Estate Planning Law
You have worked hard to build your estate because you have dreams for the future of your loved ones. You made a promise – to yourself and to your heirs – that when you can no longer provide, your estate will enable them to realize those dreams. And now to keep that promise, you need a plan: a way to help ensure your estate will be there for the people you want to have it.
If you have a specific Estate Planning matter, fill out our Estate Planning Inquiry Form for immediate assistance. Attorneys at West Themis Law can help you through this process.
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What are the typical documents that an individual or family has in their estate plan?
Typically, an individual or family should have a living trust, a pour over will, an advanced medical health directive, and a durable power of attorney in place. If the individual runs a business, he/she should also have a buy-sell agreement in place. All such documents serve to minimize the costs, delay, and emotional drain of judge intervention in Probate Court.
To compare the difference between an estate with a Living Trust, a Will and No Will at all for a mid-sized estate of a Family with 2 minor children and a gross estate value of $1,000,000:
What is Probate?
Probate is the legal process of administering a person’s estate or will when the person passes. It is the court process for distributing the deceased person’s assets, paying debts owed and settling the financial affairs. This is a very long and costly court process.
What is a LIVING TRUST?
In California, you can make a living trust to avoid probate for virtually any asset you own — real estate, bank accounts, vehicles, and so on. An individual, family, or organization can create a trust document (it’s similar to a will), naming someone to take over as trustee after your death (called a successor trustee). Then — and this is crucial — you must transfer ownership of your property to yourself as the trustee of the trust. Once all that’s done, the property will be controlled by the terms of the trust. At death, the successor trustee will be able to transfer it to the trust beneficiaries without probate court proceedings.
What is a Durable Power of Attorney?
Remember, a Will or a living trust only authorizes the successor Trustee to transfer property upon death. A durable power of attorney gives a trusted person the legal power and authority to act on your behalf in personal, financial and legal matters if you become permanently or temporarily incapacitated.
What is an Advance Health Care Directive?
This document gives a trusted person the legal authority to make medical decisions for you if you are unable to make them for yourself, including decisions about your care and comfort, medical procedures and end of life decisions related to life support measures.
What is a Pour Over Will?
When used in combination with a Revocable Living Trust, the Pour Over Will directs the court to “Pour Over” into the trust, any assets that may have inadvertently been left out of the trust, so that distributions are consistent with the instructions contained in your estate plan.
How can I Avoid Probate?
In California, the main ways that you can avoid probate is by creating or setting up the following:
1. Joint Ownership of Property where the survivor gets property
2. Living Trust
3. Payable-on-death designations of Bank Accounts
4. Transfer-on-death Registration for Securities
5. Transfer-on-death registration for Vehicles
6. Buy-Sell Agreements for Businesses
What is “JOINT” ownership or “JOINT TENANCY” of Property?
Property owned in joint tenancy automatically passes to the surviving owners when one owner dies. Probate is not necessary. Joint tenancy often works well when couples (married or not) acquire real estate, vehicles, bank accounts or other valuable property together. In California, each owner, called a joint tenant, must own an equal share.
What is the difference between a Will and a Living Trust?
Both a Will and a Trust helps you determine who receives your property if you pass. However, a Will does not avoid probate. As discussed above, Probate will take at least 10 months to administer and will cost thousands of dollars. A Living Trust does avoid probate court. With a Will, any disputes of the beneficiaries will require full court supervision, a living Trust does not. However, a Trust typically costs a bit more to set up than Will. At West Themis Law, our will drafting start at $100 and a Trust starts at $500. The pricing of drafting a Will or a Trust will fully depend on the complexity of the provisions required by each client.
How much time will it require to set up a Living Trust?
Depending on each individual need and circumstance, a living trust can be set up within 24 hours by West Themis Law only if requested on an emergency basis. Normal timelines will be in the range of 10 to 30 days for the completion of all transfers and review of provisions.
What are the typical Advantages of a Living Trust?
