TRUST BASED SOLUTIONS
What is Estate Planning?
Estate planning is making a plan in advance and naming whom you want to receive the things you own (assets) after you die.
Isn't Estate Planning just for the wealthy?
Some people may have preconceived notions about trusts and believe that they are only for multi-millionaires who wish to leave large trust funds to their children. However, trusts can be invaluable tools in the estate plans of millions of individuals who want to spare their families the hassle of having to go through probate.
Isn't Estate Planning just for the elderly?
Many parents put off estate planning because they do not think they have substantial assets to protect. This line of thought is common among young adults who think they have plenty of time to accumulate wealth and plan for it at a later date. However, in failing to create a proper estate plan, many parents cannot adequately protect their children. All parents, with or without a great deal of assets should have an estate plan in place to set forth their wishes for their children which includes, among other things, nomination of a guardian in the event that they have an untimely passing while the child is still a minor. In your estate plan, you can appoint a guardian (also known as a conservator) for your children upon your passing. If there is no plan in place, the court will appoint a guardian to raise your children based on what it deems to be in the best interest of your children. Unfortunately, the court appointed guardian may not be your first choice and in some cases, he or she may actually be your last choice. From just a few brief hearings, it is often impossible for the court to determine who is best suited to care for your children in your absence.
What is Probate?
Probate is the court-supervised legal process through which a decedent’s assets are collected, his or her debts are paid and then the remaining assets are distributed to the decedent’s heirs or beneficiaries. No wonder it has been said that probate is a lawsuit against your estate, paid with your own money, for the protection of your creditors.
See, when a person dies leaving property in her/his name (especially real estate), the deceased is not longer available to execute a deed to transfer ownership to her/his heirs. At this point only a court can complete the transfer as part of the probate process.
Why is so important to avoid probate?
The probate process has several negative aspects.
Probate is public: The court hearings and documents in probate are completely open to the public. Your personal information is no longer private which means predators are able to see information about your family and young children. Probate courts require filing an inventory and accounting of the entire estate with the court. Anyone can simply visit the probate court and view or copy probate records. Thus, if you think that it is important to keep your finances, property or family members out of the public eye upon your death, you want to avoid the probate process.
Probate is slow: In California a typical probate process will take between 9 to 18 months. San Diego county is home for 3.3 million people but we only have 3 probate judges.
Outright distribution: Probate will distribute assets outright (except to minor children). All too often, children receive substantial assets before they are mature enough to handle them properly, with devastating results. So another reason for keeping assets in trust is to retain control of their disposition after your death, so that they are distributed based on a number of factors which you designate, such as age, need and even incentives based on behavior and education.
It leaves assets unprotected: Once your heirs receive their inheritance, those assets are unprotected and can be attacked by the creditors of the beneficiaries. If you fear your kids are not financial responsible yet, or have experienced credit difficulties in the past, then setting a special trust in which the beneficiary does not have uncontrolled access to the trust assets will shelter the assets from creditors or litigants of a beneficiary.
Probate is expensive: Common expenses of an estate include executors fees, attorneys fees, accounting fees, court fees, appraisal costs, and surety bonds. Even though parties have the option to represent themselves in probate, due to their lack of knowledge of the procedural requirements, attorneys are usually recommended. Attorney’s fees are determined and awarded by statutory law based on the gross value of the estate at the time of the decedent’s death (none of the decedent’s debts are taken into account). Will contests or disputes with alleged creditors over the debts of the estate can also add significant cost and delay.
As an example:
"California Probate Code section 10810 are as follows:
ARTICLE 2. Compensation of Attorney For the Personal Representative
(a) Subject to the provisions of this part, for ordinary services the attorney for the personal representative shall receive compensation based on the value of the estate accounted for by the personal representative, as follows:
(1) Four percent on the first one hundred thousand dollars ($100,000).
(2) Three percent on the next one hundred thousand dollars ($100,000).
(3) Two percent on the next eight hundred thousand dollars ($800,000).
(4) One percent on the next nine million dollars ($9,000,000).
(5) One-half of 1 percent on the next fifteen million dollars ($15,000,000).
(6) For all amounts above twenty-five million dollars ($25,000,000), a reasonable amount to be determined by the court."
Using the above statutory fee, a probate state consisting of one family home valued at $600,000 would result in attorney fees of $15,000. It should be noted that under California's statutory compensation fee the executor is entitled to the same fee as the attorney, if the executor chooses to accept these fees.
Does having a Will help avoid probate?
Contrary to popular belief, a Last Will and Testament does not avoid probate, since the probate court must decide that the Will is valid or determine. If the person has a Will (and the Will is valid), the provisions of the Will govern the distribution. If a person dies without a Will, the Probate Code governs who will receive the property. In other words, if you die without a plan, the government has a plan for you.
