Estate Law / Wills / Trusts

Making a will

A will ensures that the decedent’s wishes are honored and all intended beneficiaries receive the assets the decedent intended them to have. Without a will, the state will appoint an administrator and dispose of the descendent’s assets according to state law in a manner that may not have been the decedent’s intent while living. The process can invite unwanted tax consequences and lead to family disputes

A will should include the following:
Property distribution
Provisions for any children
Executor of the estate
Other Considerations

Avoid Probate

Probate is a process that verifies the will, settles all claims on the estate, determines tax liabilities, sells

Probate may not be avoided completely in come cases even if a will is made, especially in large estates, but there are ways to dispose of assets while the individual is still living.

Living trsuts; a living trust allows a person to name a trustee to manage the trust and its assets. The allows your or an appointed trustee to control or manage the assets for beneficiaries until they reach a certain age. It also protects assets from creditors if you have an irrevocable trust.

Joint ownership; joint ownership of property with a right or survivorship allows title to automatically pass to the surviving joint owner on your death. In California, community property laws dictate that your spouse will receive your share or be divided among your surviving spouse and children.

Accounts with designated beneficiaries; property with a title may have designated beneficiaries such as bank accounts, real property, cars and retirement accounts like an IRA. An IRA allows you to contribute a certain sum each year without income tax, and the interest earned is not taxable. A beneficiary may stretch the distributions of your account over a period of years to minimize tax consequences.
Distribute assets while living; Real property or valuable personal possessions may be transferred during your lifetime to avoid probate.

California has a small estate exemption of $150,000 allowing these estates to be distributed outside of probate. Find out more information about what is probate by contacting our office for an appointment.

Financial power of attorney
A power of attorney allows you to appoint someone to handle your affairs once you become incapacitated. The individual has a fiduciary duty to look out for your best interests, Keep records and avoid conflicts of interest. It is revocable on your death, of it may have an expiration date.

Power of attorney for Health Care
consider a health care power of attorney for someone to make health care decisions for you.

Regardless of where you live, you should have several basic estate planning documents in place: a will, a durable power of attorney for finances, and a medical directive. And if you live in California, a prosperous state with sky-high real estate values in its urban areas, it’s an especially good idea to also think about planning to avoid probate after you death.

California has an unusual system of compensating probate lawyers. Unlike most sates, California law makes it a standard procedure for probate lawyers to charge, as their fee, a percentage of the gross value of the assets that go through probate. (These assets are collectively known as the “probate estate”) The state’s probate code (Cal. Probate Cade 10810, 10811) sets out the percentages

4% of the first $100,000 of the gross value of the probate estate
3% of the next $100,000
2% of the next $800,000
1% of the next $9 million

What is estate planning?
Estate planning is a process. It involves people- your family, other individuals and, in many cases, charitable organizations of your choice. It also involves your assets (your property) and the various forms of ownership and title that those assets may take. And it addresses your future needs in case you have ever become unable to care for yourself.

Through estate planning, you can determine:
How and by whom your assets will be managed for your benefit during lifetime if you ever become unable to mange them yourself.
When and under what circumstances it makes sense to distribute your assets during your lifetime.
How and to whom your assets will be distributed after your death
How and by whom your personal care will be managed and how health care decisions will be made during your lifetime if you become unable to care for your self.

What is involved in estate planning?
There are many issues to consider in creating an estate plan. First of all, ask yourself the following questions:
What are my assets and what is their approximate value?
Whom do I want to receive those assets- and when?
Who should manage those assets if I cannot- either during my lifetime or after my death?
Who should be responsible for taking care of minor children if I become unable to care for them myself?
Who should make decisions on my behalf concerning my care and welfare if I become unable to care for myself?
What do I want done with my remains after I die and where would I want them buried, scattered or otherwise laid to rest?

If you fail to plan ahead, a judge will simply appoint someone to handle your assets and personal care. And your assets will be distributed to your heirs according to a set of rules known as intestate succession. Contrary to popular myth, everything does not automatically go to the state if you die without a will. Your relatives, no matter how remote, and in some cases, the relatives of your spouse will have priority in inheritance ahead of the state. Still, they may not be your choice of heirs; an estate plan gives your much greater control over who will inherit your assets after your death.

