Frequently Asked Questions regarding Estate Planning
- Who Needs Estate Planning?
Answer: Everyone needs estate planning whether their estate is large or small. You need to designate someone to manage your assets if you cannot manage them for yourself, specify how your assets should be distributed upon your death, designate someone to make health care decisions for you if you are unable to make such decisions, and, if you have minor children, designate your choice of guardian and who should manage their property if you should die while they are still minors.
- Why Do Individuals Choose To Do An Estate Plan?
Answer: There are a wide range of reasons why individuals do an estate plan, including their desire to do the following:
- Establish a plan of distribution for an individual's assets after their death;
- Designate the individual who will handle their affairs after their death;
- Avoid probate (if appropriate);
- Name a guardian for minor children and designate a person(s) to handle minor children's assets until they reach the age of majority;
- Establish a plan to delay the distribution of an estate to children beyond the age majority until they are mature enough to handle the assets;
- Provide instructions and a process for handling the care and management of an individual's assets if they become incompetent;
- Protect assets that will be left to a spouse or children from creditors and predators;
- Save the greatest amount of taxes and post death trust administration costs as possible;
- Coordinate an estate plan with an individual's financial plan.
Each individual's situation is unique and there can be multiple issues that motivate an individual to do an estate plan.
- What Happens If I Don't Have A Will Or Revocable Trust?
Answer: Everyone has an estate plan even if they have not done any estate planning, executed a will or finalized a revocable trust. When you do a will or revocable trust, you have the opportunity to put down in writing how you want to dispose of your property when you die and who you want to be in control of your affairs after your death. However, if you have not done anything, your estate plan will be dictated by law of the state where you are residing at the time of your death. If you are a California resident at the time of your death, California law provides the rules of distribution that must be followed if a person dies intestate (without a will or trust) and the priority of the individuals who would be appointed to handle your estate after death. These rules may provide for a distribution that you do not want and may provide that someone you would not choose will be appointed as the person to handle your estate. In addition, most intestate estates will have to go through probate which is a court supervised process for transferring a deceased person's assets to his heirs or beneficiaries, incurring costs and delays associated with probate proceedings.
- If My Estate Has To Be Probated How Much Will It Cost And How Long Will It Take?
Answer: The fees to probate an estate are set by law and are a percentage of the probate estate. These probate fees are as follows:
|Over $25,000,000 - as the|
court deems reasonable
It should be noted that both the personal representative and the attorney are entitled to a fee of the same amount, and under some circumstances the court may also order that additional extraordinary fees be paid to the attorney and/or personal representative involving certain situations such as litigation, tax complications, or sale of real or personal property. Due to statutory requirements and the backlog in the courts, the minimum period a probate remains open is approximately eight months. A probate may remain open longer if there is a sale of real or personal property, litigation, or other complications.
- Is It Necessary To Probate Property That Is In Joint Tenancy Or Held In A Payable On Death Account?
Answer: No, many people put their assets in joint tenancy, either by accident or to avoid probate. Joint tenancy is a form of ownership where two or more people hold title to real or personal property in their names as joint tenants. Under the right of survivorship, the death of one joint tenant automatically transfers the remainder of the property in equal parts to the survivor(s). It is important to keep in mind that the use of joint tenancy may create problems that should be avoided. For example, if property is held in joint tenancy, the entire property may be subject to levy or attachment by a creditor of either joint tenant. In addition, the surviving joint tenant has total control of the joint tenancy asset after the death of the first joint tenant which can create problems, e.g., one child is on a bank account as a joint tenant for convenience and after the death of their parent does not choose to honor the wishes of their parent that the account be divided equally among all of the children. There may also be major estate, gift, and income tax problems that arise from joint tenancy. Given the problems associated with joint tenancy, it is generally a wise decision not to use joint tenancy as the primary method to pass on an individual's estate at the time of his or her death. Another option for passing assets to a beneficiary is a payable on death account which is simply a bank or investment account accompanied with instructions to the bank or investment company to transfer the account to a specific person(s) after the death of the account holder. Payable on death accounts do not have to go through probate and do not have many of the problems associated with joint tenancy assets, but need at a minimum to be coordinated with an individual's overall estate plan.
- How Should I Deal With Insurance, Retirement Plans, Annuities, IRAs, etc.?
Answer: Insurance, retirement plans, annuities, IRAs, and similar investments are often made payable directly to a spouse or, if there is no spouse, to surviving children, but there are situations where it is best to name a trust as the beneficiary. Each factual situation is unique and the decision of how to deal with such investments needs to be carefully reviewed and integrated with an estate plan to make sure there are no legal problems or unintended consequences that arise because of an individual's designation of beneficiaries. This is a complex area and requires careful review as part of the development of an estate plan.
- Will The Creation Of A Trust Avoid Taxes?
Answer: An estate plan can be created using either a trust or will that can help to minimize federal estate taxes. California does not have an inheritance tax, so the focus of tax planning as it relates to the avoidance of taxes is on avoiding the federal estate tax. At this time, the federal estate tax only applies to taxable estates in excess of five million dollars and there is tax planning that can be done to increase this limit to ten million dollars for a married couple. These limits are subject to change and tax planning issues need to be carefully reviewed at the time an estate plan is created. The creation of an estate plan does not normally have an impact on income taxes.
