There is no time like the present to address what will happen to your family when you die or become incapacitated and you are unable to manage your own affairs. The decisions you make today will make the lives of the people you care for easier by protecting the assets from creditors or divorces, and providing financial security after your passing. Contact an experienced and successful wills and trusts attorney in with any legal questions or concerns. If you do not have an attorney, please contact us and we will refer one to you.
We will work with your attorney to help you manage your assets by having the attorney place your property into a trust for purposes such as reducing estate taxes, avoiding probate, and dictating by you how much and to which heirs receive your assets after you pass.
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Estates and Trusts
WHAT IS A WILL AND WHY DO I NEED ONE?
A Will or Trust is your last word to the court for instructions on the handling of your property and affairs. A will’s instructions are limited to those assets and matters under the jurisdiction of the probate court. Your will must be in writing and must be signed by you and two witnesses. The witness must attest to your signing the will and also have seen each other witness your will. The failure to strictly adhere to California’s legal formalities will invalidate your will.
A will is simply a formal way of setting forth your wishes regarding how you would like your property distributed upon your death. You should consider a will whether you are single, married, have minor children, or own even a small amount of personal assets or property. In fact, every adult should have a will or other means to control the disposition of their assets. If you< have not formalized your intentions, your estate may meet with unnecessary and costly litigation, adding to the grief experienced by your survivors. Avoiding the financial and emotional turmoil of will contests and other legal wrangling starts with choosing an experienced estate planning attorney.
WHAT IS A POWER OF ATTORNEY (POA)?
A power of attorney is one of the most powerful documents one can sign. It gives a third party “agent” the ability to control the assets of the “principal” as if the agent were the principal. Depending on how broad the POA is, that could mean anything from controlling one’s financial accounts to controlling everything such as healthcare decisions, investments, property, and accounts.
WHAT IS AN EXECUTOR?
The person who handles the administration of the estate is the "executor." The executor is the person responsible for locating and collecting all of the deceased's property, making sure any debts and taxes are paid off, and distributing the remaining property and money to the beneficiaries. The money to pay off any debts or taxes comes from the estate. In addition, the executor is entitled to a lawyer if he or she needs help with his or her duties.
Some more specific examples of what an executor can be tasked with doing include obtaining a death certificate, initiating the probate process, filing paperwork in probate court, and contacting the beneficiaries of the estate. The executor is required to perform his or her tasks in accordance with the will and in compliance with the probate laws of each state. The executor is also required to perform his or her duties diligently and in good faith.
WHAT IS A TRUSTEE?
A trustee is an individual (typically a lawyer, accountant or family member) responsible for administering the wishes of the grantor for the benefit of a third party. The most common type of trustee is a successor trustee who is responsible for handling property and other assets within the trust in the case that the grantor dies or becomes incapacitated. All trustee duties are distinctive to the specific trust agreement and directed by the type of assets in the trust. Additional responsibilities of a trustee may include tax filing for the trust and distribution of assets according to the guidelines of the trust.
There are very few qualifications required to serve as a trustee. A grantor can appoint someone a trustee as long as the individual is at least 18 years old and is not likely to become bankrupt or mentally incompetent. Grantors can also be the trustee themselves, as long as the trust is a revocable living trust. This means the trust can be changed during the grantor’s lifetime. However, if the trust is an irrevocable trust, the grantor must name another individual as the trustee.
WHAT IS A DURABLE POWER OF ATTORNEY FOR HEALTHCARE?
The durable power of attorney for healthcare is given to the person you want to make medical decisions for you in an emergency. Even though you set out your wishes in your living will, such documents can never cover every circumstance, and the person who has a durable power of attorney for healthcare can make decisions not covered by your living will.
Keep in mind that the person with a durable power of attorney for healthcare can never contradict the terms of your living will. Rather, that person is there to fill in gaps, for situations not covered by your living will, or in case your living will is invalidated for any reason.
- Other Names for the Power of Attorney for Healthcare and the Advanced Directive
- Providing medical decisions that aren't covered in your healthcare declaration
- Enforcing your healthcare wishes in court if necessary
- Hiring and firing doctors and medical workers seeing to your treatment
- Having access to medical records
- Having visitation rights
- Do Not Resuscitate Orders (DNR)
Depending on your state, the person you grant a durable power of attorney for healthcare will typically be called your "agent," "proxy," "attorney-in-fact", "patient advocate" or "surrogate". The typical rights for this person include:
Finally, note that in some states they combine the living will and the durable power of attorney for healthcare into one document called an "advance health care directive".
