What is estate planning?

Estate planning is the process of preparing all legally required documents and providing comprehensive instructions to grant authority to another person allowing them to legally make decisions about your health care and manage your assets, in the event you are unable to do so for yourself. This allows the most cost effective and efficient means to transfer wealth or direct benefits to you or other people and avoid probate of all trust assets.

Why should everyone have a living trust and estate plan?

Everyone needs a Living trust to avoid unnecessary court fees, court appointed appraisal fees and excessive attorney fees that are associated with probate. Further, most probate court calendars are booked several months in advance and require technical knowledge of how to prepare each court document and comply with notice requirements as well as, the court appointed appraisal process. It is not uncommon for a simple probate case to take over one year to complete. During this wait time, it is complicated and difficult to manage those assets that are in probate. During the emotional distress of dealing with the death of a loved one, the simultaneous need to deal with understanding and complying with the probate court rules and regulations, makes the process even more difficult.

Why is a living trust preferred over a will?

A professionally drafted and properly funded revocable living trust avoids probate at death. A will must go through the probate process, so assets can be verified and distributed by the probate court. By avoiding probate with a customized estate plan, you and your loved ones will prevent tedious, stressful and expensive delays while protecting your assets, privacy and peace of mind.

A professionally drafted and officially funded living trust avoids probate court disruptions if you lose your mental capacity. To have your personal care and assets managed privately by people you choose and trust, instead of being placed in a court appointed guardian requires a professionally executed and properly funded estate plan. A will does not help in a loss of capacity situation because a will becomes effective only at death.

A living trust and estate plan puts all your assets together under a complete plan with one set of clear directions for how you want things to occur. This provides you with the ability to easily disburse your assets fairly and exactly as you desire. This avoids the need to balance inheritance with other account beneficiary designations or joint ownership because of fluctuating values of investment accounts, life insurance or the purchase and sale of real-estate during your lifetime.

A professionally drafted and properly funded living trust provides you with more privacy and greater protections against your assets being contested. A trust is a private document that you share with those you choose and trust. Probate, on the other hand, is a public process which requires notice to be given to certain relatives and possible heirs. The probate process allows others to file claims to contest your will and allows others to see your financial information.

What is a Properly Prepared Living Trust?

A properly prepared living trust means a trust that comprehensively and clearly addresses each special circumstance in your unique life in a way that is legally recognized because all legal formalities have been met according to the California law.

What is a Properly Funded Living Trust?

A properly funded living trust means that the assets that are intended to be controlled by the living trust are correctly titled and effectively recorded with the either the County Recorder’s office or within each individual financial institution depending on what type of asset is involved. A trust that is not properly funded is not effective and will not achieve the objectives it was intended.

What is the best way to make sure your living trust is properly written and properly funded?

The best way to make sure your living trust is properly written and properly funded is by having an experienced estate planning attorney prepare the trust and guide you in properly funding the living trust. By using an attorney over other do-it-yourself options, gives you security that the estate plan will achieve the objective that you intend to achieve and avoid probate.

Is a living trust expensive?

A living trust is not expensive. Although originally a Living trust does cost a more than a simple will, the additional costs associated with the probate of a will make a trust much less expensive. Thousands and often tens of thousands are taken out of your assets to pay for the administration of probate even for an average sized estate.

What are the costs associated with probate?

Some of the fees associated with probate include court fees to file the documents needed for each phase of the process, appraisal fees to comply with probate court inventory process, as well as mounting fees for photocopying and postage needed to mail notices to each possible person of interest, which usually involves several heirs and many creditors, in addition to the time and energy needed to fully identify the location and value of each account or piece of real-estate. For these reasons, a trust is much less expensive than a will as well as much less stressful.

What should I expect to pay for a professionally drafted living trust and estate plan?

