their
fees can be very reasonable, however, you
should ask about their specific fee
schedule before considering a corporate
trustee. Another alternative, is to hire a
private professional fiduciary to act as
trustee.
14.
IF SOMETHING HAPPENS TO ME, WHO HAS
CONTROL OF MY AFFAIRS?
If you and your spouse are co-trustee,
either can act and have instant control if
one becomes incapacitated or dies. If
something happens to both of you, or if
you are the only trustee, your chosen
successor trustee will step in.
If you select a corporate trustee as your
trustee or co-trustee, they will continue
to manage your trust for you.
15.
WHAT DOES A SUCCESSOR TRUSTEE DO?
At physical or mental incapacity, your
successor trustee looks after your care
and manages your financial affairs for as
long as necessary, using your assets to
pay your expenses. When you recover, you
automatically resume control. At your
death, your successor trustee pays your
debts and distributes your property
according to your instructions.
16.
WHO CAN BE SUCCESSOR TRUSTEES?
Successor trustees can be individuals
(adult children, other relatives, or
trusted friends) and/or a corporate
trustee. If you choose an individual, you
should name more than one in case your
first choice is unable to act.
However, family and friends may not be a
good choice...they may be too busy, live
too far away, or not be responsible or
experienced enough to manage trust assets.
You may want to consider a private
professional fiduciary or a corporate
trustee.
17.
HOW DOES A LIVING TRUST SAVE ON ESTATE
TAXES?
Currently, if the net value of your estate
when you die is more than $1,500,000.00
federal estate taxes of up to 50% must be
paid. If you are married, a living trust
will allow you and your spouse to pass on
up to $3 million tax-free to your
beneficiaries, saving hundreds of
thousands of dollars in estate taxes plus
thousands of dollars in probate costs.
Similar tax planning can be done with a
trust in a will, but you do not avoid
probate.
A living trust also makes a great base for
additional tax planning, including ways
you can give to a charity or foundation so
that both of you benefit.
18.
IS A LIVING TRUST EXPENSIVE?
(Probate Cost
Chart)
Not when compared to the costs of probate
(probate cost chart). How much you pay
will depend on how complicated your plan
is, type and amount of your assets, if you
need additional tax planning, etc. We work
with you to determine your specific needs
and advise you in advance of all fees
associated with your estate planning.
19.
HOW LONG DOES IT TAKE TO GET A LIVING
TRUST?
It should only take a couple of weeks to
prepare the legal documents after you make
the basic decisions. The key is to make
sure that title to your assets are
transferred into your trust so that
nothing will be left outside the
trust...assets outside the trust, could be
subject to probate. We work with you to
transfer title of your assets to your
trust.
20.
SHOULD I HAVE AN ATTORNEY DO MY TRUST?
Absolutely. An attorney can provide
valuable guidance and assistance for your
situation and assure the legal documents
are prepared properly. Avoid generic
"do-it-yourself" list and form books.
These “do-it-yourself” resources do not
address every family's unique needs and
can be very dangerous.
21.
IF I HAVE A LIVING TRUST, DO I STILL NEED
A WILL?
Yes, you should have a "pour over" will in
case you forget to retitle any property in
the name of your trust. The will "catches"
the property and sends it into your trust
after your death. The property will still
probably have to go through probate first,
but at least it can then be distributed as
part of your overall plan.
22.
ARE LIVING TRUSTS NEW?
Not at all. In fact, they have been used
effectively (in one form or another) for
hundreds of years. Your banker, trust
officer, attorney, financial adviser,
broker, CPA, insurance agent or charity is
probably very familiar with them.
23.
IS A “LIVING WILL” THE SAME THING AS A
“LIVING TRUST”?
No. A living will tells your doctor the
kind of life sustaining procedures you
want in case of terminal illness or
injury, however, in some states, doctors
are under no legal obligation to follow
the living will.
In California, a “health care power of
attorney” (called an Advanced Health Care
Directive) is a better choice. It is an
essential part of any comprehensive estate
plan because the health care power of
attorney allows you to give legal
authority to another person (such as your
spouse, sibling or adult child) to make
any health care decision for you IF you
become unable to make these decisions. The
advanced health care directive is much
more comprehensive than a living will...it
can also be legally enforced.
24.
WHAT ARE THE
ADVANTAGES OF A LIVING TRUST?
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Avoids probate and related costs
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Reduces or eliminates estate taxes
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Allows quick distribution of assets to
beneficiaries
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Preserves privacy-completely
confidential
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Professional asset management with
corporate trustee
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Very hard to contest
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Lets you keep control, even at physical
or mental incapacity and after your death
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Prevents a conservatorship at physical
or mental incapacity
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Minimizes emotional stress on your
family
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Prevents unintentional disinheriting
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Avoids problems of joint ownership
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Inexpensive, easy to set up and maintain
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Can be changed or canceled at any time
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Protects minor children from
court-imposed guardianships
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Can protect dependents with special
needs
As life changes, so do your choices. This
is why Estate Plan Reviews and Estate Plan
Updates are just as important, as creating
an Estate Plan, for you and your family.
(Estate Planning Quiz)
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FAQs