One of the most important parts of your living will should indicate your wishes regarding resuscitation. You can ask your doctor to add a Do Not Resuscitate Order (DNR) to your medical records and you should also create a pre-hospital DNR to keep nearby to prevent paramedics or your health care facility from trying to resuscitate you.
WHAT IS A TRUST?
A trust is a legal device that can be used to manage your property during your lifetime and to distribute your property after your death. A revocable living trust is established by a written agreement or declaration, which appoints a “trustee” to administer the property transferred to the trust, and which gives detailed instructions on how the property is to be managed and eventually distributed.
Wills, trusts, and estates law deals with how an individual or couple plans for the future. Conversely, it also deals with the ways that an individual’s family did not plan for the future. A will and trust attorney is needed for one of two reasons:
- To arrange a will, a trust, or other estate planning tool to protect one’s assets for children and other beneficiaries.
- To get help when someone else’s will and/or estate is not in order, leaving behind problems for children and/or beneficiaries.
A wills and trusts attorney will focus on effectively handling your legal needs by taking the time to fully understand your situation and will help to ensure a smooth process of establishing a will or trust. A trust attorney will handle:
- Drafting living trust and will documents
- Determining beneficiaries of wills and trusts
- Estate planning and administration
- Probate court issues
Anyone with any level of assets will benefit from estate planning, not just the wealthy. When someone passes away without having made a will or trust, his or her estate will be dealt with by state probate laws, which are not necessarily in accord with how that person would wish. There are many benefits of estate planning:
- Choose the executor or trustee who will handle your estate after you have passed
- Provide for your immediate family’s future
- Minimize the cost of transferring your assets to beneficiaries you’ve designated
- Get your property to beneficiaries quickly
- Reduce the taxes on your estate
- Help ensure that your business continues to prosper after your passing
- Help a favorite charitable cause
- Plan for the possibility of becoming mentally and/or physically incapacitated
- Describe your wishes regarding your burial and funeral
TYPES OF TRUSTS?
Revocable Living Trust
- These are the most commonly created trusts. Revocable trusts are created during the lifetime of the trustmaker and can be altered, changed, modified or revoked entirely. Often called a living trust, these are trusts in which the trustmaker transfers the title of a property to a trust, serves as the initial trustee, and has the ability to remove the property from the trust during his or her lifetime. Revocable trusts are extremely helpful in avoiding probate. If ownership of assets is transferred to a revocable trust during the lifetime of the trustmaker so that it is owned by the trust at the time of the trustmaker's death, the assets will not be subject to probate.
- Although useful to avoid probate, a revocable trust is not an asset protection technique as assets transferred to the trust during the trustmaker's lifetime will remain available to the trustmaker's creditors. It does make it more somewhat more difficult for creditors to access these assets since the creditor must petition a court for an order to enable the creditor to get to the assets held in the trust. Typically, a revocable trust evolves into an irrevocable trust upon the death of the trustmaker.
- An irrevocable trust is one which cannot be altered, changed, modified or revoked after its creation. Once a property is transferred to an irrevocable trust, no one, including the trust maker, can take the property out of the trust. It is possible to purchase survivorship life insurance, the benefits of which can be held by an irrevocable trust. This type of survivorship life insurance can be used for estate tax planning purposes in large estates, however, survivorship life insurance held in an irrevocable trust can have serious negative consequences.
Asset Protection Trust
- An asset protection trust is a type of trust that is designed to protect a person's assets from claims of future creditors. These types of trusts are often set up in countries outside of the United States, although the assets do not always need to be transferred to the foreign jurisdiction. The purpose of an asset protection trust is to insulate assets from creditor attack. These trusts are normally structured so that they are irrevocable for a term of years and so that the trustmaker is not a current beneficiary. An asset protection trust is normally structured so that the undistributed assets of the trust are returned to the trustmaker upon termination of the trust provided there is no current risk of creditor attack, thus permitting the trustmaker to regain complete control over the formerly protected assets.