While the cost of drafting a professional estate plan can vary greatly depending on where you live and the size of the law firm you select a good way to get the most for your money is by finding a small law firm that specifically focuses on living trusts and estate planning. Finding an attorney that has a small office and answers his own phone allows the attorney to charge each client less money for each estate plan. A small dedicated law firm not only allows for lower prices it provides you with better service because the attorney is well versed in the specific area of law, as well as dedicated to providing great service because they are not distracted with practicing other areas of law at the same time.

Why is speaking with an estate planning attorney important?

Speaking with an estate planning attorney is important because they will identify unseen issues depending on your specific circumstances that you may not be aware exist. It is these unanswered questions that later evolve into huge problems in the future. An estate planning attorney will give you legal solutions and proper guidance to avoid problems now and in the future.

How should I select a living trust lawyer?

Select an attorney that shows they are focused on the art and skill of creating a comprehensive and perfectly tailored estate plan based on your specific circumstance. Select an attorney that is reachable. Often attorneys delegate their customer service duties to a paralegal or secretary, finding an attorney that answers their own phone and personally returns messages is a great sign that the lawyer provides you with the best service during the drafting process as well as, in to the future if you may need to make changes or have questions.

Another strong factor in selecting an attorney is finding an attorney who has a family and lives in the area. This gives you a higher assurance that the attorney will be reachable if you were to need further guidance years into the future.

Why should I have an attorney draft my living trust rather than using an automated online service?

While many options exist today, nothing can substitute for an in person meeting with an estate planning attorney. While many services provide for a boiler-plate, cookie- cutter living trust, these types of trusts rarely provide what they promise. Rarely, if ever, do these generic one size fits all living trusts identify or address the specific and unique circumstances of each person’s family, friends, pets and personal preferences. Also, the language of these generic trusts often times suggest a meaning that can be misunderstood and incorrectly believed to achieve a mistaken purpose. Dealing with an actual estate planning attorney will provide you with a reliable source of explanation, in simple understandable terms, so you understand each part of your estate plan and know how it will affect your assets and loved ones, now and into the future.

What is the first step in drafting a professional estate plan?

To make it simple, first gather the names addresses and phone numbers of each person you would like to have part of your estate plan. The people who will be involved are those discussed below.

Once you have obtained the full name address and phone number of each person you would like involved with your estate plan, call the estate planning Law Office of Codi M. Dada and schedule a complimentary consultation.

There are several things you’ll need to discuss with your estate planning attorney:

  • Who will be the successor trustees? The first things that you should think of when preparing to draft an estate plan is to decide who you would like to designate as the successor trustee. (This is the person who will manage your assets if you are unable). You can select several who would serve as a trustee or as a backup if the first selected was not able. Also, you can select more than one person who would serve together at the same time. The advantages and disadvantages can be explained to you during your complimentary meeting with estate planning attorney.
  • Who are the beneficiaries? Next, decide who you would like to give your assets to and in what amounts or percentages. Is there a minor child, then decide who you would like to designate as a guardian?
  • Who are the health care agents? Who will make health care decisions for you if you are not able?
  • Special instructions. What things would you like those people receiving your assets to accomplish with your assets? (For example, to finish college, purchase a home, buy their first car, pay for a wedding, etc.)

Discussing these issues with an experienced estate planning attorney is very helpful because the attorney can provide several options and common examples depending on your unique preferences and family situation as well as share his experience with each option.

What should I expect during a complimentary consultation with an estate planning attorney?

During the initial meeting with an estate planning attorney expect to have a friendly but open conversation about your true concerns and desires relating to how you would like things to happen with your assets and family situation. Remember that an attorney has a duty of confidentiality and cannot share any information learned about you and your family.

During this conversation, the attorney should carefully listen and address each question you may have while giving you solutions and personalized guidance. Remember, that the estate planning attorney has a legal duty and is under oath to maintain the privacy of all information you share with them. The attorney is not there to place judgment on you but rather, is there to make sure that what you want to happen with your assets happens the way you want.

For example, is there someone that is struggling with drug addiction or is there children from a previous marriage you want to protect/ prevent or is there an heir you believe may have special needs requiring special instructions or is there someone you think may not honorably handle the responsibility of receiving your gift. Although these topics might be uncomfortable to discuss, it is important the attorney is aware of these circumstances, so the proper provisions can be included in your estate plan.

