Estate Planning FAQ’s

Frequently Asked Questions About Estate Planning

What is Probate? “Probate” is an official court process that takes place in probate court. In California, probate concerns matters where people have died with or without a will and their estate exceeds $100,000, or they cannot make their own personal, health care and/or financial decisions. These matters involve the following people: minor children (under age 18 in California and most states); incapacitated adults; and those who have died without legal arrangements to avoid probate.

Probate proceedings are public record and are open to review. They can also be expensive and time-consuming averaging 18 to 24 months. Any thoughtful person will choose to avoid probate in order to save money, spare their heirs legal costs that average $47,000 per million of assets (calculated as a Percentage of value after the first $1 million) and in order to keep their personal affairs private. The costs of avoiding probate (usually through a living trust) are a fraction of statutory probate fees and the aggravation and uncertainty of court proceedings.

What is Joint Tenancy with Right of Survivorship? This is the most common form of asset ownership between spouses or family members. Joint tenancy has the advantage of avoiding probate at the death of the first spouse (person). However, the survivor should not add the names of other relatives to their assets. Doing so may subject their assets to loss through the debts, bankruptcies, divorces and/or lawsuits of any additional joint tenants. Joint tenancy planning also may result in unnecessary death taxes on the estate of a married couple. Put simply, holding tenancy as “joint tenants” is generally a bad idea.

What is a Will? A “will” is the document a person signs to provide for the disposition of assets after his or her death. Wills do not avoid probate. Wills have no legal authority until the will-maker dies and the original will is delivered to the Probate Court.

Regardless, everyone with minor children needs a will because it is the only way to appoint the new “parent” of an orphaned child. Special, “at death” trust provisions in a will can provide for the management and distribution of assets for your heirs. Additionally, assets can be arranged and coordinated with provisions of the testamentary trusts to avoid death taxes. A will is an English “common law” document in many respects and cannot adequately address (or resolve) the estate probate and estate tax issues.

What is a Living Will? Sometimes called an Advance Medical Directive or Health Care Power of Attorney, a “living will” allows you to state your wishes in advance regarding the types of medical life support measures you prefer to have, or have withheld if you are in a terminal condition (without reasonable hope of recovery) and cannot express your wishes yourself. Most often, a living will is signed along with a Durable Power of Attorney for Health care, which gives the person you appoint legal authority to make your health care decisions when you are unable to do so.

What does Intestacy mean? If you die without what might be considered a “will” (also known as “intestate”), the California legislature has already determined who will inherit your assets and when they will inherit them. You may not agree with the default plan your state has for you and your loved ones, but nearly 72 percent of Americans die “intestate”.

What are Beneficiary Designations? You may avoid probate on the transfer of some assets at your death through the use of so called “beneficiary designations”. Laws regarding what assets may be transferred without probate (non-probate transfer laws) vary from state to state. Some common examples include life insurance death benefits and bank accounts.

What is a Durable Power of Attorney and when do I need one? A Durable Power of Attorney is commonly used to appoint someone you know and trust to make your personal financial decisions when you cannot make such decisions. If you are incapacitated without these legal documents, then you and your family will be involved in a probate proceeding known as a guardianship and conservatorship. This is the court proceeding where a judge determines who should make these decisions for you under the ongoing supervision of the court. There are unique and important issues associated with the terms and appointments in a Durable Power of Attorney. Inexperienced and “old-school” practitioners often use terms that create more problems than they solve.

What is a Revocable Living Trust? In its simplest terms, a revocable living trust (also known as a “living trust” or “RLT”) is a legal document and a popular estate planning tool that you can use to determine who will get your property when you die. Most living trusts are “revocable” because you can change them as your circumstances or desires change as long as you are alive. The “Living” in Revocable Living Trusts is used because you make the trust during your lifetime.

The person that creates a Revocable Living Trust is called the “trustor”, “grantor”, “Trustmaker”, or “creator”. The assets in the Revocable Living Trust are managed by a trustee (often the same person as the trust-maker or, in some cases an institution), and the recipients of the benefits from the assets in the trust are called “beneficiaries”.

In addition, with proper planning, you and your spouse (or partner) can, limit, avoid or eliminate death taxes on you and your spouse’s estate. The Revocable Living Trust allows administration of your affairs to occur outside any court proceeding by your appointed trustee(s) and attorney.

What does a Revocable Living Trust Cover? A Revocable Living Trust covers three phases of the trust-maker’s life – while the trust-maker is alive and well, if the Trustmaker becomes mentally incapacitated, and after the Trustmaker dies.

Revocable Living Trust: The Trustmaker Is Alive And Well

While the Trustmaker is alive and well, the revocable living trust agreement will have specific provisions allowing the Trustmaker to manage, invest, and spend the trust assets for his or her own benefit. In this sense, the Trustmaker goes about business as usual with regard to assets that have been funded into the trust, except that the Trustmaker will sign as the “Trustee” instead of as an individual. The Trustmaker also uses his or her own Social Security Number as the taxpayer identification number for the trust and file income taxes on IRS form 1040 instead of Form 1041.

Revocable Living Trust: The Trustmaker Becomes Mentally Incapacitated.

The trust agreement will also specify the procedures to be followed if the Trustmaker becomes mentally incapacitated. If the Trustmaker is deemed to be mentally incompetent and can no longer serve as Trustee, then the trust agreement will name a successor “Disability Trustee” to take over the management of the trust funds from the Trustmaker. The Disability Trustee will then be able to take care of and manage all of the Trustmaker’s assets that have been funded into the trust and will pay the Trustmaker’s bills.

Revocable Living Trust: The Trustmaker Dies

When the Trustmaker dies, the “Administrative” or “Successor Trustee” will take over and pay the Trustmaker’s final bills, debts, and taxes. The trust agreement will then contain instructions about who will receive the balance of the trust funds after all of the bills have been paid and the Administrative Trustee will distribute the balance accordingly. Usually this goes to individual beneficiaries directly or indirectly, to another trust, or to charity. Careful planning should occur prior to the death of any Trustmaker to avoid estate, income, capital gains and property taxes.

Who Should Have a Revocable Living Trust? Every adult should have a Revocable Living Trust. Whether you are young or old, rich or poor married or single, even if you don’t consider yourself “wealthy,” you should have plan that will avoid court interference in your affairs at your incapacity or death. A trust allows you to address the three essential parts of your life — your health, your family, and your assets.

How a Revocable Living Trust Avoids Probate.

Since the assets funded into a Revocable Living Trust during the Trustmaker’s lifetime will no longer be owned by the Trustmaker but by the trust, there will be no need for the trust assets to be probated when the Trustmaker dies. Instead, the Administrative Trustee can proceed with settling the trust outside of probate and without any court supervision or interference.

What is the Cost of a Living Trust?

The cost of a living trust varies depending upon marital status, whether there are minor children, and on the unique and individual circumstances of each client. What is clear, is that anyone can purchase a “Fill-In-The-Blanks” Living Trust from the Internet or “trust mill attorneys”. What is absolutely clear, is that you get what you pay for. Ironically, the difference between a potentially defective and or ineffective Living Trust and a thorough, customized, and individually tailored Living Trust is substantial is you have to pay for probate intervention. We offer a fixed fee quote in advance for our Estate Planning services.”

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