Estate Planning

What is a Will?


A will is a legal document that lays out how you want your assets to be distributed at your death. A will does not take effect until you die. Upon your death, your will becomes a public document when it’s filed with the probate court and is available to anyone who wants to read it. Once your will enters the probate court, it is no longer in your family’s hands but in the hands of the court and the probate attorneys. This is why having a will is not enough. Also note that the probate fees in California are regulated by the Probate Code. For example, if your estate is worth $100,000, your estate will pay no more than $4,000 in probate fees. And, the greater your estate is worth, the more fees your estate is subject to pay. These probate fees can be avoided by establishing a living trust. You should also be aware that the cost to set up your living trust today will be substantially less than the probate fees your estate and your beneficiaries will pay if you had no living trust and your estate went through the probate process.


What is a Trust?


A trust designates a fiduciary, known as a “trustee”, to control and manage assets that are intended for a purpose and/or a beneficiary. There are many available trust options including irrevocable and revocable trusts, charitable trusts, qualified domestic trusts, special needs trusts, qualified personal residence trusts and irrevocable life insurance trusts. When you are considering a trust as an estate planning tool, we will provide you with the practical knowledge you need and the sound legal guidance that you want when making complex estate planning decisions.


What is a Revocable Living Trust?


A living trust serves a similar function as a will – it disposes of a person’s assets at his or her death. However, unlike a will, a decedent’s assets will be distributed without the need for an expensive and time-consuming court-supervised probate. A living trust is a written agreement between the creator of the trust (the “Settlor”) and the person who manages the trust (the “Trustee”). While you are alive, you are both the Settlor and the Trustee of your own living trust, or if you are married, both your spouse and you are the Settlor(s) and the Trustee(s). As the Settlor, you move your assets into the trust to make it easier to manage your finances and distribute your assets to your heirs at your death. When you set up your living trust, you must transfer the title of all your major assets (i.e. real estate, stocks, bonds, etc.), notwithstanding a few exceptions, from your name to the name of the trust. That gives you, and you alone, complete control over all of your assets. You can buy, sell, or exchange your property just like you do now – just because you have a trust does not mean you have to treat your assets any differently than before you had the trust. You can amend or revoke this living trust at any time while you are alive. However, the difference between a will and a trust is that when you die, there will be no assets left in your name, everything will be in the name of the trust which means that your family will have no probate to endure. If the Settlor becomes incapacitated or otherwise unable to manage his or her financial affairs, a Successor Trustee, who is appointed by the Settlor in the trust document, can step in and manage the Settlor’s assets on the Settlor’s behalf, thereby avoiding a conservatorship or guardianship procedure (which can also be a time consuming and expensive court process which could be avoided with this trust document).


Some important points to remember when considering whether a Living Trust is right for you:

* Living Trusts are not just for the Wealthy – Avoiding Probate:  When you die, your estate will go through probate if it has assets totaling at least $150,000, and the probate fees can add up, with a minimum of 4% of the gross estate value (regardless of debt) being payable to the attorneys and executors.  For example, if your estate is worth $150,000, your estate will have to pay 4% of that amount in probate fees under the California Probate Code. The more your estate is worth, the more you will pay in probate fees (i.e. a $3,000,000 estate will pay approximately $40,000 in probate fees if you do not have a living trust). Avoiding probate is not just about the fees that you will incur in the process but it is about the waiting period. Probate can take a number of years until the estate is settled. Whereas, your living trust bypasses this waiting period. Also, if you own real estate in more than one state, you will be doubly happy with the results, since without a living trust each state gets in on the probate act (therefore, you are looking at possibly paying double in probate fees as your estate will go through probate in every state you own property).


* Living Trusts are Revocable:  Your living trust is revocable, which means you can add or remove assets at will and change or eliminate the trust at any time while you are alive.

* Living Trusts are Only Effective Over Assets they Own:  Preparing living trust documents is only the first step. Until you transfer legal title of your assets to the trust, those assets will not escape probate. Therefore, you must title your real estate, bank accounts, brokerage accounts, mutual funds, stocks and other personal assets in the name of the trust (i.e., John Smith, trustee for the Smith Family Trust).
* Living Trusts set forth your Wishes and Bypass Family Quarrels:  Your trust will set forth who will be your guardian or conservator should you become incapacitated.


What is a Durable Power of Attorney for Financial Affairs and Property Management?


When you execute a Durable Power of Attorney (“DPA”), you appoint someone else, known as your “agent” to make financial decisions on your behalf.
If you become unavailable to handle your own financial affairs, your agent under the DPA has the authority to change withdrawals from retirement plans, terminate extraneous expenses, refinance real estate mortgages, arrange for long term care, or take any other financial action needed to be taken on your behalf. Also, if you did not take steps to move your accounts into your living trust, the agent under the DPA can complete the transfer paperwork into the trust to avoid probate hassles at your death.

Although the agent is given a lot of power in the DPA, your agent is specifically prohibited from changing an estate plan to unduly benefit himself/herself or his/her family. If an agent ever acted against your best interest, he or she could be sued and prosecuted for breach of fiduciary duty or elder abuse.


What is an Advance Health Care Directive?


An Advance Health Care Directive (“AHCD”) has two primary purposes: it (a) clearly sets forth your feelings regarding life support (formerly known as a “living will”) and (b) nominates another person to communicate your wishes if you are ever unable to speak or communicate with your physician. An agent under the AHCD is also generally able to monitor your care and change hospitals or physicians if he or she believes you could receive better treatment somewhere else. In an AHCD, you may note whether you are willing to make donations of your organs and whether you are comfortable having your agent make funeral arrangements on your behalf.

Although the AHCD does not deal with financial matters, it is a complement to the rest of your estate planning documents and is the best way to avoid any unnecessary conflicts concerning end-of-life issues. Once the AHCD is completed, you may give a copy to your agent, primary care physician, health care providers, and family members. This will ensure that your wishes will be known at the critical time and are carried out pursuant to your intentions.

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