Frequently Asked Questions
WHAT IS ESTATE PLANNING?
Estate planning is a process. It involves people, such as family, friends, and in many cases charitable organizations of your choice. It also involves the distribution of assets and various forms of ownership and title those assets take.
Things to consider when planning your estate:
- Incapacity-How your assets will be managed if you are unable to manage them.
- Timing- When certain assets get transferred to others during your lifetime, at your death, or sometimes after you become incapacitated.
- Beneficiaries-To whom those assets will pass.
Estate planning also addresses your welfare and needs for your own personal health care if you are no longer able to care for yourself. Like many people, you may at first think estate planning is simply the writing of a will. However, if encompasses much more. Estate planning may involve tax, medical, and business planning. A will is one part of the planning process, however, it is likely that other documents are needed to fully address your estate planning needs.
HOW DO I GET STARTED?
In starting to consider your estate plan, you should ask yourself the following questions:
- What assets do I own and what is the approximate value?
- Whom do I want to receive those assets and when?
- Who should manage those assets if I cannot do so during my lifetime and / or after my death?
- Who should have the responsibility to care for my minor children if I become incapacitated or die?
- If I cannot take care of myself, who should make decisions on my behalf concerning my care and welfare?
WHEN SHOULD A PERSON CONSIDER ESTATE PLANNING?
Whatever the size of your estate, you should designate a person who, in the event of your incapacity, will have to take responsibility for the management of your assets and you including the authority to make health care decisions on your behalf.
If your estate is small in value, you may focus simply upon who is to receive your assets after your death and who should be in charge of its management and distribution. If your estate is larger, you will need to consider not only who will receive assets, but ways to preserve your assets for your benefit and to reduce or postpone the amount of estate tax which might be payable on your death.
If one does no estate planning, then California law provides for court appointment of persons to take responsibility for personal care and assets. California also provides for the distribution of assets in your name to your heirs pursuant to a set of rules to be followed if you die without a will, known as “in testate succession.” Contrary to popular myth, if you die without a will, everything does not automatically go to the state. If you have relatives, regardless of how remote, they will receive your property before the state.
Nonetheless, they may not be the people you would want to inherit from you; therefore, a will or trust is the preferred approach.
WHAT IS A WILL?
A will is a traditional legal document, which is effective upon your death to named individuals (or charitable organizations) to receive your assets upon your death. A will also allows you to nominate an executor to administer your estate, pay debts and expenses, pay taxes, and divide your estate in an accountable manner and in accordance with your will.
You may also nominate the guardians of your minor children to administer the estate you leave behind for them upon your death. You may have interests in property in your name alone at your death subject to your will and subject to the administration of probate court, generally in the county where you reside at the time of death.
WHAT IS A REVOCABLE LIVING TRUST?
A revocable living trust is also commonly referred to as a revocable inter vivos trust, a grantor trust or, simply, a living trust. A living trust may be amended or revoked by the creators creating it at any time during the trustor’s lifetime, as long as the trustor is competent.
A trust is a written agreement between the individual and the trust and the trust and the person or institution named to manage the assets held in the trust (the “trustee”). In many cases, it is appropriate for you to be the initial trustee of your living trust until management assistance is anticipated or required due to (incapacity or death), at which point your trust should transfer to an individual, bank, or trust company to act in your place when the terms of the trust become irrevocable upon the trustors death. Because the trust contains provisions which provide for the distribution of your assets after your death, the trust acts as a substitute for your will, and eliminates the need for the probate of your will with respect to those assets which were held by your living trust at your death.
You should execute a will even if you have a living trust because a will usually a “pour over” will which provides for the distribution of any assets held in your name at your death to the trustee of your living trust, so that those assets may be distributed in accordance with your wishes as set forth in your living trust.
WHAT ARE THE ADVANTAGES OF A LIVING TRUST?
A living trust provides benefits that are not available with a will alone or in intestacy (death without a will). A trust can avoid probate upon your death. A will must be verified by the probate court before it can be enforced.
Further, because a will can only go into effect after you die it provides no protection if you become physically or mentally incapacitated. The court generally will take control of your assets before your death.
WHAT IS PROBATE?
Probate is an inescapable process upon the transfer of assets provided in a valid will or intestacy (death without a will). Probate is a court supervised process developed under California law that provides for the transfer of your assets at your death to the beneficiaries set forth in your will and in the manner provided by your will. If you die “in testate,” your estate is still subject to probate court administration and a person is appointed by the court to handle your estate (known as the “administrator).
If the assets in your name alone at your death do not include interest in real estate and have a total value of less than $100,000, then generally the beneficiaries under your will follow a statutory procedure to effect the transfer of the assets pursuant to you will, subject to your debts and without a formal court supervised probate administrator.
