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Estate Planning
& Probate
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Purchase and download simple statutory will (California residents only)
What
is estate planning?
Estate
planning the process of decision making and document creation that allows
you to control future events regarding the care of and the financial
affairs of your loved ones in the event of your death or incapacity.
The
primary goals of estate planning consist of: 1) selecting people to whom
your property will pass; 2) providing instructions for the care and
finances of your children; 2) avoiding court interference; 3) reducing
or eliminating taxes, legal fees, and other expenses.
Estate
planning is not limited to just the wealthy. Almost anyone can
benefit from an estate plan, regardless of age, financial status, or
marital status, etcetera. The only requirement is that you
have a desire to protect your loved ones.
The
first thing to consider is who you will appoint to manage your assets
and your care in the event of your incapacity, and who will manage and
distribute your assets in the event of your death. If
you do no planning at all, the court will appoint someone to make health
care and financial decisions for you in the event of incapacity.
The court will also appoint someone to distribute your assets according
to intestate succession laws. In other words, if you die without a
will your assets may go to relatives you would not want to inherit from
you. Surely you would rather make these decisions yourself by
planning.
Benefits
of estate planning: Eliminates
the cost of probate
Eliminates
court interference
Provides
a quick distribution of your assets
Reduces
or eliminates estate taxes
Designates
guardians and provides instructions for your children
Ensures
your medical wishes are known
Ensures
privacy of your financial affairs
Inexpensive
and easy to set up The
basic estate planning documents include: Pour-Over
Will
Revocable
Living Trust
Certification
of Trust
Property
Transfer Documents Advance
Health Care Directive (Living Will)
Durable
Power of Attorney for Property
Court-supervised
process of:
Validating
the Will (if there is one) Appointing
a representative to manage affairs of estate Transferring
assets to beneficiaries (with a will) or heirs (without a will) Investigating
Will contests Determining
creditor claims
Estates valued at over $100,000 (gross) are subject to the Probate process, with certain exceptions. The process takes from six months to over a year, depending on the complexity. It is a public proceeding and documents will remain public record indefinitely. Assets may be frozen during the process, thus prohibiting your beneficiaries from accessing money they may need for support. The process includes cumbersome reporting requirements and can be very expensive. Consequently, it is usually advantageous to avoid probate by estate planning.
Current California Probate statutory attorney fees are:
|
Estate Value (gross value) |
Legal Fees |
Estate Value (gross value) |
Legal Fees |
|
100,000 |
4,000 |
900,000 |
21,000 |
|
125,000 |
4,750 |
1,000,000 |
23,000 |
|
150,000 |
5,500 |
1,250,000 |
25,500 |
|
175,000 |
6,250 |
1,500,000 |
28,000 |
|
200,000 |
7,000 |
2,000,000 |
33,000 |
|
300,000 |
9,000 |
3,000,000 |
43,000 |
|
400,000 |
11,000 |
4,000,000 |
53,000 |
|
500,000 |
13,000 |
5,000,000 |
63,000 |
|
700,000 |
17,000 |
10,000,000 |
113,000 |
|
Could be double if the executor elects to be paid, as allowed by law. |
|||
Please contact us for information about Arizona fees.
· Estates valued less than $100,000 (gross)
· Assets held in Joint Tenancy or Community Property with Right of Survivorship
· Community property assets passing by Will to a surviving spouse
· Assets held in Trust
· Life insurance proceeds payable to beneficiary
· Death benefits payable under IRA, retirement plan, and annuities
·
Payable
on death bank accounts
The decedent's estate is potentially liable for federal death/estate taxes. Generally, no estate tax is required for most decedents because the IRS allows a certain amount to be exempted from estate taxes (tax free).
The
exemption amount allowed in 2003 is $1 million dollars (net value).
Anything over this amount is subject to estate taxes. Congress has
been kind and is allowing the exemption amount to increase every few
years through 2010. In 2010 there will be no estate taxes at
all, as the law stands now. In 2011, however, the exemption will
revert to $1 million. The status of the law as it relates to
estate taxes is uncertain at this time and will likely change at some
point soon. The table below illustrates the current federal estate tax
rates
|
Calendar
Year |
$ Estate Tax Exemption (Net
value) |
Highest
Estate tax rates |
|
2003 |
1,000,000 |
49% |
|
2004 |
1,500,000 |
48% |
|
2005 |
1,500,000 |
47% |
|
2006 |
2,000,000 |
46% |
|
2007 |
2,000,000 |
45% |
|
2008 |
2,000,000 |
45% |
|
2009 |
3,500,000 |
45% |
|
2010 |
N/A (taxes repealed) |
|
|
2011 |
Back to 1,000,000 |
55% |
A will is a legal document identifying:
· The Beneficiaries who will receive assets,
· The Executor who will manage your estate, pay expenses, and distribute assets.
·
The
guardian of your minor children
Advantages
· Simple and inexpensive to create
· Power to determine distribution of assets to beneficiaries
· Designation of guardian for minor children
· Designation of executor
· Executor's ability to operate business, sell and/or distribute assets, and make decisions
· Elimination of the cost of the executor's bond
· Allows gifts to individuals or charities, none of which are covered by intestacy laws.
· Marital deductions provide tax saving
· Allows for distribution of assts to children of those who die before decedent.
Disadvantages (compared to a living trust)
· Subject to Probate
· Subject to significant expenses if estate's gross value exceeds $100,000
· Possible interruption in your family’s access to funds
·
Slow
distribution of assets
· No stepped-up tax basis if title to property held in Joint Tenancy
· Public in nature
Living
Trusts
A
trust is essentially a written agreement between the person creating the
Trust (Trustor) and the person named to manage the Trust (Trustee)
(often the same person).