At the end of the meeting, the attorney will give you an accurate price for the cost of drafting your estate plan and a definite date when your estate plan will be complete. The price should be based on a flat rate rather than an hourly rate. Because estate planning is an area of law that is foreseeable, a reputable law firm should always provide you with a concrete flat rate and delivery date rather than an estimate based on hourly rates.

You are under no obligation to hire the attorney. If you decide that you would like to hire the attorney to draft your estate plan, most attorneys will require full payment up front. The attorney is required to hold your payment in the attorney’s client trust account until you are completely satisfied with your estate plan and the attorney has completed everything they promised.

How is living trust funded?

A trust is only valid at the time it is funded. This means that there must be some assets held in the trust. A living trust is funded by titling assets into the name of the trust. With bank accounts and other financial institutions, this is a process performed by the specific financial institution. The process requires presenting a Certificate of Trust or a Declaration of Trust to the financial institution. These documents are part of a professionally drafted Estate plan.

When funding a trust with real estate certain documents such as a Transfer Deed and Preliminary Title Report must be properly drafted and notarized and then recorded with the County Recorder’s Office in the county where the property is located. These documents are technical and should be completed by an estate planning attorney. Most reputable estate planning law offices will accomplish the transfer of real property by drafting and recording the required documents as part of the overall estate plan. This service is provided at the estate planning Law Office of Codi M. Dada.

Understanding Your Estate Plan

A trust can be established in many different ways depending on each person’s circumstances. Below are typical scenarios of how a living trust works. An estate planning attorney can adjust any provision depending on your preferences and specific circumstances of your lifestyle.

What is a “settlor”?

The settlor is the person who requested the trust to be established and whose assets will fund the trust. You are the settlor of your trust.

What is a surviving spouse?

For a revocable living trust drafted for a married couple, the spouse that lives longer than the other spouse is referred to as the surviving spouse.

What is a trustee?

The trustee is the person who will manage the trust assets and administer the trust. Usually, unless specifically altered, during your lifetime you will be the trustee of your trust. For a trust involving married people, both spouses are the trustees of the trust. After the first spouse is no longer with us, the surviving spouse becomes the trustee of the couples living trust.

As trustee of your trust, you will be able to do anything with the trust assets as though you own them yourself. As trustee of your revocable living trust, there are very little limitations to what you can do with your assets held in trust. We will discuss this during our complimentary consultation.

There are several options in designating a trustee. While most people decide to be the trustee of their revocable living trust, other people prefer to hire a professional trust management company to manage the assets of the revocable living trust.

How do you make changes to a revocable living trust?

With a revocable living trust during your lifetime, you as trustee or the settlor can make any changes to the revocable living trust as you desire. This is a simple process that an estate planning attorney can assist you with. The important thing is that during your lifetime you are never trapped or prevented from making changes.

How do you amend a revocable living trust?

Amending a revocable living trust is a simple process of drafting legal documents and properly notarizing these documents for the purpose of making changes to a preexisting revocable living trust. The notice must then be given to any company that may have been affected by the trust amendment. An estate planning attorney can clearly explain how to amend a revocable living trust.

When does a revocable living trust become irrevocable?

Unless specifically altered in the living trust documents. A revocable living trust cannot be changed after the death of the settlor. If the living trust is for married people, then the revocable living trust becomes Irrevocable, unchangeable at the death of the surviving spouse.

How do you revoke a revocable living trust?

Revocation of a living trust is the process of drafting legal documents and properly notarizing these documents for canceling the living trust, as though it never existed. Along with drafting these documents all assets held in the trust must be properly retitled and transferred to your individual name.

Who is a beneficiary?

The beneficiary of a living trust is the person who will gain the benefit of the assets held in the revocable family living trust. Unless specifically altered, you will be the beneficiary of your trust while you are alive. For married couples, both spouses are the beneficiaries of the living trust.