Some of the disadvantages of probate include its public process. Your estate plan and the value of your assets become a public record. Time can also be a factor, often distributions can be made pursuant to a living trust more quickly than in a probate proceeding.
Another negative effect of probate is that it can be expensive and fees must be paid before your assets can be fully distributed to your heirs. Attorney fees and executor commissions are based upon a statutory fee schedule, the expenses may be greater than the expenses incurred by a comparable estate managed and distributed under a living trust.
The statutory fee structure is as follows:
Percentage Fee Cumulative Fee
4% of the first $100,000 $4,000 $4,000
3% of the next $100,000 $3,000 $7,000
2% of the next $800,000 $16,000 $23,000
1% of the next $9,000,000 $90,000 $113,000
½ of 1% of the next 15,000,000 $75,000 $188,000
The court determines the amount of the fee for the executor in estates worth $25,000,000 of value. The fees shown above are paid to the attorney and either the executor or administrator. Thus, the estate could include costs double those listed under “cumulative fee” above. Additional compensation will generally be allocated by the court for preparing and filing any tax returns, settling decedent’s assets including real property, litigating a liability or continuing a business, and performing various other tasks of which the amount requested varies depending upon the amount of work involved and is subject to the court’s discretion.
Further, it takes time, usually 9 months to 2 years to probate an estate. During this time, nothing can be distributed or sold without court and/or executor approval. If your family needs money to live on, they must request a living allowance from the executor and court, which can be denied.
Probate is also a public process. Anyone can see what you owe and whom you owe money to. Your family has little control in this process.
HOW DOES A LIVING TRUST AVOID PROBATE AND PREVENT COURT CONTROL OF ASSETS AT INCAPACITY?
When you set up a living trust, you transfer assets from your name to the name of the trust, which you control. Legally you no longer own anything (however, you control the trust which contains your assets), so there is nothing for the court to control when you die or become incapacitated.
HOW DO I PROVIDE FOR MY MINOR CHILDREN?
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 him or herself. In your will, you should nominate a guardian of the person of your choice for your children to supervise that child and be responsible for their care until the child is 18 years old.
Such a nomination can avoid a “tug of war” between well meaning family members and others if a guardian is stated.
A minor is also not legally qualified to manage his or her property. Assets transferred outright to a minor must be for the minor’s benefit by a guardian of the child’s estate, until the child reaches 18 years of age. You should nominate this guardian in your will as well. In providing for minor children in your estate plan, you should consider the use of a trust for your child’s benefit, to be held, administered, and distributed for your child’s benefit until the child is at least 18 years old or some other age as you may decide.
WHAT ARE OTHER MEOTHODS OF LEAVING PROPERTY?
A number of assets are transferred at death by beneficiary designation, such as:
- Life insurance proceeds
- Qualified or non-qualified retirement plans, including 401K plans and IRS’S.
- Certain “Trustee” bank accounts.
- “Transfer on death” securities accounts.
- “Pay on death” assets, a common title on U.S. saving accounts.
These beneficiary designations must be carefully coordinated with you overall estate plan. Your will may not govern a distribution of these assets.
WHAT IF I BECOME INCAPACITATED (UNABLE TO CARE FOR MYSELF?
If you do not make any arrangements in advance, a court supervised conservatorship proceeding may be required if you become incapacitated. Conservatorships are proceedings that allow the court to appoint the person responsible for you and for the management of you estate if you are unable to care for yourself. You should, therefore, select the person or people you wish to care for you and your estate in the event that you become incapable of managing your assets or providing for your own care.
With respect to the management of your assets, the trustee of your living trust will provide the necessary management of your assets held in trust. A durable power of attorney for property management should be considered to deal with assets that may not have been transferred to your living trust prior to incapacity or which you may receive after incapacity. In you document, you appoint another individual (the “attorney in fact”) to make property management decisions on your behalf. The “attorney in fact” manages your assets and functions as a conservator of your estate would function, but with supervision. The authority of the “attorney in fact” to manage your assets ceases at your death.
A durable power of attorney for health care allows you and your “attorney in fact” to make health care decisions for you when you can no longer make them for yourself. It may also contain statements of wishes concerning such matters as life support, treatment, and other health care issues and instructions concerning organ donation, disposition of remains, and funeral.
DO I STILL NEED A WILL IF I HAVE A LIVING TRUST?
Yes, you will need a “pour-over” will. This “pour-over” will contains many assets that you forgot to transfer to your trust and acquired subsequent to the creation of you trust. At your death the will transfers your non-trust assets to the trust, however this may have to go through probate first, requiring you to incur probate fees.