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The Four Pillars of Estate Planning

I. YOUR REVOCABLE LIVING TRUST

A Trust is a legal entity to which you transfer substantially all of your assets, and formally title them in your Trust instead of your individual name. Your assets are held by you as Trustee, and administered for your own benefit. On your death, your named Successor Trustee steps in your shoes, and manages and distributes the assets owned by your Trust to the Beneficiaries which you have designated in the Trust to inherit from you. As such, your Trust, and not your Will, determines who gets what after you are gone.

Assets owned in Trust avoid Probate, with its staggering expense and court delays. The legal fees to undergo Probate are set by the California Legislature in Probate Code Sections 10810 – 10814, and are a percentage of the Gross value of the Estate, which is determined by a Court appointed Probate Referee.  For example, an Estate with gross value of $1 million will pay $23,000 to each the Estate Representative and the Estate Attorney; a $2 million-dollar estate – $33,000 to each, and a $5 million-dollar estate – $63,000 to each!

The terms and structure of your Trust will be customized to fit your specific circumstances and family dynamic, will depend on the extent of assets you transfer into the Trust, and the inheritance goals which you seek to put in place for those whom you designate to inherit from you through the Trust. Because your Trust is revocable, you can change the terms of the Trust at any time during your life. And, because you are in full control of your assets, the Trust reports to your Social Security Number, and your income tax reporting remains unchanged. Moreover, transferring real estate into your trust does not trigger reassessment of the property taxes. While you have full control and access to all your trust assets, those you name as beneficiaries after you are gone, do not have such access and control. This allows you put in place spendthrift and asset protection provisions that may shield your beneficiaries from their own creditors.

Schedule “A” to your Trust which is also your General Grant and Assignment will specifically assign to your Trust all of your right, title and interest in your property, but it is no substitute to the process of Funding the trust. This involves chancing title of your assets into your Trust.

 

FUNDING YOUR TRUST

IT IS CRITICAL TO TRANSFER YOUR ASSETS INTO YOUR TRUST AND MAKE THE TRUST THE OWNER OF RECORD

 

Your Financial Assets (including investment and brokerage accounts, money market accounts, CDs, mutual funds, etc.), your checking and savings accounts, and shares of stock (either physical certificates or stock held in book entry) must be retitled into the Trust by using a Trustee’s Certificate and a copy of the Trust (excluding the Trust’s distributive provisions, which are confidential). Present this document to your investment advisor, your bank, or your stock transfer agent, and they will assist you with titling these assets into your Trust to ensure that your Trust, and not you individually owns these assets.

You will use the Trustee’s Certificate to also change the beneficiary designation on any Life Insurance policies where you are the insured, and designate your Trust as the “pay on death beneficiary” of the policy, so that the Successor Trustee will be able to collect the death benefit and “pool” it into your Trust, where it will be shielded from the trust beneficiaries’ creditors.

Conversely, Tax Deferred Retirement Plans, such as tax-deferred Annuity Contracts, 401(k) Plans, 403(b) Plans, IRAs, pension plans, profit-sharing plans, or other company-sponsored retirement plans, may be eligible for an inherited rollover, which only an individual can do, and a Trust cannot. As such, depending on your specific circumstances, it might be more appropriate to name individuals, rather than your Trust as the “pay on death beneficiary” for these assets. This is one area where your Estate Planner and your Financial Advisor will work with you as a team to determine the most appropriate and tax-efficient beneficiary designation.

Real property is subject to the probate administration of the jurisdiction where the property is located, so your heirs may end up in probate court in multiple jurisdictions/States of the United States, because an ancillary probate would be needed in each county you own real property. To avoid expensive out-of-state Probate administration, your Residence and any other real property you currently own, or you will acquire in the future, including rental property, timeshares, oil and mineral rights, wherever situated in the United States, should be conveyed into your Trust via a Deed that is recorded in the County Recorder’s Office where the property is located.

 

II. YOUR POWER OF ATTORNEY FOR PROPERTY MANAGEMENT

Your Power of Attorney for Property Management allows your named Agent to make financial decisions about matters that the Trust does not control in the event you become incapacitated. Examples of such matters include retirement plans, Social Security benefits, Medicare/MediCal, dealings with the IRS (such as signing of your tax returns), your accounts which are not titled in your Trust, performance on your individual contracts, and any other matter not controlled by the Trust. You may designate that this document becomes effective Immediately as to your chosen Agent, or you may designate that this document becomes effective only upon your Incapacity. A person is considered “incapacitated” if that person is under a legal disability, or by reason of illness or mental or physical disability on account of which he or she is unable to give prompt and intelligent consideration to financial and administrative matters, or make sound decisions about financial affairs. A determination of Incapacity is generally made by either (1) two licensed physicians who certify in writing that such person is under a legal disability, or (2) by an order of a court appointing a conservator for that person. Although your Financial Power of Attorney “endures” your incapacity, this document dies with you: it is no longer effective after your death.

 

III. YOUR ADVANCE HEALTH CARE DIRECTIVE, DURABLE POWER OF ATTORNEY FOR HEALTH CARE, AND HIPAA RELEASE AUTHORITY

Advance Health Care Directive for Health Care gives your named Agent the power to make decisions about your health and well-being, such as: electing medical treatment and procedures, caregiver decisions, caretaker facilities, as well as “life and death” (do not resuscitate (DNR)) decisions, in the event you cannot communicate your wishes on your own: when you are incapacitated, unconscious, heavily medicated, or on life support.

This is an extremely important document, which literally places your life in the hands of your chosen Agent. For that reason, it is very important to carefully choose this individual, who should be someone you trust implicitly with your life, and who has the fortitude to do that, which you wish should be done.

This person will not only make medical decisions for you, but also be given access to your medical records. To facilitate this process, your HIPAA Release Authority will authorize and permit your Agent to obtain your medical records (as required by law), and will release the holder of records from the liability of doing so. HIPAA is an acronym for the Health Care Portability and Accountability Act of 1996. It is federal law that regulates, among other things, the confidential protection and privacy of medical records.

 

IV. YOUR POUR OVER WILL

Your Last Will and Testament is a Pour Over Will. It designates your Trust as the sole beneficiary of your Probate Estate. As such, it “pours,” or wills to your Trust any odds and ends that have been inadvertently left outside of your Trust at the time of your death. Because almost all of your assets should already be titled into your Trust, the Will simply transfers odds and ends to the Trust by avoiding formal Probate: it acts as a “safety net” that “catches” any assets that would otherwise trigger summary, or formal Probate administration. Such odds and ends are then distributed under the terms of the Trust.

It is in the Will where you also may state your desires for disposition of your last remains, such as cremation or burial instructions. And, if you have minor children, here is where a Guardian for the Person and Estate of your minor children is named.

 

There is no “do over” after one is deceased. For this reason, it is even more important to know how estate planning relates to you, your family, and those who depend on you, so that you and your family can avoid the ultimate cost – Regret.

 

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