Can someone object the Will?
An objection to a Will, also known as a “Will contest” is a fairly common occurrence during the probate proceedings and can be incredibly costly to litigate. This usually occurs when, for example children are to receive disproportionate shares under the Will, or when distribution schemes change from a prior Will to a later Will.
What is a Revocable Living Trust?
A Revocable Living Trust is an important estate planning tool for individuals, married couples and domestic partners. A living trust is a legal document that is created to hold and manage your assets during life and then distribute your assets to your named beneficiaries upon your death. A living trust also allows you to avoid probate upon your death. If you have no estate plan in place, the state of California will make all decisions for you through the Probate Code. If your estate exceeds $150,000, your estate will go through probate which is a very bureaucratic, expensive, slow and public public process. Therefore, it is generally beneficial for homeowners to create a living trust to hold their real property, thereby avoiding probate upon their death.
Can a Plan include other "special" type of trusts?
Yes, in addition to Living Trusts there are many different types of trusts, each of which can be customized to serve a valuable purpose in accomplishing the wishes of those making gifts or planning an estate.
Trusts for minors. As part of estate planning, many individuals leave money to their children or their grandchildren in a trust. This is typically done to insure that the money is there for the children’s benefit while they are younger, for support, education, medical expenses, etc. Once the children reach a certain age or a certain achievement level (such as obtaining a bachelor’s degree), they may receive money from the trust to do as they please.
Special needs trusts. Special needs trusts are tools that enable a person to leave property to an individual with special needs. Many individuals with special needs receive government benefits. If they suddenly inherit money, they would be disqualified in most cases from those benefits until the inheritance was spent. Special needs trusts protect those individuals’ government benefits while allowing them to have money for extras they may need.
Marital trusts. Married couples sometimes include trusts in their wills, or separately, for the benefit of their spouse, typically for two reasons: (1) taxes, and (2) property protection. In previous years, marital trusts were needed for some couples to take advantage of estate tax exemptions, and they may be needed in the future as the laws may change. Marital trusts can also protect property from a spouse to ensure that it ultimately goes where it needs to go – for example, a husband with grown children from a previous marriage may decide to let his wife use his property after he passes, but puts it into a trust so that after she passes away, it goes to his children.
Irrevocable life insurance trusts. Irrevocable life insurance trusts (or ILIT’s) can be used in order to get a person’s life insurance proceeds outside his or her estate for estate tax purposes.
Spendthrift trusts. Spendthrift trusts are generally established to protect the beneficiaries’ assets from both themselves and creditors. These trusts usually have an independent trustee who has complete discretion over the distribution of assets of the trust.
Main components of a Estate Plan:
Revocable Living Trust:
Trusts are simply an arrangement where one party holds property on behalf of another party. In an estate planning context, trusts are created by the person doing the estate planning (the settlor), who authorizes another person (the trustee) to manage the assets for the benefit of a third party (the beneficiaries).
Durable Power of Attorney:
A Durable Power of Attorney is a document that authorizes a person you choose (your "agent") to manage your financial affairs if you become unable to manage them yourself.
Advance Health Care Directive:
California law gives you the ability to insure that your health care wishes will be honored if you become unable to make these decisions yourself. An Advance Health Care Directive is a document by which you appoint someone you choose (your “agent”) to make your medical decisions and provide care if you become incapacitated. Any California resident who is at least eighteen (18) years old (or is an emancipated minor), of sound mind, and acting of his or her own free will can complete a valid Advance Health Care Directive.
Guardianship designations:
The guardian nomination specifies how your kids will be taken care of and by whom. You can name both long term/permanent guardians, as well as short term/temporary guardians (for example, if you leave on a trip your documented wishes will allow the short-term guardian to make medical, school-related and other important decisions for your child while you are out of town).
Pour-over-Will:
It is a special type of Will that basically states that any assets that have not been funded into your revocable living trust should go there when you die. Basically it names your trust as the beneficiary of any property it does not already hold. As explained above, one of the main purposes of a living trust is to avoid probate. Unfortunately, any of your property that isn't funded into your trust before you die will require probate, even if it's directed to your trust via a pour-over will. Ideally, you won't need your pour-over will, it is just a safety net
What does it mean to "fund" the Trust?
Funding the trust means that you must transfer all your assets, like the title of your home, into the name of the trust or name the trust as the beneficiary of various assets, like your life insurance, retirement funds, etc.
How long does it takes to create an Estate Plan?
Creating an estate plan takes approximately 4-6 weeks.
Isn't Estate Planning super expensive?
It doesn't have to be. Most of the work we do is billed on a flat-fee basis, agreed to in advance, so there are never any surprises.
Do I need to live in the greater San Diego area to work with you?
No, but you must live in the state of California as I am only licensed to practice law in the Golden State.