A Revocable Living Trust is usually the essential foundation of any estate plan. Here are just some of the primary benefits of a living trust
1. Safeguard your assets during your lifetime and beyond
2. Avoid Probate expenses, delays & publicity
3. May reduce or eliminate estate taxes
4. Ensure the proper use of your assets long after you are gone
5. Provide appropriate income for your heirs
6. Prevent court control of assets in the event of your incapacity
7. Protect special needs dependents
8. Protect minor children from court imposed guardianships
9. Minimize emotional stress for yourself or your beneficiaries/loved ones
A generalized Sample Comparison summary of the difference between a Living Trust, a Will and No Will at all for a mid-sized estate of a Family with 2 minor children and a gross estate value of $1,000,000:
What is Probate Court?
If a person dies without a living trust or other probate avoiding plans in place, their heirs or beneficiaries would have to file a petition in probate court in order to transfer any title if they have real and personal property that exceeds the gross value of $100,000.
How long does the Probate Process usually take?
Depending on the size and complexity of the case and whether it the matter is contested, a Probate matter typically requires at the minimum of 10 months to administer. Some may take as much as 2-5 years to complete.
How much does Probate typically cost?
The 2012 court fee for filing the Probate petition is $410. Currently, the maximum fees that can be charged by probate lawyers are 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9,000,000, and one-half percent of the next $15,000,000. The court will determine the fee for the amount that is greater than $25,000,000. Extraordinary fees can be ordered by a court for more complicated cases that involve litigation, disputes, guardianships, etc. California Probate Code §10810
West Themis Law charges 10% off the maximum statutory fee.
What if I have NO Will or a Trust?
Property, if over $100,000, must go through Probate and transfer by Intestate or intestacy according to California law as to the order of beneficiaries. You will have no say as to how and to whom you want your property distributed.
What is the order of Intestate (when person dies without a Will or Living Trust)?
If you pass without a will or a living trust that states how you want to distribute your property, your property will be divided as follows:
1. If you have a spouse, he/she will get any community property, you spouse will get his/her share first.
2. If you have no children or first line relatives, the spouse will take all your separate property
3. If you have one child or one first line relatives, spouse will get 1/2 of your separate property
4. If you have more than two children or first line relatives, spouse will get 1/3 of your separate property.
5. If there is no spouse at all, then your property will be distributed accordingly by order:
a. Descendants (lineal) – children, great grandchildren, etc
(California follows per capita with representation – divide into initial shares at first generation with surviving members. Cal. Prob. Code § 240)
b. If no descendants, then to Parents – half to each or all to surviving parent
c. If no Parents, then to descendants of parents – brothers and sisters and nieces and nephews (goes to descendants of parents per capita with representation)
d. If no Descendants of parents, then to grandparents and their descendants – four grandparents each get a third, three each a third, two get half each, one grandparent left gets all; no equality between sides of the family
e. If all grandparents deceased then goes to aunts and uncles by per capita with representation
f. If grandparent descendants, then to former step children and descendants (step children that were not treated as real child) – children of the predeceased spouse
g. If next of kin – CA uses civil law with a parentalic preference rule
h. If no next of ken, then to deceased spouses parents and their descendants
i. If no heirs list above are found at all, then to California Government by Escheat.
Cal. Prob. Code § 6402 (West 2000)
What are the potential disadvantages of Joint Tenancy?
When you add someone to your assets as a Joint Tenant, you are in effect making them a Co-Owner of your assets, meaning that you lose control. As you can see below, Joint Tenancy is not an attractive alternative to a well-designed estate plan.
1. Your assets become exposed to the Joint Tenants debts from divorce, lawsuits, personal guarantees and bankruptcy
2. You will need your Co-Owners consent to sell or refinance.
3. If your Co-Owner becomes incapacitated, you may have to deal with the court regarding the use of your Co-Owners share of “your” assets
4. Potential tax benefits must be shared with your new Co-Owner
5. You may be subjected to gift tax consequences
Capital Gains Taxes
In the case of appreciating assets such as real property, stocks or business interests, if your children or other heirs receive gifts from you through inheritance, such as through a Living Trust, they will receive your bequest at the asset’s market value as of the date of your death, thus eliminating capital gains taxes if these assets are sold at or below the market value at the time of your death.
