A critical part of the estate planning process is designating the individual(s) or entities that will act on your behalf should you become physically or mentally unable to make decisions. If you fail to prepare written nominations, the Court will appoint someone to make such decisions for you through a process called Conservatorship. Such a time consuming, expensive and public process can be easily avoided by advance planning.
Every plan created by my office is personally tailored to each client. Because we place so much focus on discussing and drafting a plan that addresses your unique situation, subsequent issues involving family members and beneficiaries can generally be avoided. From my 12+ years of experience, I have learned where the “hot spots” are and can help clients create an estate plan that will be respected by their heirs and avoid costly post-death litigation.
Although you do not need to have all the answers before you start the process of planning, it helps to give some advance thought to how you would like your assets distributed following death, and who you wish to entrust with the power to carry out your wishes. If you do not know who you would like to nominate, we can discuss various options, including nominating a corporate fiduciary (such as a Trust Department at a bank) or a professional private fiduciary (an individual licensed by the State) to act as a Trustee for non-related individuals.
Although I do not believe that avoiding estate taxes should be the driving consideration in creating your plan, the affect of potential taxes will be addressed. Given the current estate tax exemption of $11.58 million per estate (adjusted for inflation), in many cases minimizing other taxes following a death, such as property taxes, is a larger factor in the planning process.
A trust is an arrangement under which one person, called a trustee, holds legal title to the property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust.
A "living trust" (also called an "inter vivos" trust) is simply a trust you create while you're alive, rather than one that is created at your death.
Different kinds of living trusts can help you avoid probate, reduce estate taxes, or set up long-term property management.
The big advantage to making a living trust is that property left through the trust doesn't have to go through probate court. In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it.
The average probate drags on for months before the inheritors get anything. And by that time, there's less for them to get: In many cases, about 5% of the property has been eaten up by lawyer and court fees.
The property you transfer into a living trust before your death doesn't go through probate. The successor trustee — the person you appoint to handle the trust after your death — simply transfers ownership to the beneficiaries you named in the trust. In many cases, the whole process takes only a few weeks and there are no lawyers or court fees to pay. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.
Making a living trust work for you does require some crucial paperwork. For example, if you want to leave your house through the trust, you must sign a new deed, showing that you now own the house as trustee of your living trust. This paperwork can be tedious, but the hassles are fewer these days because living trusts have become so common.
No. A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate — inventories of the deceased person's assets and debts, for example. The terms of a living trust, however, need not be made public.
No. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name.
Generally, after your death, all property you owned — including assets held in a living trust — is subject to your lawful debts. For example, if your house is held in trust and passes to your children at your death, a creditor could demand that they pay the debt, up to the value of the house. Ownership of real estate is always a matter of public record, so creditors can always find out who inherited real estate. It can be more difficult for creditors to know who inherits other property, however (because a trust document, unlike a will, is not a matter of public record), and they may not bother tracking it down.
On the other hand, probate can also offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they're out of luck forever.
Yes, you do—and here's why:
A will is an essential back-up device for a property that you don't transfer to yourself as trustee. For example, if you acquire property shortly before you die, you may not think to transfer ownership of it to your trust—which means that it won't pass under the terms of the trust document. But in your will, you can include a clause that names someone to get all of the property that you haven't left to a specific beneficiary.
If you don't have a will, any property that isn't transferred by your living trust or other probate-avoidance device (such as joint tenancy) will go to your closest relatives in an order determined by state law. These laws may not distribute property in the way you would have chosen.
If you don't make a will or use some other legal method to transfer your property when you die, state law will determine what happens to your property. Generally, it will go to your spouse and children or, if you have neither, to your other closest relatives. If no relatives can be found to inherit your property, it will go to the state.
In addition, in the absence of a will, a court will determine who will care for your young children and their property if the other parent is unavailable or unfit to do so.
Any adult of sound mind is entitled to make a will. Beyond that, there are just a few technical requirements a will must fulfill:
Yes. If both parents of a child die or become otherwise unable to care for a minor child, another adult—called a "personal guardian"—must step in. The personal guardian will be responsible for raising your children until they become legal adults. You and the child's other parent can use your wills to nominate someone to fill this position. To avert conflicts, you should both name the same person.
You can choose that same guardian to manage property that you leave to your minor children or you can name someone different. You can name a "property guardian," a "custodian", or a "trustee" to manage the property:
A Durable Power of Attorney for Financial Matters is a type of power of attorney that is continues to be effective even after the principal (the person who creates the Power of Attorney) becomes incapacitated. By such a document, an Agent is given authority to make decisions on behalf of the Principal. As with a Trustee, an Agent is considered a fiduciary and is held to the highest ethical standard. There are several different versions of Powers of Attorney, including but not limited to “immediate” and “springing.”
A Health Care Directive is an important document that sets forth your wishes concerning your health care in the event you are unable to make such decisions yourself. Generally, an Agent is nominated under the document to act on your behalf in such a situation, although the document can be effective without naming an individual. This document sets forth your wishes with respect to end of life decisions, donation of organs, burial vs. cremation election, etc.
