Answers to Frequently Asked Questions
A Will is a document where you indicate how you want your property distributed at your death. In a Will you designate who your beneficiaries and Personal Representative (a.k.a., Executor) will be. If you have not designated a person to serve as your Personal Representative in a Will, the Probate Court will designate a person to act as the Personal Representative with the authority to administer your probate estate.
For your convenience click HERE to view the California Statutory Will Form that is provided by the State Bar of California. Should you choose to use this form, please be careful to have the Will properly signed by two witnesses who are over the age of 18 and are not related to you.
Caution – A WILL DOES NOT AVOID PROBATE!
There are many different types of Trusts, but their common feature is that they all indicate how you want the trust assets managed and distributed to the beneficiaries.
The most popular type of Trust is called a Revocable Living Trust. As indicated in the name, a Revocable Living Trust can be changed or revoked entirely. It is called a "Living" Trust because it is created while you are alive. When the Trust is created, you are both the "Grantor" and the "Trustee." You're the one who transferred the assets into the Trust, and you're in control of your property. You will also designate "Successor Trustees" to be in charge of your assets when you are incapacitated and after you pass away.
One of the benefits of having a Trust versus a Will is that assets in a Trust do not go through Probate. This is because ownership of your property is transferred into the Trust, and you tell the Successor Trustee how to manage and distribute the assets. A court does not supervise the administration of the Trust. The only time your Successor Trustee should need to go to court is if there is ambiguity in the Trust document or if your beneficiaries contest the terms of the Trust.
Probate is the court-supervised process of wrapping up one's affairs following their death. During this process, assets are inventoried and appraised, creditors are notified of the death, assets may need to be liquidated, debts are paid, and after attorney's fees and court costs are paid, any remaining assets are distributed to the beneficiaries. Because this is a court-supervised process paperwork must be filed with the court, affected parties must be served, and appearances are made before a judge. Unless sealed, all documents filed with the court are public information.
California lawmakers have imposed a minimum statutory fee that can be charged by attorneys in Probate cases. The fee schedule can be found at California Probate Code Section 10810. It is important to note that these fees are imposed on the GROSS value of the assets rather than the NET value. Therefore, encumbrances (debt) on the property are not taken into consideration when calculating the attorney's fees. Additionally, this schedule does not take into account the Personal Representative's (aka Executor) fees or additional compensation for extraordinary services that the Probate Court may choose to award.
Although both are instruments where you indicate how you want your property distributed, assets held in a Trust are not subject to Probate. If you only have a Will, then your remaining property will go through the probate process, and your Will becomes public record. Conversely, a Trust is a private document; since it is not recorded with the court, it can't be viewed by the public or by snooping family members.
This is another commonly asked question and the typical (and accurate) response is “it depends.” More completely, the answer depends on how expensive and complicated the Probate process will be after you pass away, and whether or not you want to prevent your family from dealing with the stress that's involved.
Without a Trust your assets may be subject to Probate before being distributed to your spouse or heirs. Probate can be a time consuming and frustrating process that can take from 9 months to several years and often requires the expertise of an attorney.
If you have few assets and you don't own a home, then the Probate process should be relatively straight forward and inexpensive. However, if you own a home or you have property valued in excess of $150,000 then you should have a Trust. California lawmakers have imposed a minimum statutory fee that can be charged by attorneys in Probate cases. The fee schedule can be found at California Probate Code Section 10810 and is illustrated in the table below.
As you can see, these statutory fees are owed to attorneys on a sliding scale based upon the value of the decedent’s assets. It is important to note that encumbrances (debt) on the property are not taken into consideration when calculating the attorney’s fees. Additionally, this schedule does not take into account the Personal Representative’s (aka Executor) fees or additional compensation for extraordinary services that the Probate Court may choose to award.
With a Trust your assets will be managed by your Trustee and distributed to your beneficiaries pursuant to your instructions. You determine who your Trustee and successor Trustees will be and the order of succession. You can easily change your Trustees by preparing an Amendment to your Trust. Your Trustee may be entitled to a fee but you decide how much the fee will be. In addition to freeing your loved ones of the expenses and burdens of Probate, you obtain the benefit of privacy by preventing your affairs from becoming public record in the Probate Court files. Finally, in almost all cases, the cost to prepare a revocable living trust is much less than the expenses of Probate.
A Revocable Living Trust is tax neutral and does not generate any tax advantages or consequences as long as the person who put the assets into the trust (commonly referred to as the Grantor, Trustor, or Settlor) is the primary beneficiary of the trust and retains the right to amend the trust. Satisfying these requirements makes the Trust a Grantor Trust for tax purposes, and all income and losses are reported on the Grantor's personal tax returns. However, once the Grantor passes away, the trust must obtain its own EIN, and it must file its own federal and state income tax returns. The federal income tax return for trusts is filed on Form 1041, and the California income tax return for trusts is Form 541.