If you added a child or other person to title before you die (Joint Tenancy problem), your heir could face significant capital gains taxes on the sale of any such Joint Tenancy Assets.
Gift & Estate Taxes
The Unified Gift and Estate Tax rates imposed by the IRS are the highest marginal taxes in the Country and are applied against certain lifetime transfers or “gifts” and also transfers or “gifts” made at the time of your death. These tax rates graduate from 37% to 55%.
Individuals are legally allowed to give up to $13,000 annually to as many people as they wish free from the burden of Gift Taxes. Many may also give as much as $5,000,000 in total lifetime gifts without imposition of Gift Taxes, by adhering to certain IRS requirements. Be careful about making large gifts or adding children or other persons to title of assets while alive, as the parties involved in the transfer may face adverse tax consequences.
Transfers at Death
Federal Estate Taxes are imposed on the transfer of assets from a deceased person to anyone other than his or her (US Citizen) spouse. If you accumulated too much wealth by the time of death, and the government decides how much is too much depending on the current estate tax law, the IRS (Federal Government) will seek to take as much as half of the excess from your family. The IRS does provide an exemption which limits taxes to the estate in excess of the exemption amount. Certain lifetime gifts may be applied against your exemption when you die. Some states may also impose a separate State Inheritance Tax. It is crucial to know your state’s inheritance rules.
Avoiding & Minimizing Estate Taxes – Marital A/B provision
In most states, including California, a married couple can establish a Living Trust with an A/B provision (also known as a bypass or credit shelter trust). This strategy allows both spouses to take advantage of their own individual exemptions. Without an A/B provision, decedent spouses who leave their share of the property and assets to the surviving spouse through a Will, will generally not get to use their exemption. Instead, they must use what is known as the “unlimited marital deduction”. This often leaves the surviving spouse with double the taxable estate with only one exemption to apply against it.
If your estate exceeds the amount of wealth that the government will allow you to pass to your heirs estate tax free at the time of death, even with the use of the A/B Provision, you may have other tools at your disposal to reduce the tax mans bite.
Advanced Estate Planning Strategies
The impact of Estate Taxes can be more far reaching than just the amount owed. It can affect the continuation of a family business enterprise, force the sale of cherished or key family properties or assets, or interfere with the desired distribution of your estate. To avoid such hardships, additional planning must be considered. In most cases, planning for the anticipated or unavoidable estate taxes centers on creating a plan that can pay the anticipated taxes with deeply discounted dollars and/or shift future appreciation of assets to the next generation.
Irrevocable Life Insurance Trusts
These specialized trusts provide for the payment of anticipated estate taxes with deeply discounted dollars. Many people are not aware that the death benefit of life insurance policies owned or otherwise controlled, are included in the estate for estate tax purposes. In considering where the estate falls in the exemption on estate taxes, many individuals fail to realize that insurance proceeds are subject to the estate tax. Thus, when life insurance death benefits are included in the gross estate value, that consideration will typically change the equation.
With an Irrevocable Life Insurance Trust, you…
• Keep insurance policy proceeds from being included in your taxable estate
• Allow proceeds to pass free from income and estate taxes
• Provide ready cash for heirs to pay estate taxes or other fees
• Pay Estate Taxes or other fees for less than 10 cents on the dollar from your estate
Implementation of this strategy requires that you make periodic “gifts” to the trust in order to pay premiums on a trust-owned life insurance policy. Your attorney will usually structure your plan so that the “gifts” are tax-exempt or tax-free gifts.
The attorneys at this law firm understands the need for immediate answers. Thus, we created a specific inquiry form for estate planning that will allow the attorneys of West Themis Law to better assist you. If possible, our office may be able to recommend whether you should plan your estate with various estate planning tools.