- What Happens If I Become Incompetent?
Answer: A properly drafted trust used in combination with a durable power of attorney can establish the authority of a spouse, child, or other designated party to handle an individual's affairs if they become incapacitated. This is one of the understated advantages of using a revocable trust since it can avoid the establishment of an expensive conservatorship.
- What Are The Advantages/Disadvantages Of Doing A Trust Instead Of A Will?
Answer: For most individuals, the principal advantage to doing a trust instead of a will is that executing a trust can avoid the costs and delays of a probate. In addition, the administration of a trust after death is confidential, while the probate of a will is a matter of public record. The use of a trust also allows an individual to provide for a child or third party to handle their financial affairs if they should become incompetent without having to file an expensive guardianship or conservatorship proceeding. Under most circumstances, it is easier to draft tax savings provisions and defer the distribution of an estate to children if a trust is used instead of a will.
The principle disadvantage of using a trust instead of a will is that it is more expensive to prepare a trust than a will. There may also be situations where it would be best if an estate were managed under the supervision of the court in which a will may be preferred over a trust.
- Are There Other Documents That Need To Be Prepared When I Create A Trust?
Answer: Yes. Normally, in addition to the trust, a number of other documents have to be prepared including a will that specifies how assets that are not in the trust should be dealt with; a series of documents such as deeds, assignments, etc., to transfer assets to the trust; a durable power of attorney to appoint an individual(s) to handle non trust assets during an individual's lifetime if they cannot handle their affairs; and an advance health care directive which designates the person(s) who will have the authority to make health care decisions if an individual cannot make these decisions for themself and his or her wishes and desires regarding health care and end-of- life decisions. The cost of preparing these documents is included in the cost of the preparation of the trust. Some of these documents, e.g., the durable power of attorney and advance health care directive are often prepared at the same time as a will is prepared.
- Can A Trust Or Will Be Amended?
Answer: Normally a trust may be amended and revoked during an individual's lifetime. There are some circumstances where the right of a surviving spouse to amend or revoke a trust will be limited after the death of the first spouse to die. There are also specialized trusts that cannot be amended or revoked.
- Does An Estate Plan Need To Be Reviewed And If So, How Often?
Answer: An estate plan needs to be reviewed and updated to make sure that it accurately reflects the wishes and desires of the person creating the estate plan. At a minimum, an estate plan needs to be reviewed every two to five years and when any of the following occurs:
- Death of a spouse;
- Death of a child or other beneficiary;
- Increase or decrease in personal wealth;
- Receipt of substantial inheritance or gift;
- Move to another state;
- Death of a named trustee, executor, or guardian;
- Changes in state or federal law.
- What Legal Steps Need To Be Taken After An Individual Dies If They Have Executed A Trust?
Answer: It is important to recognize that the fact that an individual has created a trust does not eliminate the need to take the legal steps after death prior to distributing the estate. At a minimum, formal notifications have to be sent, assets collected, values established for the assets, debts paid, final tax return(s) filed, taxes paid, and a final distribution completed. There may also be a wide variety of other issues that need to be resolved prior to distribution depending on the specific set of facts that exist as of the date of death. Some of these tasks will be done by an attorney and are normally billed on hourly basis.
- Are There Resources That I Can Review That Can Give Me Additional Information Regarding Estate Planning?
Answer: Yes. An excellent set of pamphlets published by the California State Bar Association are available for free at the following website: www.calbar.ca.gov. Information from an individual's accountant or financial planner is also a very helpful source.
- If I Wanted To Schedule An Appointment To Discuss Estate Planning, What Documents And Information Do I Need To Bring At The Time Of The Appointment?
Answer: It is not necessary to bring any documents to a first appointment, but bringing the following documents to the first meeting can help to focus the meeting on an individual's personal needs and makes the meeting more productive:
- Names, addresses and phone numbers for children and other beneficiaries;
- Names, addresses and phone numbers for proposed successor trustees, executor;
- Deeds and tax bills for each real property which you own;
- Stock and bonds and/or brokerage statements for such assets;
- Bank statements;
- Life insurance policies;
- Vehicle registrations;
- Promissory notes under the terms of which anyone owes you money;
- Current statements regarding your retirement or pension plans, IRAs and annuities;
- Information regarding any other assets you own;
- If you are in a partnership, an LLC, or own shares in a small corporation, copies of the partnership agreement, LLC documents or articles of incorporation and any buy-sell agreement that might exist.
It is also helpful if you have a general idea how you would like to have your assets distributed after your death.
- Is There A Fee For An Initial Consultation?
Answer: No. The initial consultation is free and is intended to provide a potential client with basic information regarding estate planning and how it might apply to their particular situation. At the conclusion of the initial meeting, it will be easier to determine what legal matters need to be addressed and prepare an estimate of what the fees will be to prepare an estate plan for the client.