What is separate property?

Separate property is the property of a married person, that was acquired or earned before becoming married. A revocable living trust allows each person the option to designate the property as separate property making it the property of the spouse who acquired it before marriage or designate the property as community property, making it the property of both spouses. This is discussed during our complimentary consultation.

What is community property?

Community property is property that was acquired during marriage with the use of community assets or community income. Community assets include the earnings of each spouse. Income derived from separate property during marriage, can remain separate property if it is managed correctly. This is discussed during our complimentary consultation.

How will a revocable living trust affect separate property?

A revocable family trust is a set of instructions that you and your spouse agree. An estate planning attorney can draft the instructions exactly as you and your wife intend. In short, separate property can be protected, kept as separate, and community property can be protected to remain community property. Situations vary and laws regarding these topics are complex. This is discussed during our complimentary consultation. An estate planning attorney will have the specific answers after learning of your circumstances.

Essentially, a revocable living trust allows you to act as trustee, settlor, and beneficiary. You will both manage and settle the trust and, for your lifetime, will be the one who receives the benefits of the trust. Creating a trust like this will require you follow specific guidelines that will be covered at the initial consultation.

What is a “Spendthrift Clause”?

This clause prevents a beneficiary from selling their interest in the trust. In addition, it also prevents others—such as creditors—from having access to the beneficiary’s interest.

What is the “Rule Against Perpetuities”?

This is a rule that regulates the Maximum Duration of Trusts provision (it is also known as the “Rule Against Perpetuities”) and most all states require it to be included in a trust. Essentially, it means a trust must end eventually.

What is a No Contest Provision?

A No Contest Provision is language in the trust document that assists in preventing arguments between the beneficiaries. It means that, should anyone legally contest a trust’s validity, they won’t receive anything from it. These types of provisions can be adjusted depending on personal preferences. This is discussed during our complimentary consultation.

What is survivorship?

These are provisions that set the requirement that a beneficiary must survive the survivor by at least thirty days to receive his or her distribution. This can avoid an unnecessary probate of the beneficiary’s share of the trust. This also accounts for the possibility of a simultaneous death of a married couple.

What are Special Distributions?

Essentially, they create rules of how the assets in a trust will be distributed to a beneficiary who is either a) under the age of 21, or b) is incapacitated.

Should a trustee be required to post a bond?

Simply put, a bond is an insurance policy that protects the beneficiaries if the trustee does something unlawful and loses trust assets. The choice to require a successor trustee to obtain a bond depends on who you designate as the successor trustee. How much can you trust the designated trustee? Will there be adult beneficiaries that are able to monitor the actions of the successor trustee? What is the responsibility level of the successor trustee? We will discuss this during our complimentary consultation as well as, explore other options.

Requiring a bond can be a good idea but there are some complications that can arise if without proper planning. It can also be a “Catch-22” situation; an individual can’t access the trust’s assets until they become a trustee, but they can’t become trustee unless the bond is paid for using the trust’s assets. In addition, bonds are often difficult and expensive to obtain; an estate planning attorney can give you the best advice depending on your specific circumstances and overall investment portfolio. We will discuss this during our complimentary consultation.

Should a trustee be compensated?

The answer to this question depends on your specific circumstances. Often people believe that because, sometimes, the beneficiary will also be the successor trustee, they do not need to get paid. While this might be true in some situations it is not a good idea in most. It is important to remember that if the successor trustee is not the only beneficiary there will be additional administrative, tax preparation and reporting duties that will require the successor trustee to devote time, money and energy.

If compensation is not specifically indicated in a professionally drafted living trust then default provisions will apply. If a successor trustee is a corporation (i.e., a bank) the compensation is the trustee’s published fee schedule. When a successor trustee is an individual such compensation is determined based on a “reasonable fee” based on the time and effort of the trustee. If there is ever argument as to what amount is reasonable a court judge makes the decision. A trustee is also entitled to be reimbursed for all necessary expenses incurred in the discharge of the trustee’s duties.

