Is Estate Planning Important For Everyone?
Estate planning is an important consideration. A person who fails to do any estate planning may leave their family ill-prepared to sort out their assets and debts or to make arrangements for the future care of minor children. Further, thoughtful planning may eliminate or reduce a huge tax burden for heirs.
What Are Wills and Trusts?
A will is a legal document declaring a person's wishes regarding the disposal of their property when they die. A trust is a legal document used to create a fiduciary relationship in which one person, known as a trustee, holds title to property and/or assets for the benefit of another person, the beneficiary. Without a will or trust, assets pass to heirs according to California law. People who memorialize their intentions in a will or trust can ensure that their wealth is distributed according to their wishes. However, if the estate or assets are in excess of $100,000, the estate is subject to the probate process even with a will. A properly drafted trust and estate plan avoids the probate process of such estates and provides more control and protection of assets. The proper use of trusts frequently reduces estate taxes.
What Are The Benefits Of A Typical Estate Plan?
- Avoids probate delays and probate attorney’s fees
- Preserves, transfers and manages assets
- Provides conditions of inheritances
- Provides for guardianship of minors
- Provides tax planning and deferment of taxes
- Manages assets in the event of disability without court involvement
- Protects confidentiality and disposition of assets
- Provides health care directives and personal wishes in the event of incapacity
- Can protect beneficiaries’ inheritance from divorce and/or creditors
What Is Probate?
In California, probate is the court process that transfers title on assets of the deceased to heirs or beneficiaries when the transfer does not automatically occur by operation of law, beneficiary designation (such as life insurance) or through a trust. Without a trust, the court supervises the disposition of assets causing the process to take months or even years and cost thousands of dollars in attorney’s fees.
What About Estate Taxes?
A person's estate includes all of the assets owned at the time of death, as well as assets that the person has the ability to control or access. Retirement benefits, IRAs, pension plans, life insurance policies and real property are all valuable assets that can contribute to an estate tax issue. Not subject to estate taxes are assets left to charity and assets left to a decedent’s spouse in a qualifying manner. Estate taxes are imposed by the federal government based on the value of the deceased person’s assets. Estates that exceed a certain amount (currently $3,500,000) may be subject to both state and federal estate and inheritance taxes. An estate plan can reduce or eliminate the estate tax and provide a plan to pay any remaining tax. Otherwise, it may be necessary for heirs to sell valuable real or personal property to pay the estate taxes.
Who Will Take Care Of The Children?
When thinking about whom to name as a guardian, most people think of relatives or close friends. Important considerations include age, health, financial status and willingness to assume such an important responsibility. Parents can nominate a guardian for their minor children in a will or other instrument. Without one, parents run the risk of a court battle between extended families about who will care for the minor children, control their assets and manage their money. When naming a guardian, parents should also consider establishing a trust for the benefit of any minor children so that the valuable assets will not be distributed to them outright at age 18 which would occur without a trust. Establishing a trust allows parents to give the trustee direction over how the money is to be used for the benefit of their children until they are mature and responsible enough to manage it themselves.
What are my responsibilities as a Trustee?
The duties and responsibilities of a trustee are set forth in the trust instrument, but trustees are also bound by the law as set forth in the State of California’s many probate codes. Administering a trust is an important and complex task that carries with it not only a high degree of responsibility but also a risk of liability for breach of duty if not administered properly. Trustees should seek the advice of an experienced trusts and estates attorney in order to administer the trust with care. A common error is for a trustee is to believe they know what the deceased party wants and administer the trust based on this belief rather than the intentions stated in the trust. Among other duties, a Trustee must :
- Follow the trust instrument and California Law
- Notify and communicate all material facts to beneficiaries
- Avoid conflicts of interest
- Avoid self-dealing
- Provide accountings or reporting to beneficiaries
- Contact all concerned entities, such as Social Security Administration
- Open separate account for trust funds and not co-mingle personal money with the trust
- Keep detailed and accurate records of all transactions and discretionary acts
- Make simultaneous trust distributions to beneficiaries
- Request authorizations from court and beneficiaries as needed
- Obtain liability insurance for property and actions
- Determine “reasonable” compensation for duties, as provided by California law
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