WHAT IS ESTATE PLANNING?
WHAT IS INVOLVED IN ESTATE PLANNING?
WHO SHOULD PLAN THEIR ESTATE?
WHAT DOES AN ESTATE INCLUDE?
DOES THE WAY IN WHICH I HOLD TITLE MATTER?
WHEN DOES ESTATE PLANNING INVOLVE TAX PLANNING?
WHAT IS A WILL?
WHAT IS A LIVING TRUST?
WHAT IS THE DIFFERENCE BETWEEN AN EXECUTOR AND A TRUSTEE?
WHAT IS THE MAIN DIFFERENCE BETWEEN A WILL AND A LIVING TRUST?
WHAT IS PROBATE?
WILL A LIVING TRUST PROTECT MY ASSETS FROM CREDITORS’ CLAIMS?
IS A CALIFORNIA LIVING TRUST VALID OUTSIDE OF CALIFORNIA?
WHAT IS AN A/B TRUST?
DOES AN A/B TRUST LIMIT A SURVIVING SPOUSE’S ACCESS OR USE OF TRUST ASSETS OR MONEY?
SHOULD SINGLE PEOPLE CONSIDER CREATING A LIVING TRUST?
WHAT DOES IT MEAN TO FUND A TRUST?
CAN I CHANGE THE TERMS OF A LIVING TRUST WHENEVER I WANT?
CAN I PROHIBIT CERTAIN PEOPLE FROM RECEIVING MY PROPERTY IN MY LIVING TRUST?
HOW SHOULD I PROVIDE FOR MY MINOR CHILDREN AFTER I DIE?
HOW CAN I PROVIDE FOR IRRESPONSIBLE CHILDREN AFTER I DIE?
HOW CAN I PROVIDE FOR A DISABLED CHILD AFTER I DIE?
CAN THE SUCCESSOR TRUSTEE CHANGE ANY OF THE TRUST TERMS OR CONDITIONS?
WHAT HAPPENS TO ASSETS HELD IN A LIVING TRUST IF I GET DIVORCED?
HOW OFTEN SHOULD I REVIEW OR UPDATE MY TRUST?
WHAT IF I BECOME DISABLED?

Q. WHAT IS ESTATE PLANNING? Back to top

A. Estate planning is the process of a person or married couple organizing their affairs. One of the primary purposes of estate planning is to avoid probate, with its attendant fees, delay and publicity. Other objectives include avoiding, delaying or minimizing estate taxes and providing for the orderly distribution of a decedent’s assets to their beneficiaries according to the decedent’s wishes. Basic estate planning will normally include utilizing a revocable or living trust, a certification of that trust, pour-over wills, durable powers of attorney, and advance health care directives. Other advanced estate planning may include using irrevocable life insurance trusts, charitable lead or remainder trusts, and other techniques. The overall objectives of estate planning are to avoid probate, to avoid, delay or minimize estate taxes, and to allow for the private transfer of wealth.

Estate planning is a process that involves you, your family, and other individuals and, perhaps, charitable organizations of your choosing. It also involves federal and state laws, your assets and all the various forms of ownership that those assets may take. Depending on your particular circumstances, estate planning may also involve business and business succession planning. It also involves planning for your general welfare and financial needs, and planning for your health care, if you become disabled and are no longer able to care for yourself or your assets.

Q. WHAT IS INVOLVED IN ESTATE PLANNING? Back to top

Estate planning includes consideration of following factors:

• Determining the nature, extent and market value of your assets

• Identifying those people who you want to receive your assets, when and under what conditions

• Deciding who you would want to manage those assets, during your lifetime if you are unable to, and after your death

• Nominating a guardian who would be responsible for the care of your minor children should you become incapacitated or die

• Designating who will make medical decisions for you if you cannot speak for yourself

Consideration of these factors, will help you get focused on what your objectives are and will help prepare you for a meaningful consultation with a qualified lawyer who will assist you in planning your estate.