A Revocable Living Trust does not provide asset protection from the creditors of the Grantor(s). There are other types of Trusts that can do this. However, a Revocable Living Trust can protect assets from the claims of your beneficiaries' creditors.
Yes, but Probate is only avoided on the death of the first spouse. When the second spouse dies, the real property must go through Probate. If the house were placed into a trust while both spouses were alive, there would be no need for a Probate to be opened at either death. Additionally, there are negative capital gains tax consequences should the surviving spouse choose to sell the house, and it is held in joint tenancy.
NO! Many people think that this is an easy solution to avoid forming a Trust. However, it is ripe with problems.
1) GIFT TAX- The gift to your children is a taxable event, and you must file a Form 709 Gift Tax Return. Any tax penalty associated with the transfer is owed by the transferor, not the recipient of the property.
2) CAPITAL GAINS TAX - Your children's tax basis in the property would be your basis in the property. This can have horrible consequences should your children eventually choose to sell the property. However, if they were to inherit the property upon your death, their basis in the property would be the fair market value at the time of your death. This could eliminate any capital gains taxes owed when they choose to sell the property.
3) CREDITORS - Placing your children on title to your house will make it accessible to the claims of your children's creditors.
The tax consequences and potential risks generated by giving your house to your children substantially outweigh the expense of a properly prepared Trust.
Click HERE for more information concerning joint ownership of property between generations.
Most likely, yes. Due to the changes in tax laws that have occurred over the past ten years, it is very likely that your trust is outdated and doesn’t properly take these changes into account. For example, in 1999, the per person estate tax exclusion amount was $650,000. Today this amount is $5,450,000. Your estate plan was likely drafted based upon the size of your estate and the estate tax exclusion amount at that time.
Because the estate tax exclusion amount has changed significantly over time, and because married people can now take advantage of the "Portability" of the deceased spouse's unused estate tax exclusion amount, your trust likely needs to be updated.
We would be happy to review your existing estate plan documents and provide you with our opinion on the status of your existing estate plan.
No. Probate and Trust laws vary significantly between states. Although your Trust may have a clause saying that the trust can use the governing laws of the state where you currently live, this can cause confusion in the Trust provisions. The most prudent thing to do is to consider it a moving expense and have the Trust redrafted under California law.
An estate planning attorney is aware of the current tax laws and potential changes in these laws. Every person’s situation is unique, and their estate plan should be drafted to account for the changing tax laws. Therefore, we do not believe in taking a one-size-fits-all approach to estate planning. Rather every Trust is custom drafted for our clients to accommodate their specific needs and desires. Additionally, having an estate planning attorney prepare your Trust will provide a continuity of advice and someone for spouses and beneficiaries to turn to for guidance during the time of grief and turmoil following the death of a loved one.
How do you want to be remembered when you pass away? Someone will need to take care of your final affairs. Do you want to force your friends, family, or other loved ones to appear in court to resolve your affairs? Show your loved ones you care about them by having a well organized and up-to-date estate plan.
People typically people think of Wills and Trusts in conjunction with estate planning. However, these are merely two components of a complete and cohesive estate plan. A properly prepared estate plan should include at least the following documents:
A Will tells the Probate court how to distribute your assets upon your death. Whereas a "Pour-Over Will” pours any of the assets that were not placed in your Trust during your lifetime into the Trust upon your death to be administered and ultimately disposed of pursuant to the provisions of your Trust. A Pour-Over Will is basically a clean-up mechanism, not a substitute for transferring assets into your Trust during your lifetime, and any assets that are transferred to your Trust under your Pour-Over Will will likely be subject to Probate.
REMINDER: WILLS DO NOT AVOID PROBATE. A PROPERLY FUNDED TRUST AVOIDS PROBATE.
When dealing with assets held in your Trust, third parties often want evidence that you are the Trustee and have the power to enter into the transaction at issue (e.g., selling real estate, opening a brokerage account, etc.). In such a case, providing the person with a copy of the Certification of Trust rather than the full Trust Agreement provides them with the information they need, and keeps private the information with respect to the Trust’s beneficiaries and the disposition of the assets in your Trust upon your death.
A General Durable Power of Attorney authorizes the person designated as your "Agent" to act on your behalf with respect to your financial affairs. The version of this document we prepare is sometimes called a “Springing” Power of Attorney. This is because your Agent is not immediately given the power to manage your financial affairs upon you signing this document. Rather, the power “springs” into effect upon your incapacity.