Disinheriting spouses. The law protects surviving spouses from being left with nothing. If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin—or Alaska if you have made a written community property agreement), your spouse automatically owns half of all the property and earnings (with a few exceptions) acquired by either of you during your marriage. You can leave your half of the community property, and your separate property, to anyone you choose.
In all other states, a surviving spouse has a legal right to claim a portion of your estate, no matter what your will provides. But these provisions kick in only if your spouse goes to court and claims that share.
If you don't plan to leave at least half of your property to your spouse, either through your will or outside it, you should consult a lawyer—unless your spouse willingly consents in writing to your plan.
Disinheriting children. Generally, it's perfectly legal to disinherit a child. If, however, it appears that you didn't mean to disinherit a child—he most common example is a child born after you made your will—then the child has the right to claim part of your property.
Probate is a legal process that takes place after someone dies. It includes:
Typically, probate involves paperwork and court appearances by lawyers. The lawyers and court fees are paid from estate property, which would otherwise go to the people who inherit the deceased person's property.
Probate usually works like this: After your death, the person you named in your will as an executor — or, if you die without a will, the person appointed by a judge — files papers in the local probate court. The executor proves the validity of your will and presents the court with lists of your property, your debts, and who is to inherit what you've left. Then, relatives and creditors are officially notified of your death.
Your executor must find, secure, and manage your assets during the probate process, which commonly takes a few months to a year. Depending on the contents of your will, and on the amount of your debts, the executor may have to decide whether or not to sell your real estate, securities, or other property. For example, if your will makes a number of cash bequests but your estate consists mostly of valuable artwork, your collection might have to be appraised and sold to produce cash. Or, if you have many outstanding debts, your executor might have to sell some of your property to pay them.
In most states, immediate family members may ask the court to release short-term support funds while the probate proceedings lumber on. Then, eventually, the court will grant your executor permission to pay your debts and taxes and divide the rest among the people or organizations named in your will. Finally, your property will be transferred to its new owners.
No. Most states allow a certain amount of property to pass free of probate or through a simplified probate procedure. In California, for example, you can pass up to $166,250 of property without probate, and there's a simple transfer procedure for any property left to a surviving spouse.
In addition, property that passes outside of your will — say, through joint tenancy or a living trust — is not subject to probate.
In most circumstances, the executor named in the will takes this job. If there isn't any will, or the will fails to name an executor, the probate court names someone (called an administrator) to handle the process. Most often, the job goes to the closest capable relative or the person who inherits the bulk of the deceased person's assets.
If no formal probate proceeding is necessary, the court does not appoint an estate administrator. Instead, a close relative or friend serves as an informal estate representative. Normally, families and friends choose this person, and it is not uncommon for several people to share the responsibilities of paying debts, filing a final income tax return, and distributing property to the people who are supposed to get it.
Probate rarely benefits your beneficiaries, and it always costs them money and time. Probate makes sense only if your estate will have complicated problems, such as many debts that can't easily be paid from the property you leave.
Whether to spend your time and effort planning to avoid probate depends on a number of factors, most notably your age, your health, and your wealth. If you're young and in good health, adopting a complex probate-avoidance plan now may mean you'll have to re-do it as your life situation changes. And if you have very little property, you might not want to spend your time planning to avoid probate because your property may qualify for your state's simplified probate procedure.
But if you're in your 50s or older, in ill health, or own a significant amount of property, you'll probably want to do some planning to avoid probate.
Most people want to leave as much of their money to their children, or other heirs, as possible — and want to avoid a big chunk of that money going to probate lawyers. That's where living trusts come in — they can eliminate the need for probate and probate fees.
Probate involves inventorying and appraising the property, paying debts and taxes, and distributing the remainder of the property according to the will. When you make a living trust, your surviving family members can transfer your property quickly and easily, without probate. More of the property you leave goes to the people you want to inherit it.
A basic living trust allows property to avoid probate and to quickly and efficiently pass to the beneficiaries you name, without the hassles and expense of probate court proceedings. A married couple can use one basic living trust to handle both co-owned property and separate property.
To create a basic living trust, you make a document called a declaration of trust, which is similar to a will. You name yourself as trustee - the person in charge of the trust property. If you and your spouse create a trust together, you will be co-trustees.
Then you transfer ownership of some or all of your property to yourself in your capacity as trustee. For example, you might sign a deed transferring your house from yourself to yourself "as trustee of the Jane Smith Revocable Living Trust dated July 12, 2006."
Because you're the trustee, you don't give up any control over the property you put in trust.
In the declaration of the trust document, you name the people or organizations you want to inherit trust property after your death. You can change those choices if you wish; you can also revoke the trust at any time.
When you make a living trust, you should also make a pour-over will. Doing so will ensure that any property not transferred to the trust will go to the people or organizations you want to receive it. If you don't make a will, any property not included in your trust will be distributed according to the laws of your state — usually to the nearest relatives.
When you die, the person you named in the trust document to take over — called the successor trustee — transfers ownership of trust property to the people you want to get it. In most cases, the successor trustee can handle the whole thing in a few weeks with some simple paperwork. No probate court proceedings are required.
The information presented herein is solely to provide you with some foundational knowledge and is not meant to constitute specific legal advice. Your lawyer is in the best position to help you understand how the law applies to the specific issues surrounding your case.