Q. WHO SHOULD PLAN THEIR ESTATE? Back to top

A. Virtually every adult should plan their estate to one extent or another. If you do no estate planning for yourself, California law will do it for you by default. For example, California law provides that the court will appoint people to take charge of your personal care and assets if you become disabled, or to direct the disposition of your assets when you die.

If you fail to make a will, California law provides for the distribution of your assets to your heirs according to a set of rules set forth in the Probate Code. If you have any relatives, regardless of how remote, they will be your statutory heirs. However, you may not want some or all of these people to inherit your assets. To avoid this result, a will or living trust will provide you with control over who receives your assets, when and under what conditions.

If your estate is not complex and has a gross value of less than $100,000, you may wish to focus simply upon who will oversee the administration of your estate and who will receive your assets after your death. Oftentimes this can be done by using a simple will. However, if your estate is complex, includes real estate or has a gross value in excess of $100,000, a living trust allows you to avoid probate, to designate your beneficiaries, and to avoid, delay or minimize the amount of estate tax which otherwise might be payable on your death.

Whatever the size of your estate, you should designate the person who, in the event of your incapacity, will have the responsibility for the management of your assets and your care, including the authority to make health care and end-of-life decisions on your behalf.

Q. WHAT DOES AN ESTATE INCLUDE? Back to top

A. The extent of an estate will vary depending on the context, but it generally consists of all property or interests in property which a person owns or controls at death. Ownership is often, but certainly not always, evidenced by some sort of written title.

The value of an estate for probate purposes is the gross value of all assets a person owns that do not automatically transfer to another person upon death. For estate tax purposes, the value of an estate is equal to the fair market value of assets that a person owns or controls, less their debts and encumbrances. It also includes the amount of life insurance death benefits and the value of retirement or pension plans.

Q. DOES THE WAY IN WHICH I HOLD TITLE MATTER?
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A. The nature of your assets and how you hold title to those assets is a critical factor in the estate planning process. Before you change title to an asset you now own, you should understand the tax and other consequences of any proposed change of ownership. Your estate planning lawyer will be able to advise you on these matters. Some of the more common ways to hold title to real estate are as joint tenants, as tenants in common or as community property

Joint Tenancy Property will automatically pass to the surviving joint tenant(s) by operation of law upon the death of the first joint tenant. On the other hand, property held as community property or as tenants in common, will be subject to the will or trust of a deceased owner. But income tax consequences of holding title one way or the other must be considered.

There are significant income, estate and property tax considerations which need to be addressed in the estate planning process with respect to both community property and separate property. There may also be significant property interests to consider. In addition, married California residents can change their separate property to community property by a written agreement signed by both spouses and drafted in conformity with California law. Obviously, it is important to seek competent legal advice when determining what character your property is and how the property should be titled.

Q. WHEN DOES ESTATE PLANNING INVOLVE TAX PLANNING?
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A. Estate tax planning is a critical consideration when the potential for estate tax liability exists. For calendar year 2006, federal estate taxes are imposed upon individual estates having a net value of $2,000,000 or more. As federal law now stands, this amount will increase irregularly through 2009. For estates which approach or exceed this value, significant estate taxes can be saved or avoided by proper estate planning. Estate planning for taxation purposes must take into account not only estate taxes, but other taxes as well, such as income, gift, property and generation-skipping taxes.

Q. WHAT IS A WILL? Back to top

A. The person who executes a will is called the testator. The person who administers the will is called the executor. A will is a traditional legal document which is effective only at the testator’s death. It is used by the testator to designate the beneficiaries of his or her estate, i.e., who will receive the testator’s assets upon his or her death. It is also the document where the testator names the executor and nominates a guardian of the testator’s minor children.

For some people a form California Statutory Will may be appropriate. This is a "fill-in-the-blanks" form which can be used by any California resident competent to make a will. However, for this form will to be valid, the appropriate blanks must be properly filled in and it must be executed in the manner required by California law.