Duty of Trustees: What are the reporting requirements of a trustee?

A successor trustee has many duties. One of the most important duties is giving a report to any beneficiaries (though a beneficiary may waive the requirement). This will be discussed during our complimentary consultation.

What is a HIPPA Waiver?

This is a legal document that must be properly executed. The HIPPA Waiver gives your designated person, the agent, or trustee the right to obtain your health care information. Because of specific California regulations on the execution of a release concerning your protected health information, there is also a separate waiver form for each person designated. Similar provisions are often found in a General Powers of Attorney and you’re a Health Care Directive.

Should a life insurance policy be a revocable living trust?

Depending on the size of the estate, designating your revocable living trust or living family trust as the beneficiary of life insurance policies allows you to provide much more guidance and control on how the money is distributed. Things like; at what ages will the beneficiaries receive the money? What should the money be used for? A college education? To purchase a home?

These types of provision are completely up to your personal desires and preferences. It is important that your intentions are written properly and referenced correctly to withhold legal scrutiny. A devoted estate planning attorney will properly word the provisions to reflect your true intentions if they are ever challenged in the future.

What is the Stretch-Out Provision?

These are important provisions if you plan on designating a Trust as a beneficiary of a retirement account. Essentially, any IRA or tax-deferred accounts receive “stretched-out” pay-outs. This will be discussed during our meeting.

What is a Trust Protector Provision?

These types of provisions enable you in the future to appoint a trust protector of the trust (sort of a “go-between” between the trustee and the beneficiaries). The trust protector serves without compensation, but may be reimbursed for out-of-pocket expenses. While the trust protector is acting:

  • The trust protector can receive a copy of all notices, reports and/or accountings required to be delivered to any trust beneficiary.
  • The trust protector may remove a trustee and appoint successor trustees (but may not appoint himself/herself.
  • The trustee must consult with the trust protector as to the needs and requirements of the beneficiaries of the trust, the suitability of any discretionary distribution and the fitness of any beneficiary to receive any distribution.

Whether a trust protector is a good idea depends on your specific circumstances. During your conversation with your professional estate planning attorney, recommendations will be made after learning of your circumstances.

How much control will I have over my trust?

In general, you as trustee will have the same level of control over the trust assets that you had prior to transferring the assets into the trust.

What are retained rights?

In a living trust, retained rights refer to the rights that only you can exercise. These usually include your right to revoke or change the trust at any time during your joint lifetimes. The purpose is to prevent the exercise of these powers by anyone other than you. This can be adjusted depending on your desires.

What is a survivor’s trust?

A survivor’s trust is a trust that is created with the assets of the surviving spouse, for reducing or avoiding federal estate taxes. If your estate exceeds the exemption amount, your living trust will be subject to federal taxes. With a properly drafted estate plan, the survivor continues to have the complete control and benefit of the survivor’s portion of the trust (“Survivor’s Trust”), there are certain limitations placed on the survivor about the deceased’s portion. After the death of the first spouse, the decedent’s portion of the trust cannot be revoked by the survivor, but the survivor has the unlimited power to change the manner of distribution of the decedent’s share of the trust estate. This will be discussed during our meeting if appropriate for your circumstances.

What is the benefit of a trust?

There are many direct and indirect benefits of establishing a living trust or other similar estate planning device. One of the most important is that the trust controls exactly how the assets of the trust are to be distributed; both during your lifetime and then after your death. Further, the trust acts better than a will after death because the assets can be distributed without court supervision (i.e., no probate). Probate is a very expensive and tedious job involving a long process with many court formalities requiring technical knowledge, all for the purpose of legally transferring assets to heirs if there is no trust. Probate should be avoided for many reasons. This will be discussed in detail during our meeting.

What is a Pour-Over Will?

With a professionally drafted estate plan, a “Pour-Over Will” is created to minimize probate. It’s commonly referred to as a “pour-over” will because this type of will pours your assets into your trust. Basically, if there are assets that haven’t been transferred to your trust, they will be after you die. This, in turn, is done to make sure these assets are distributed properly. The will also designates the Guardian of any minor child. You have a “stand-alone” Power of Attorney and a Health Care Power of Attorney for any minor child). This will be explained further during our meeting.