California has instituted the Uniform Statutory Form Power of Attorney Act under California Probate Code Sections 4400 - 4465, which provides the public with a form that they can use to give another person the authority to make financial decisions on their behalf.
Click HERE to view the California Statutory Power of Attorney Form.
If you choose to use this form, please read it thoroughly and do not sign it if you are under duress to do so, or if you do not fully understand the financial authority being conveyed under this document. Also, this form needs to be notarized or signed by two disinterested witnesses. We do not use this form at Winstead Law Group, APC. Instead, we prefer to use Powers of Attorney that are specifically drafted for each client's unique needs.
A Health Care Power of Attorney allows you to designate those individuals who will make health care decisions for you upon your incapacity. These people are referred to as “Health Care Agents.”
An Advance Health Care Directive (also commonly referred to as a “Living Will”, “Physician’s Directive”, or a “Directive to Physicians”) is where you convey to your Health Care Agent and health care personnel your desires concerning life sustaining treatment and anatomical gifts.
Click HERE to view the California Statutory Advance Health Care Directive Form.
It is important to note that no amount of legal documentation and preparation can guarantee that your health care wishes are followed. This is a very sensitive topic where strong emotions are involved. Therefore the best advice we can provide is for you to ensure that your Health Care Agents know what your wishes are and that they are willing to follow your instructions despite any personal feelings they may have to the contrary.
“HIPAA” stands for Health Insurance Portability and Accountability Act. A HIPAA Authorization provides the Health Care Agent named in your Health Care Power of Attorney with access to your medical information. Hospitals generally will not release your medical information to anyone, including a spouse or close family member, unless they are provided with a HIPAA Authorization. You may choose to provide executed copies of the Health Care Powers of Attorney, Advance Health Care Directives, and HIPAA Authorizations to your health care providers for their information and to retain in your medical records.
An assignment of Personal Property is a document that is used to transfer all of your tangible personal property into your Trust. However, the Assignment is not effective at transferring title to assets that have their own evidence of ownership, such as real estate, bank accounts, vessels, and automobiles, which need to be individually transferred to your Trust.
A Property Agreement only applies to married people. The Property Agreement is designed to clarify the manner in which your assets are held, whether Community Property or Separate Property. There are tax advantages to holding property as Community Property. A Property Agreement IS NOT a substitute for a Post-Nuptial Agreement.
A Personal Property Memorandum is a form that can be incorporated by reference into your Will and Trust and is used to indicate how you would like your personal effects (e.g., clothing, mementos, jewelry, furniture, art, etc.) to be distributed on your death. These forms provide flexibility to your estate plan. If you change your mind about distribution, you can either prepare a new Personal Property Memorandum or amend the existing one by striking through to the name of the beneficiary and the intended gift, and initialing and dating the strike-through. The use of these forms avoids the need to prepare a formal amendment to your Trust if you have a change of heart as to the disposition of your personal effects. To avoid confusion and potential litigation, please inform your spouse of your desires to distribute certain tangible items to individuals and provide a copy of your Personal Property Memoranda to your attorney.
Parents should prepare Wills and Powers of Attorney designating the Guardian of their children upon their death or incapacity. Although a judge will still need to sign off on the appointment, most courts will respect the parents’ wishes. In support of their decision, parents should also write a letter that explains their reasons for designating the particular person as their children’s Guardian. Click HERE to learn more about Child Guardianship Planning.
Yes, you can specifically exclude people as your child's legal guardian. However, please keep in mind that the Guardian must still be approved by a judge, and they likely won't consent to the exclusion of a child's parent without good cause. Ultimately, the judge's primary concern is whatever is in the best interests of the child.
We are a boutique tax, asset protection, and estate planning firm. We offer clients the expertise found at larger firms and the personalized attention that is rarely found at any law firm. Each of our clients is important to us, as is educating them with their legal matters. Our commitment to educating our clients means that each and every client is provided with individualized attention. Because we spend a lot of time with our clients, this added time is reflected in the cost of our services. However, we feel this time is well worth the expense, and our clients agree. Read our client reviews to hear what they have to say.
Our commitment to educating our clients means that each and every client is provided with individualized attention over several meetings designed to:
No one likes to be billed hourly for legal services. Therefore, whenever possible, we set a flat rate fee prior to beginning legal representation. However, we do not think it is fair to work from a Fee Sheet. As each estate plan is unique, it is difficult to quote a price until sufficient information is obtained to understand the scope of services involved. Generally, estate plans for individuals fall in the $2,500 to $3,000 range, and estate plans for married persons cost around $3,500 to $4,000. Please understand that these prices directly reflect the complexity of the plan and the amount of time involved, not only in drafting the documents, but also in meetings, teleconferences, and recording Deeds with the County Recorder.