WHAT IS ESTATE PLANNING?
Estate planning involves creating a plan which is consistent with your goals for managing your estate while you are alive and distributing it after your death. Three primary goals to estate planning are: (1) Maintain control while living, (2) Distribute responsibly and (3) Minimize expenses. Three major estate planning obstacles to avoid are: Probate, Conservatorship and Estate Taxes.
WHAT IS PROBATE?
Probate is a court proceeding whereby the court supervises the administration and distribution of a deceased person's estate in accordance with the instructions left in their Will or in accordance With the state statutes if no Will is found. Probate is necessary when the deceased person's signature is needed to transfer title on real estate, checking and savings accounts, stock certificates and other assets to the heirs. As part of the probate process a notice of death is published in a newspaper in order to allow creditors to make claims against the estate. Probate proceedings are open to the public and therefore anyone can examine the contents of the court file which contains the Last Will and Testament and information regarding finances. Probate is very expensive with fees and costs as high as 10% of the gross estate. Probate is also a lengthy process that takes on the average anywhere from 8 months to 2 years to complete.
WHAT IS A CONSERVATORSHIP?
A conservatorship is a court proceeding similar to probate by which a conservator is appointed to manage an individual's personal and financial affairs when they are unable to do so themselves. A conservatorship solves the problem of obtaining an individual's signature when the signature is unobtainable or legally unacceptable because the individual is physically or mentally incapacitated. This procedure is time consuming and open to the public. A conservatorship is also expensive. Periodic court accountings are mandatory, which are an additional expense upon the conservatorship.
IS A DURABLE POWER OF ATTORNEY EFFECTIVE IN AVOIDING A CONSERVATORSHIP?
A Durable Power of Attorney is a written document given by one person or party to another allowing one person to act for the other. It remains effective during the principal's lifetime, even if the principal becomes incapacitated. Although a Durable Power of Attorney is an added security in one's estate plan, the following problems prevent it from acting as a reliable safeguard against a conservatorship: (A) Many institutions may not accept a Durable Power of Attorney either because they require their own form to effect the Durable Power of Attorney or because they believe it lacks legal validity and (B) The Durable Power of Attorney can be revoked by a court-appointed conservator.
DO I NEED A WILL IF I HAVE A LIVING TRUST?
Yes, a special Will called a Pour-Over Will is used to capture and pour-over any assets that are inadvertently left outside the Trust so that these assets are distributed according to the provisions of the Trust. The Living Trust, in effect becomes a will substitute because the Trust spells out how the estate will be distributed at the time of death. However, there are many exceptions to the Pour-Over rule. For example, qualified retirement plans, life insurance policies, annuities and paid-on-death accounts pass by way of a beneficiary designation. These are non-probate transfers that are controlled by contract. The Pour-Over Will cannot capture and pour-over these kinds of accounts. Also, jointly held accounts pass by right of survivorship or by operation of law and therefore the survivor is entitled to the money in these accounts, notwithstanding the provisions of the Pour-Over Will.
CAN ANYONE PREPARE A LIVING TRUST FOR ME?
No, an experienced attorney specializing in Trusts and Estates should be the only person that prepares the Living Trust and other estate planning documents.
IF THE VALUE OF MY ESTATE IS LESS THAN $5,490,000, DO I NEED A LIVING TRUST?
Yes, the primary reason to create a Living Trust is to avoid probate. If the estate has a fair market value that exceeds $150,000 then it would be subject to probate without a Living Trust. This is the case even if the equity in the estate is less than $150,000. For most people, their home alone has a fair market value that exceeds $150,000. The $5,490,000 figure (for year 2017) is the amount of equity in an estate that is exempt from the estate tax.
CAN I BE MY OWN TRUSTEE?
Yes, usually the Settlor or creator of the Living Trust and the Ttrustee are one and the same. For a married couple both spouses usually act as Trustees. At the surviving spouse's death or incapacity, a child, relative or friend will usually act as the successor Trustee.
CAN I ADD TO OR WITHDRAW ASSETS FROM MY LIVING I TRUST AFTER IT HAS BEEN CREATED WITHOUT LEGAL FEES?
Yes, the Trustee of a Living Trust has complete control and management over the assets in trust and therefore can open new accounts or close existing accounts as easily as anyone else can do so. A special set of instructions called funding instructions are included in the portfolio that show how title must be held on an asset for that asset to be in trust. Therefore, if the Trustee wants to open a new account or buy a piece of real property, as the case may be, and wants that asset in trust, it is simply a matter of referring to the funding instructions to see how to open the account or how to take title to the real property.
IF I TRANSFER MY HOME OR OTHER REAL PROPERTY TO THE LIVING TRUST WILL IT TRIGGER REASSESSMENT OF THAT PROPERTY FOR PROPERTY TAX PURPOSES UNDER PROPOSITION 13?
No, transfers of real property to a revocable Living Trust do not trigger reassessment of the property.
IF I MOVE TO ANOTHER STATE WILL MY LIVING TRUST STILL BE VALID?
Yes, the Living Trust is valid no matter where an individual resides in this country.
CAN I TRANSFER REAL PROPERTY LOCATED IN ANOTHER STATE INTO MY LIVING TRUST?
Yes, real property located in another state should be transferred into the Living Trust in order to avoid an ancillary probate in that state.
CAN I CHANGE THE TERMS OF MY LIVING TRUST AFTER IT HAS BEEN SIGNED?
Yes, the terms of the Living Trust may be changed after it has been created as long as the Settlor has the capacity to make the change. However, a formal amendment is necessary in order to change or amend the Living Trust. Usually, a change in the law will not require an amendment to the Living Trust. A change in family circumstances, on the other hand, will oftentimes create a need or desire to amend the Living Trust.
WHEN THE FEDERAL ESTATE TAX EXEMPTION CHANGES DO I NEED TO AMEND MY LIVING TRUST?
No, the Living Trust is drafted in a manner as to allow for changes in the Estate Tax Exemption.
WHEN ONE SPOUSE DIES DOES THE SURVIVING SPOUSE NEED LEGAL ASSISTANCE?
Yes, the trust estate must be administered at the death of the first spouse. The attorney will inform and educate the surviving spouse regarding their responsibilities as Trustee and the procedures required to carry out the administration at that time.
SHOULD I WAIT UNTIL I AM A SENIOR BEFORE I CREATE A LIVING TRUST?
No, anyone with a home and/or other assets and a desire to protect their estate for their family should create a Living Trust regardless of age.