- Charitable trusts are trusts which benefit a particular charity or the public in general. Typically, charitable trusts are established as part of an estate plan to lower or avoid imposition of estate and gift tax. A charitable remainder trust (CRT) funded during the grantor's lifetime can be a financial planning tool, providing the trustmaker with valuable lifetime benefits. In addition to the financial benefits, there is the intangible benefit of rewarding the trustmaker’s altruism as charities usually immediately honor the donors who have named the charity as the beneficiary of a CRT.
Special Needs Trust
- A special needs trust is one which is set up for a person who receives government benefits so as not to disqualify the beneficiary from such government benefits. This is completely legal and permitted under the Social Security rules provided that the disabled beneficiary cannot control the amount or the frequency of trust distributions and cannot revoke the trust. Ordinarily when a person is receiving government benefits, an inheritance or receipt of a gift could reduce or eliminate the person's eligibility for such benefits.
- By establishing a trust, which provides for luxuries or other benefits which otherwise could not be obtained by the beneficiary, the beneficiary can obtain the benefits from the trust without defeating his or her eligibility for government benefits. Usually, a special needs trust has a provision which terminates the trust in the event that it could be used to make the beneficiary ineligible for government benefits.
- Special needs has a specific legal definition and is defined as the requisites for maintaining the comfort and happiness of a disabled person, when such requisites are not being provided by any public or private agency. Special needs can include medical and dental expenses, equipment, education, treatment, rehabilitation, eyeglasses, transportation (including vehicle purchase), maintenance, insurance (including payment of premiums of insurance on the life of the beneficiary), essential dietary needs, spending money, electronic and computer equipment, vacations, athletic contests, movies, trips, money with which to purchase gifts, payments for a companion, and other items to enhance self-esteem. The list is quite extensive.
- Parents of a disabled child can establish a special needs trust as part of their general estate plan and not worry that their child will be prevented from receiving benefits when they are not there to care for the child. Disabled persons who expect an inheritance or other large sum of money may establish a special needs trust themselves, provided that another person or entity is named as trustee.
- A constructive trust is an implied trust. An implied trust is established by a court and is determined from certain facts and circumstances. The court may decide that, even though there was never a formal declaration of a trust, there was an intention on the part of the property owner that the property be used for a particular purpose or go to a particular person. While a person may take legal title to property, equitable considerations sometimes require that the equitable title of such property really belongs to someone else.
- A trust that is established for a beneficiary which does not allow the beneficiary to sell or pledge away interests in the trust is known as a spendthrift trust. It is protected from the beneficiaries' creditors, until such time as the trust property is distributed out of the trust and given to the beneficiaries.
Tax By-Pass Trust
- A tax by-pass trust is a type of trust that is created to allow one spouse to leave money to the other, while limiting the amount of federal estate tax that would be payable on the death of the second spouse. While assets can pass to a spouse tax-free, when the surviving spouse dies, the remaining assets over and above the exempt limit would be taxable to the children of the couple, potentially at a rate of 40 percent. A tax by-pass trust avoids this situation and saves the children perhaps hundreds of thousands of dollars in federal taxes, depending upon the value of the estate.
- A Totten trust is one that is created during the lifetime of the grantor by depositing money into an account at a financial institution in his or her name as the trustee for another. This is a type of revocable trust in which the gift is not completed until the grantor's death or an unequivocal act reflecting the gift during the grantor's lifetime. An individual or an entity can be named as the beneficiary. Upon death, Totten trust assets avoid probate.
- A Totten trust is used primarily with accounts and securities in financial institutions such as savings accounts, bank accounts, and certificates of deposit. A Totten trust cannot be used with real property. It provides a safer method to pass assets on to family than using joint ownership.
- To create a Totten trust, the title on the account should include identifying language, such as "In Trust For," "Payable on Death To," "As Trustee For," or the identifying initials for each, "IFF," "POD," "ATF." If this language is not included, the beneficiary may not be identifiable. A Totten trust has been called a "poor man's" trust because a written trust document is typically not involved and it often costs the trust maker nothing to establish.
WHAT IS PROBATE?