What is included in my estate?
All of your assets. This could include assets held in your name alone or jointly with others, assets such as bank accounts, real estate, stocks and bonds and furniture, cars and jewelry. Your assets may also include life insurance proceeds, retirement accounts and payments that are due to you (such as a tax refund, outstanding loan or inheritance)

The value of your estate is equal to the “fair market value” of all your various types of property- after you have deducted your debts (Your car loan, for example, and any mortgage on your home)

The value of your estate is important in determining weather your estate will be subject to estate taxes after your death and whether your beneficiaries could later be subject to capital gains taxes. Ensuring that there will be sufficient resources to pay such taxes is another important part of the estate planning process.

What is a will?

A will is traditional a legal document which:
Names individuals (or charitable organizations) who will receive your assets after your death, either by outright gift or in a trust.
Nominates an executor who will be appointed and supervised by the probate court to manage your estate; pay your debts; expenses and taxes; and distribute your estate according to the instructions in your will.
Nominate guardians for your minor children

Most assets in your name alone at your death will be subject to your will. Some exceptions include securities accounts and bank accounts that have designated beneficiaries, life insurance polices, IRA’s and other tax-deferred retirement plans, and some annuities. Such assets would pass directly to the beneficiaries and would not be included in your will.

In addition, certain co-owned assets would pass directly to the surviving co-owner regardless of any instructions in your will. And assets that have been transferred to the revocable living trust would be distributed through the trust- not your will.

What is a revocable living trust?

It is a legal document that can, in some cases, partially substitute for a will. With a revocable living trust (also known as a revocable inter vivos trust or grantor trust), your assets are put in to the trust, administered for your benefit during your lifetime and transferred to your beneficiaries when you die- all without the need for court involvement.

Most people name themselves as the trustee in charge of managing their living trust’s assets. By naming yourself as trustee, you can remain in control of the assets during your lifetime. In addition, you can revoke or change any terms of the trust at any time as long as you are still competent. (The terms of the trust become irrevocable when you die)

In your trust agreement, you will also name a successor trustee (a person or instruction) who will take over as the trustee and manage the trust’s assets if you should ever become unable to do so. Your successor trustee would also take over the management and distribution of your assets when you die.

A living trust does not, however, remove all need for a will. Generally, you would still need a will- Known as a pour over will- to cover any assets that have not been transferred to the trust.

You should consult with a qualified estate planning lawyer to assist you in preparation of a living trust, your will and other estate planning documents. Also, keep in mind that your choice of trustees is extremely important. That trustee’s managements of your living trust assets will not be automatically subject to direct court supervision.

For more detailed information, see the State Bar pamphlet Do I need a living Trust?

What is probate?

Probate is a court-supervised process for transferring a deceased person’s assets to the beneficiaries listed in his or her will. Typically, the executor named in your will would start the process after your death by filing a petition in court and seeking appointment. Your executor would then take charge of your assets, pay your debts and, after receiving court approval, distribute the rest of your estate to your beneficiaries. If you were to die interstate (that is, without a will), a relative or other interested person could start the process. In such an instance, the court would appoint an administrator to handle your estate. Personal representatives is another term used to describe the administrator or executor appointed to handle an estate.

Simpler procedures are available for transferring property to a spouse or for handling estates in which total assets amount to less than $100,000.

The probate process has advantages and disadvantages. The probate court is accustomed to resolving disputes about the distribution of assets fairly quickly through process with defined rules. In addition, the probate court reviews the person representative’s handling of each estate, which can help protect the beneficiaries’ interests.

Who should be executor or trustee?

That is your decision. You could name your spouse or domestic partner as your executor or trustee. Or you might choose an adult child, another relative, a family friend, a business associate or a professional fiduciary such as a bank. Your executor or trustee does not need any special training. What is the most important is that your chosen executor or trustee is organized, prudent, responsible and honest.

While the executor of a will is subject to direct court supervision and the trustee or a living trust is not, they serve almost identical functions. Both are responsible for ensuring that your written instructions are followed.

How should I provide for my minor children?

First of all, in your will, you should nominate a guardian to supervise and care for you child (and to manage the child’s assets) until he or she is 18 years old. Under California law, a minor child (a child under 18) would not be legally qualified to care for himself or herself if both parents were to die. Nor is a minor legally qualified to manage his or her own property. Your nomination of a guardian could avoid a “tug or war” between well- meaning family members and others.

You also might consider transferring assets to a custodian account under the California Uniform Transfers to Minors Act to be held for the child until he or she reaches age 18, 21 or 25. Or you might consider setting up a trust to be held, administered and distributed for the child’s benefit until the child is even older.

