Estate Planning FAQ
What is Estate Planning?
For most clients, an estate plan includes a living trust, pour–over wills, durable powers of attorney, and advance health care directives. It also contains a schedule A to list the assets you have including real estate, bank accounts and business interests like S corporations, partnerships, and Limited Liability Corporations, LLCs. Our firm will also prepare the deeds to transfer your real estate to your trust and ensure that those deeds are properly filed with the appropriate county recorder’s office.
What is a Living Trust?
A living trust, sometimes called a revocable living trust, or just a revocable trust, is one component of a comprehensive estate plan. A living trust is designed to hold title to your major assets including real estate and bank accounts along with any business interests you may have. The advantage is that you do not own anything in your name because the trust owns your assets. However, during your lifetime you are still in charge of your assets and you can control them (and change their allocation) as you desire. However, should you become incapacitated or die, your living trust should be activated to install your successor trustee(s) as the person or people in charge of your trust properties to access them, pay your debts, and then distribute the remainder of the assets as you outlined in your living trust.
A living trust (unlike an irrevocable trust, which cannot be changed or canceled) can be altered, amended, and updated however you like during your lifetime and while you have the mental capacity.
There are a few variants of living trusts such as an A-B trust, A-B-C trust, a three-way marital trust, and a basic disclaimer trust. These specialized trusts can have carve-outs for special-needs beneficiaries or can create a legacy or dynasty trust for your heirs. If you would like to learn more about these variations and explore what type of trust best fits your needs, please contact us for a complimentary consultation.
Why do I need a Will and a Living Trust?
When you own a home or other real estate in California estate, a living trust is essential if you want to avoid probate (the formal court administration of a decedent’s estate). As long as the trust owns your assets, there is no reason for probate to occur: your successor trustee can distribute the trust property according to your stated desires without having to go to a probate court to approve the distribution. If you become incompetent, the successor trustee(s) can manage the property for your benefit without having to turn to a court for conservatorship and without ongoing court supervision.
In summary, a living trust holds title to your major assets. You name who should get what when you pass away and who should be in charge to oversee this effort on your behalf.
A good attorney will draft both a living trust and a backup pour-over will. We advise a pour-over will for two reasons:
The pour-over will is designed to grab any asset that you acquire after you create your living trust, but you forgot to put into your trust. Alternatively, if you died before you could do the transfer; the pour-over will catch the outlier. For example, if you won the lottery and then died before you could title the earnings into your trust, the pour over-will would capture the winnings and transfer them back into your trust via a probate proceeding. It’s a backup.
A pour-over will is the preferred document to nominate guardians for minor children. People with young children should indicate the kids’ custodians (who will have agreed to this responsibility) should something happen to both the parents.
What is a Power of Attorney?
A power of attorney is a legal document that indicates who should be your agent to handle your financial matters if you are alive and not well. You can select who should handle your checkbook, taxes and other affairs with a properly prepared power of attorney. A well–drafted power of attorney is not two pages long with checkboxes. It should be between 18 and 30 pages long and expressly indicate all the powers that your agent has if you are alive but in some way incapacitated.
What is an Advance Health Care Directive?
The Advance Health Care Directive is an important “peace of mind” document that:
Names the person(s) who should make medical decisions for you if you are unable to make your own decisions
-Can indicate your desires for burial or cremation
-States your preferences for organ donation if that’s important to you
-Delineates strong feelings you may have about your health care if you are not able to make your own decisions
What is Schedule A?
The Schedule A is a companion to your living trust to indicate what you own and what should be included in it. Think of it as an index that tells your successor trustee(s) what you have and what they should collect and distribute when you die. You can update the Schedule A at any time, and it is a good idea to revise it each time you buy or sell an asset, or if relationships with your bank, investment, or insurance companies change, for instance. You don’t want to leave money out there that a beneficiary cannot locate because they were not aware of it. Some people have a reminder set up for their birthday or on an anniversary to make sure they review the Schedule A at least annually.
What is a Will?
A will is a written document created by a person stating how they want their property distributed upon their death. In a will you name an executor who supervises the distribution of your assets, payment of your debts to creditors, as well as other administrative duties. If you have minor children at the time of your death you can name a guardian to raise your minor children. Although a will is relatively inexpensive for you to create, your heirs will bear the cost of the legal process called probate. Probate can be quite lengthy to administer and is expensive to your heirs due to the fees and costs your estate must pay to the court, attorneys, and the executor before the heirs receive any distribution. Also, as a will must be filed with the County Clerk prior to probate, the will becomes part of the public record making the details of your estate accessible to anyone who wants to look. In addition, if you hold various parcels of real estate in different States, the process of probate is required in every State each property is located in.
What is Probate?
Probate is a court proceeding to determine the authenticity or validity of a will. Probate court is required when:
A house or other real property, bank accounts, or other assets such as stocks, bonds, mutual funds, brokerage accounts were not in a trust
The bank and investment accounts did not name a beneficiary, or
Another person did not own the house or real property in joint tenancy with the deceased.
Probate must be filed in the court in the county where the person died or owned property where the asset has no named beneficiaries assigned to it, and the asset was valued at $50,000 or more for real estate inside California, or if the total personal property is valued at more than $150,000. The assets not counted in the $150,000 are life insurance or other assets (such as retirement plans) that pass by the beneficiary designation, and as stated, assets held in a living trust.
Probate vs. Trust
A revocable living trust can avoid probate and save you thousands of dollars
The Disadvantages of Probate are:
Length of time probate takes
Disclosure of personal finances
Beneficiaries must wait till end of probate to use assets
A Living Trust is NOT subject to probate, a living trust’s advantages are:
Control of your own assets
Protects your privacy
Prevents the court from controlling your assets
Avoids the high costs of probate
Assets can be transferred immediately instead of taking months or years.