Most people have probably heard that it's best to avoid probate. However, they might not be sure what probate is and why you should avoid it. The legal process of transferring of property upon a person's death is known as "probate." Although probate customs and laws have changed over time, the purpose has remained much the same: people formalize their intentions as to the transfer of their property at the time of their death (typically in a will), their property is collected, certain debts are paid from the estate, and the property is distributed.
Today the probate process is a court-supervised process that is designed to sort out the transfer of a person's property at death. Property subject to the probate process is that owned by a person at death, which does not pass to others by designation or ownership (i.e. life insurance policies and "payable on death" bank accounts). A common expression you may have heard is "probating a will." This describes the process by which a person shows the court that the decedent (the person who died) followed all legal formalities in drafting his or her will. What is often taught about the probate process is how to avoid it.
The movement to avoid probate is primarily motivated by the desire to avoid probate fees. It is, in fact, quite possible to avoid the probate process completely. There are three primary ways to avoid probate and its protections: joint ownership with the right of survivorship, gifts, and revocable trusts. The probate system, however, exists for the protection of all the parties involved and the focus of this article is what occurs in probate.
WHAT HAPPENS IN PROBATE?
The probate process may be contested or uncontested. Most contested issues generally arise in the probate process because a disgruntled heir is seeking a larger share of the decedent's property than that he or she actually received. Arguments often raised include: the decedent may have been improperly influenced in making gifts, the decedent did not know what they were doing (insufficient mental capacity) at the time the will was executed, and the decedent did not follow the necessary legal formalities in drafting his or her will. The majority of probated estates, however, are uncontested. The basic process of probating an estate includes:
- Collecting all probate property of the decedent
- Paying all debts, claims and taxes owed by the estate
- Collecting all rights to income, dividends, etc
- Settling any disputes
- Distributing or transferring the remaining property to the heirs
Usually, the decedent names a person (executor) to take over the management of his or her affairs upon death. If the decedent fails to name an executor, the court will appoint a personal representative, or administrator, to settle the estate. The administrator will fulfill many of the same duties listed above.
Typically, people may leave property to any person they wish, and may make such designations in their will. However, in certain situations, depending on the relationship to the decedent and the laws of the state, the decedent's wishes may have to be overridden by the court. For example, in most states, a spouse is entitled to a certain amount of property. Furthermore, creditors may have a claim on the property of the estate. Each jurisdiction usually prescribes how long an estate must be open to give creditors an adequate time frame in which to present claims to the estate. The more complex and sizable the estate, the longer and more time-consuming this process can be.
The probate process itself also carries with it a number of costs that are usually paid out of estate assets. These costs include:
HOW TO AVOID PROBATE?
There are several ways to avoid, or at least minimize, what has to go through the probate process. The most common ways to avoid probate are to set up trusts, take advantage of accounts that have an option to designate a beneficiary, and owning property jointly with the person or people whom you want to inherit your property. Another easy way to avoid probate is to simply gift money and property while you're still alive. However, it's important to note that a person can only gift a person a certain amount before it's subject to taxes.
TYPES OF PROBLEMS THAT CAN ARISE IF YOU DON’T HAVE A WILL OR TRUST?
- Your money assets or property, such as real estate, may go to a person you do not want. If you do not have a family trust, then the state of California decides who gets what, using its rules, which may be totally different from your wishes.
- In general, most would like their spouse to inherit both joint and separate property. In a situation where you do not have a will or family trust and have only one child, California law divides your separate property equally between your spouse and child. If you have two or more children, then your spouse will receive a one-third interest and your children will divide the two-thirds interest by default. Having a family trust allows you to decide who will inherit. If you do not have a family trust, then the government (probate court) decides how your assets are divided.
- If you are separated and not divorced and you do not have a will, your estranged spouse will inherit your assets under Californian statutes.
- If you are single with no children and you pass away without a will, in California, all assets go to your next of kin regardless of whether you know them or not and whether or not you intended them to inherit. Suppose you had a sister or brother, and your father had other children from another marriage (even if you never met them). In that case, your sister or brother would share the estate with your father’s other children.
- If you only have a will, and own a home or estate valued over $150,000, then your estate will likely end up in California probate court, a costly and time-consuming situation. If you have a properly drafted family trust, then you can avoid probate. In that case, all assets are easily transferred to your heirs. Your heirs receive the maximum amount because there is no loss of estate funds due to the probate process and related legal fees.
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