Whatever form of will is used, administration of an estate pursuant to a will generally will be under the supervision and direction of the probate court, usually in the county where the testator resided at death.

Q. WHAT IS A LIVING TRUST? Back to top

A. The person who creates a living trust is called the settlor. The person who administers the trust is called the trustee, and may be an individual, corporation or professional fiduciary. A revocable or “living” trust is a legal entity created by the settlor or settlors, while they are alive. It essentially is a “holding bin” or receiver of legal title to assets of the settlor, and it sets forth the directions for the distribution of the settlor’s assets during his or her life and after he or she dies. This trust can be amended or revoked at any time while the settlor is alive and competent.

A living trust is also a written agreement between the settlor and the trustee. In most family cases, the settlors designate themselves as the initial trustees until management assistance is either anticipated or required. At that point the designated successor trustee will act in place of the settlors. A revocable trust becomes irrevocable upon the death of the settlor or settlors. In essence, a revocable trust fulfills the same purpose as a will.

Q. WHAT IS THE DIFFERENCE BETWEEN AN EXECUTOR AND A TRUSTEE? Back to top

A. While the testator is alive, the designated executor has no duties to fulfill. The successor trustee, on the other hand, may assume trustee duties under a trust if the settlor becomes disabled or decides to resign as trustee.

The executor of the will and the successor trustee of a trust serve almost identical functions following the death of the testator and settlor, respectively. Both owe impartial fiduciary duties to designated beneficiaries and are responsible for ensuring that the directions set forth in a will or living trust are properly implemented. In choosing an executor or successor trustee, there are a number of issues to be considered by the settlor(s). For example, the potential for undue stress and estrangement among siblings if one is designated successor trustee; potential conflicts of interest that may be created if a certain individual is named as executor or successor trustee; the need for the person named as executor or successor trustee to have the intelligence, time, organizational skills, and knowledge to effectively fulfill executor or trustee duties. Because of these issues and the fact that living trusts are not automatically subject to probate court supervision, the choice of a successor trustee to manage and control your property is an extremely important decision.

Q. WHAT IS THE MAIN DIFFERENCE BETWEEN A WILL AND
A LIVING TRUST? Back to top

A. A will, by definition, must be probated to be given effect. A revocable trust, on the other hand, is privately administered without having to go through the lengthy, expensive, and complex probate process.

Q. WHAT IS PROBATE? Back to top

A. Probate is the court-supervised legal process under California law, the goal of which is to accomplish the ultimate transfer of assets to the testator’s designated beneficiaries or the intestate decedent’s statutory heirs. It also provides a means for the resolution of disputed creditor claims against the decedent’s estate. At the beginning of a probate administration, a petition is filed with the court, usually by the designated executor, but sometimes by someone else, such as a creditor. After proper notice is given and a court hearing is held, the will is admitted to probate and the court formally appoints the executor.

The executor is charged with the duty to marshal, inventory, account for and distribute estate assets, to notify creditors of the decedent of the decedent’s death, to determine the validity of creditor claims, and to pay those claims. The executor also has the duty to prosecute any claims of, or defend claims against, the estate of the decedent. All of this process is done under the supervision of the probate court. Probate fees are set by statute and are typically much more than the costs associated with administration of a trust.

A probate has advantages and disadvantages. The probate court has jurisdiction to resolve disputes regarding creditor claims and to direct the distribution of the decedent’s assets in accordance with California law. In addition, probate requires that the actions and accountings of the executor be reviewed and approved by the probate court.

Disadvantages of a probate include its open and public nature. For example, the decedent’s will, the identity of beneficiaries, and the value of the decedent’s assets are a public record. Also, because lawyer's fees and executor's compensation are based upon a statutory fee schedule, probate fees and expenses are typically greater than those incurred during the trust administration of a comparable estate. A formal probate may take from 12 to 24 months to complete, whereas, depending on the specific terms of a trust, trust administration can typically be completed in much less time.