A trust is a legal entity with powers, not unlike a corporation.
When the trust is created, you transfer ownership of your assets from
yourself to the trust, and you as the Trustee, control and manage them.
With a revocable trust, the Trustor may amend the trust at any time, but
it becomes irrevocable upon death. A "pour-over" Will is
still needed to provide for assets that are recently acquired or were
never transferred to the trust. Upon
your death, the Successor Trustee takes over the control and management of
the assets for the benefit of the beneficiaries. Your assets avoid
the Probate process because they are no longer titled in your name as an
individual. Rather, they belong to the trust. The Successor
Trustee simply transfers your assets directly to your beneficiaries
without the need for court or attorney's fees or costs.
There
are many types of trusts available for different purposes. You
should consult with your attorney to determine the type of trust best
suited for your needs. Some types of trusts are: 1)
Revocable
Trusts (most common) Advantages:
·
Provides
for management of assets if the Trustor is unwilling or unable, without
Court supervision ·
Trustee
pays debts, taxes, and distributes assets upon the Trustor’s death ·
Eliminates
Probate & Probate expenses ·
No
interruption in your family’s access funds ·
Assets
can be distributed quickly ·
Minors
are provided for until a certain specified age ·
Protects
assets from creditors ·
Can
reduce estate taxes ·
Received
stepped-up tax basis ·
Private Disadvantages: ·
Trust
must be funded (transfer title of assets to trust) ·
More
complicated and expensive to create than a Will 2)
Irrevocable
Trusts are
essentially the same as revocable trusts except.... Advantages ·
Essentially
the same as a revocable trust, but ·
The
value of assets are NOT included for Estate Tax purposes, thus allowing
significant tax savings Disadvantages: ·Essentially
the same as a revocable trust, but ·
Amendments are not permitted. 3)
Bypass
Trust A
bypass trust is essentially the same as a Revocable Trust except Example
of estate taxes owed
without Bypass Trust Assume
Husband’s assets are $1M and Wife’s assets are $1M Assume
Husband passes and leaves his entire estate to Wife Assume
when Wife passes her estate is still worth $2M In
2003 Wife’s allowed exemption is $1 million, which means that her
other $1million is subject to estate taxes.
Compare
With Bypass Trust
Assume the same facts except that a Bypass Trust is used
On Husband’s death, his $1M goes to Trust A
On Husband’s death, wife's $1M goes to Trust B
On Wife’s death both trusts are still worth the same amount
Each spouse can utilize a $1M exemption on Wife’s death
In 2003 Wife’s allowed exemption is $1M and Husband’s allowed exemption is $1M. The estate would owe zero taxes, thus saving $435,000 in taxes.
4) Life Insurance Trust
Federal estate taxes must be paid on life insurance proceeds when the insured owns and pays for the policy themselves (this includes insurance given by an employer). However, you can eliminate the taxes by creating an Irrevocable Life Insurance Trust. The reason for this is that the insurance policy is owned and paid for by the trust, not the decedent or the decedent's spouse. Therefore, the proceeds are not considered part of the estate.
5) Special Needs Trust
A Special Needs Trust is a type of irrevocable trust that is used for an elderly or disabled person. They are usually created by people who want to protect their elderly parents or disabled children without effecting their ability to receive government assistance. The Trust protects the person's ability to qualify for certain types of need-based government programs such as social security and Medi-Cal, whereas they might not qualify without such protection. The Trust money provides for the special needs of the individual and is a supplement to the government assistance.
Because the person who receives the Trust money has no control over the distributions, the government does not include the money when calculating the person's income determine eligibility for the program.
Additionally, a recipient could lose government assistance upon receipt of an inheritance. Thus, a Special Needs Trust if often created to provide the same protection described above.
6) Charitable Remainder Trusts
A Charitable Remainder Trust is a type of irrevocable trust. Such Trust allows you to make a donation to the charity of your choice and is excluded from federal estate taxes. However, you retain control of the donation and can keep any income derived from the assets during your lifetime.
Powers
of Attorney
A
Power of Attorney is a document granting a
person the power to legally act on your behalf. A
Power of Attorney terminates automatically if you become incapacitated.
To resolve this dilemma, a Durable Power of Attorney should be
created instead. It stays valid even if you become unable to
handle your own affairs. This type of document can go into effect
as soon as you sign it, or you can specify that that it does not go into
effect until you become incapacitated.
Living
Wills & Health
Care Directives
A
Living Will, also called a Health Care Directive, specifies your wishes
regarding healthcare in the event you cannot make the decisions for
yourself. The document is given to the doctor and (s)he
is under a duty to honor your instructions.
A
Durable Power of Attorney for Healthcare gives your agent the authority
to make medical decisions for you if you are unable to make them for
yourself, as discussed above.
It is a good idea to combine your Healthcare Directive and your Durable
Power of Attorney. In other words, your Healthcare Directive can
appoint an agent to ensure your wishes are followed.
Alternatively, you can create two separate documents. The
Healthcare Directive will explain your medical care instructions and
your Durable Power of Attorney will name an agent to ensure your wishes
are followed.
Without
estate planning, same sex couples will have no legal rights in regards
to his/her partner whatsoever. Therefore, it is absolutely
essential for these couples to create a legal estate plan. Any and
all of the estate planning provisions described in this section can be
used to protect you and your partner.
Additionally,
same sex couples can register for a legal Domestic Partnership in
California and
receive automatic legal rights, similar to that of a marriage. They can
also legally adopt each other's
children just as step-parents do.
Asset
Protection
Asset
Protection is a method to ensure your assets are protected from future
creditors. Consider the following methods to protect your assets: Insurance
policies
Homestead
Non-profit
company
Family
Limited Partnership
Domestic
Family Protection Trust
We hope this information has been helpful.