Will my beneficiaries’ inheritance be taxed?

It depends on the circumstances. Assets left to your spouse (if he or she is a U.S. Citizen) or any charitable organization will not be subject to estate tax. Assets left to anyone else- even your children- will be taxed if that portion of the estate totals more than $5 million. In 2013, unless Congress changes the law, the exemption will drop to $1 million. For estates that approach or exceed these amounts, significant estate taxes can be saved by proper estate planning before your death or, for couples, before one of your dies.

In addition, while you are living, you can give away as much as $13,000 a year to each of your children or to anyone else without incurring gift tax. You could also pay your grandchild’s college tuition or medical insurance premiums (or anyone’s tuition or medical bills, for that matter) free of gift tax- but only the payments are made directly to the education institution or medical provider.

Does the way in which I hold title make a difference?

Yes. The nature of your assets and how you hold title to those assets is a critical factor in the estate planning process. Before you take title (or change title) t an asset, you should understand the tax and other consequences or any proposed change. Your estate planning lawyer will be able to advise you.

-Community property and separate property. If you are married or a registered domestic partner, assets earned by either your or your spouse or domestic partner while married or in the partnership and while a resident of California are community property. (Note: earned income in domestic partnerships, however, may not be treated as community property for federal income tax purposes.) As a married individual or registered domestic partner, you may continue to own certain separate property as well- property which you owned prior to the marriage or domestic partnership. A gift or inheritance received during the marriage or partnership would be considered separate property as well. Separate property can be converted to community property (and vice versas) by a written agreement (It must conform with California law) signed by both spouses. However, taking such a step can have significant tax and other consequences. Make sure that you understand such consequences before make any such change.

-Tenants in common. If you own property as tenants in common and one co-tenant (co-owner) dies, that co-tenant’s interest in the property would pass to the beneficiary named in his or her will. This would apply to co-tenants who are married or in a domestic partnership as well as to those who are single.

-Joint tenancy with right survivorship. Co-owners (married or not) of a property can also hold title as joint tenants with right of survivorship. If one tenant were to die in such a situation, the property would be simply pass to the surviving joint tenant without being affected by the deceased in person’s will.

-Community property with right of survivorship. If you are married or in a registered domestic partnership, you and your spouse could also hold title to property as community property with right of survivorship. Then, if your spouse or domestic partner were to die, the property would pass to you without being affected by the deceased person’s will.

Are there other ways of leaving property?

Yes. Certain kinds of assets are transferred directly to the named beneficiaries. Such assets include:
Life insurance proceeds.
Qualified or non-qualified retirement plans, included 401 (k) plans and IRA’s
Certain “trustee” bank accounts.
Transfer on death (or TOD) securities accounts

Keep in mind that these beneficiary designations can have significant tax benefits and consequences for your beneficiaries- and must be carefully coordinated with your overall estate plan.

What happens if I become unable to care for myself?

You can help determine what will happen by making your own arrangements in advance. Through estate planning, you can choose those who will care for you and your estate if you ever become unable to do so for yourself. Just make sure that your choices are documented in writing.

A Power of Attorney, for example, is a written legal document that gives another person the right and authority to act on your behalf. It can be limited to special circumstances or it can be general. That authority will end if you become incapacitated- Unless you have durable power or attorney. A durable power or attorney will remain in effect while you are incapacitated. This means that if you were suddenly unable to handle your own affairs, someone you trust- your legal agent or attorney-in-fact- could do so for you.

Or you might choose to set up a springing power of attorney, which would only become effective at a specified future date or event (your loss of capacity, for example)

If you set up a living trust, it is the trustee who will provide the necessary management of the assets held in trust. In such a case, your might consider setting up a durable power of attorney for property management as well to handle limited financial transactions and to deal with assets that may not have been transferred to your living trust.

With an advance health care directive, you can also designate someone to make health care decisions for you in the event that you become unable to do so for yourself. In addition, this legal document can contain your wishes concerning such matters as life-sustaining treatment and other health care issues and instructions concerning organ donation, disposition of remains and your funeral. (You can revoke the directive at any time, as long as you are still competent ) Give copies to your health care agent, alternate agent, doctor, health plan representatives and family. And if you admitted to a hospital or nursing home, take a copy with you.

How much does estate planning cost?
It depends on your individual circumstances and the complexity of documentation and planning required to achieve your goals and objectives.

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