The advantages and disadvantages of a probate proceeding should be discussed thoroughly with your estate planning lawyer.

Q. WILL A LIVING TRUST PROTECT MY ASSETS FROM CREDITORS’ CLAIMS? Back to top

A. A revocable or living trust will not protect your assets from your creditors’ claims, including those of the Internal Revenue Service.

Q. IS A CALIFORNIA LIVING TRUST VALID OUTSIDE OF CALIFORNIA? Back to top

A. Yes, a California revocable trust is valid in other states. Even so, if a California trust holds title to real property in another state, an ancillary probate proceeding in that state may be necessary to establish the validity of the trust and powers of the trustee.

Q. WHAT IS AN A/B TRUST? Back to top

A. This is a generic term used by many people and some lawyers to mean different things. Most commonly it is used to describe a trust for a married couple that divides into two separate trusts upon the death of the first spouse to die. The “A” trust is typically designated the survivor’s trust, while the “B” trust is typically designated the decedent’s, bypass, exemption, or credit shelter trust. This sort of trust is designed to avoid, delay or minimize estate taxes and to protect the settlors’ beneficiaries, especially in blended families.

A. It depends. The surviving spouse can use their own trust assets anyway they wish. However, the extent to which a surviving spouse can use the decedent’s trust assets is typically more limited by the terms of the trust established when the trust was created.

Q. SHOULD SINGLE PEOPLE CONSIDER CREATING A LIVING TRUST? Back to top

A. Absolutely. Planning one’s estate is for the benefit of one’s survivors, heirs, beneficiaries and family members. The objective of this planning process is to minimize their grief, angst, stress, efforts and costs, irrespective of whether one is single or married.

Q. WHAT DOES IT MEAN TO FUND A TRUST? Back to top

A. Funding a trust is the process of transferring legal title to assets to the trust. A trust that holds no assets is worse than worthless. An unfunded trust will result in wasted money being spent to establish the trust, it will create a false sense of security that your estate has been planned according to your wishes, it will result in your estate incurring costs and expenses for probate, and may even lead to significant estate tax liability that would have been avoided by a properly funded trust. A competent estate planning attorney will help you with the funding process.

Q. CAN I CHANGE THE TERMS OF A LIVING TRUST WHENEVER I WANT? Back to top

A. A settlor can amend, delete, change or revoke a living trust, in whole or in part, at anytime during their life while they are competent.

Q. CAN I PROHIBIT CERTAIN PEOPLE FROM RECEIVING MY PROPERTY IN MY LIVING TRUST? Back to top

A. Yes you can. In fact, your being able to decide who should or should not receive any or all of your assets, when, and under what conditions, are some of the primary reasons for planning your estate.

Q. HOW SHOULD I PROVIDE FOR MY MINOR CHILDREN AFTER I DIE?
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A. A minor child is a child under 18 years of age. If both parents are deceased, a minor child is not legally qualified under California law to care for himself or herself. Accordingly, you should nominate a guardian of the person of any minor child in your will. If approved by the Probate Court, this guardian will supervise minor children and be responsible for their care until the children reach 18 years of age. Nominating a guardian will help avoid conflicts between well-meaning family members and others if a guardian is required.

In addition, a minor is not legally competent to manage his or her own property. Assets transferred outright to a minor must be held for the minor's benefit by a guardian of the child's estate, until the child attains 18 years of age. Accordingly, you should nominate a guardian of the estate of any minor child in your will as well. In providing for minor children in your estate plan, you should consider the use of a trust for the child's benefit, to be held, administered and distributed for the child's benefit until the child is at least 18 years old or of some other age as you may desire.