What is a durable power of attorney for management of property and personal affairs? 

The Durable Power of Attorney is a legal document which is designed to give another individual the ability to make certain decisions and manage assets on your behalf should you become incapacitated. (It should be noted, however, that there are certain things this individual won’t be able to do—for example, they can’t sell personal property.) If you have any concern about granting such broad powers, certain limitations need to be included in the language of the document. Discussing this document with a professional estate planning attorney is important.

What is a QTIP trust?

With this type a trust, an estate planning attorney drafts a trust agreement that provides for the division of the trust into sub-trusts after the death of the first spouse. It is very detailed because it contains many tax planning provisions.

With a QTIP Trust, your trust potentially divides into three separate sub-trusts after the first death. The first, survivor’s portion, is placed in a revocable part of their estate. The second, the deceased spouse’s portion, initially goes into an irrevocable trust called the “Marital Deduction Trust”; from there the surviving spouse can choose (“elect”) to have that portion of the deceased spouse’s estate up to the maximum amount which can pass free of the federal estate tax exemption available in the year of the deceased spouse’s death (which is currently $5,490,000) distributed to an irrevocable trust called the “Decedent’s Trust”. In this situation, there will be no federal estate tax due regardless of the value of the trust and the tax laws in the year of death (this is called the “unlimited marital deduction”).

At the death of the survivor, the assets held in the Decedent’s Trust pass to the beneficiaries of your trust without federal tax and the assets in the survivor’s and the Marital Deduction Trust are taxed only to the extent the total value in those trusts exceeds the estate tax exclusion available for the year of the surviving spouse’s death.

By utilizing these divisions, you can protect your spouse’s assets, which in turn can increase how much is given to any beneficiaries. In addition, you’ll have to worry less about potential taxes for assets in the Marital Dedication Trust.

Also, it can require the trustee to pay all of the income from the Survivor’s Trust and the Marital Deduction Trusts to the surviving spouse plus giving the Trustee(usually the surviving spouse) the discretion to pay the income of the Decedent’s Trust to either the survivor or to your children (this can provide for asset protection, as well as, potential income tax benefits). In addition, because IRA rules can apply and can have different requirements, there should be language to make sure that these conflicting tax laws do not result in any adverse income or estate tax consequences.

Also, it gives the trustee the power to use the principal of the sub-trusts for the benefit of the survivor. This is an unlimited power utilizing any criteria for the Survivor’s Trust; however, unless there is “non-Interested Trustee” (i.e., an “independent third-party Trustee”) acting for asset protection purposes, the distribution of principal from the Decedent’s Trust and the Marital Deduction Trusts must be discretionary and must be limited to the survivor’s “proper health, support and maintenance” in order to maintain the same standard to which the survivor was accustomed at the time of the first death. This limitation is necessary to prevent the assets in the Decedent’s Trust from being taxable as part of the survivor’s estate or from being reached by the surviving spouse’s creditors. Finally, it gives the Trustee the discretionary power to use the principal of the Decedent’s Trust for your children, particularly while they are not yet twenty-one.

This will be discussed during our meeting depending on your circumstances.

What is a Certification of Trust?

A Certification of Trust is a document that is required to open financial accounts. Essentially, it verifies that a trust exists and can be used as a smaller, simpler version of a trust agreement. A certification of trust should be included with a professionally drafted estate plan.

What is a Declaration of Trust?

A Declaration of Trust is a document that is required under certain circumstances. Basically, if you fail to transfer certain assets to your trust, it can be used to confirm that you intended to do so. This document should be included with a professionally drafted estate plan.

What is assignment of personal property?

An Assignment of Personal Property is a document that is required in a professional estate plan. This is how you can transfer certain personal property assets to your trust. A certification of trust should be included with a professionally drafted estate plan.