Q. HOW CAN I PROVIDE FOR IRRESPONSIBLE CHILDREN AFTER I DIE?
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A. In addition to any specific limitations or conditions you wish to place upon such children receiving any of your assets, there are other provisions you can include that will keep the creditors of such children from using you property to satisfy your children’s debts. There are several such limitations that can be employed, but their respective consequences need to be taken into consideration.

Q. HOW CAN I PROVIDE FOR A DISABLED CHILD AFTER I DIE?
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A. Money can be set aside, held and distributed for a disabled child’s benefit by the trustee through a “Special Needs Trust.” A properly drafted Special Needs Trust can provide certain financial aid for the benefit of the disabled child without compromising their ability to qualify for public assistance.

Q. CAN THE SUCCESSOR TRUSTEE CHANGE ANY OF THE TRUST TERMS OR CONDITIONS? Back to top

A. No, unless the trust provides otherwise. However, if the trust was defective or ambiguous, the successor trustee may have to ask the probate court to correct or clarify the defect or ambiguity.

Q. WHAT HAPPENS TO ASSETS HELD IN A LIVING TRUST IF I GET DIVORCED? Back to top

A. Community property assets transferred to a revocable trust remain community property, absent a written agreement by the spouses to the contrary. Likewise, separate property remains separate property. In the event of divorce, the family court will have jurisdiction over the parties’ assets, both community and separate property, irrespective of whether such property is held in a trust or not.

Q. HOW OFTEN SHOULD I REVIEW OR UPDATE MY TRUST? Back to top

A. It is prudent to review your entire estate plan annually. You can do this yourself, but you may not be aware of recent changes in the laws and regulations regarding trusts, patient privacy, durable powers of attorney, estate taxes, etc. So, just like you would get a physical examination from your doctor each year, it would be a good idea to talk to your estate planning attorney about your particular situation on an annual basis.

Q. WHAT IF I BECOME DISABLED? Back to top

A. The successor trustee of your living trust will provide the necessary management of those assets held in trust. However, for those assets which may not have been transferred to your living trust, a Durable Power of Attorney will be required to enable your designated agent, called your attorney-in-fact, to manage your assets. Your attorney-in-fact manages your assets without probate court supervision. The authority of your attorney-in-fact to manage your assets ceases at your death.

An Advance Health Care Directive authorizes your designated agent to make health care decisions for you when you can no longer make them yourself. It may also contain statements of wishes concerning such matters as health care decisions and life support treatments. Its most critical use is for you, the principal, to express, and the agent to implement, the end-of-life medical decisions of the principal, including organ donation, disposition of remains, and funeral arrangements. This process is intended to eliminate the stress and guilt of family members struggling to decide what you would want done if you are unable to speak for yourself. Your agent is empowered to make your medical care decisions without probate court supervision.

Unless you properly executed a Durable Power of Attorney and an Advance Health Care Directive before becoming disabled or incapacitated, a court-supervised conservatorship of your estate and/or person may be required. Conservatorships are proceedings which allow the probate court to appoint a person who will be responsible for the management of your estate and to make decisions for your medical care if you are unable to do so yourself. As a general rule, conservatorships are time-consuming, expensive and oftentimes inefficient from a practical standpoint.

A valid Durable power of Attorney and an Advance Health Care Directive will generally obviate the need for conservatorship proceedings. Since you are six times more likely to become disabled this year than die, the need for you to have a Durable Power of Attorney and an Advance Health Care Directive is obvious.

Legal Disclaimer
The information provided to you through this website is intended for educational purposes only. Nothing on this website should be considered legal advice or as a substitute for legal advice. The applicable law will vary depending on your state, jurisdiction and the specific facts and circumstances of your case.

Attorney Melvin D. Rich is licensed to practice law only in the State of California and does not seek to practice law in states, territories and foreign countries other than the State of California. Contacting Attorney Melvin D. Rich through this website is not intended to and does not create an attorney-client relationship between you and Attorney Melvin D. Rich.