ESTATE PLANNING GUIDE BOOK

• The Probate Court decides who will administer your estate and who will become guardian of your minor children.
• The State of California makes a will for you and decides who gets your money and your belongings.
Possible problems with leaving no Will:
• The wrong person is selected by the court to administer your estate.
• The court selects an inappropriate guardian for your children.
• Children receive their share when they become “adults”, at the age of eighteen (18) years.
• Beneficiaries are not those whom you wanted

• Handwritten wills are easily challenged because of unclear (non-legal) language and lack of witnesses to prove the person writing the will was legally competent.
• Lawsuits challenging the will are expensive and usually result in a compromise, with beneficiaries you wanted to eliminate getting part of the estate.

Caution: Do not attempt to change a will prepared by your attorney by writing on the document. Adding words or crossing out language could invalidate the entire Will.

If a couple is married, holding assets in joint tenancy between spouses is okay, but not ideal. Married couples living in a community property state can obtain a “stepup” in basis in both the decedent’s half of community property as well as the survivor’s half, but they lose this advantage by keeping assets in joint tenancy. However, adding anyone else as a joint tenant can create other problems, such as:

•  The new joint owner could misappropriate the asset. After all, you gave it to him/her.
• Did you file a gift tax return when you added his/her name to your asset? Adding a name to an asset is a gift.
•  Do you really want to expose your money to someone else’s problems (for example, adding children or relatives as joint tenants)? If the joint tenant gets involved in a divorce, bankruptcy or lawsuit, your asset may be tied up in a long legal battle and you could lose your money.
• Joint tenancy means “automatic right of survivorship” so the surviving joint tenant will get the entire asset regardless of what your will says.

• A simple Will does not avoid probate. If your assets exceed $150,000.00 at your death, probate will take, depending on the state and county, anywhere from one (1) to two (2) years. It will further cost your estate approximately 6%-8% of your gross estate paid to the personal representative of your estate and to the attorney representing your estate before your beneficiaries receive any money. (See Appendix “A” for approximate probate expenses.)
• If your estate is large and you have only a simple Will, or if you hold your assets in joint tenancy, you will create a tax for your beneficiaries. Currently, the maximum estate tax rate is 45% of the amount of your estate exceeding the individual or collective (married) personal estate tax exemption in effect at that time. Utilizing tax provisions in your estate planning documents can protect your heirs from estate taxes.
• A Trust can protect the estate you want your children to inherit.

What are the benefits of a living trust?

• A living trust avoids probate, thereby avoiding delay and expense.
• A living trust avoids the need for a conservatorship if you should become
  incompetent or incapacitated.
• A living trust provides possible tax savings.
• A living trust can continue for the benefit of:
  • Your loved ones • Minor Child/ren
  •  Elderly dependent parent/s
  • Adult child/ren with drug or alcohol problems, mental, physical, or
    educational special needs, or developmentally adult children on SSI or MediCal.

Yes, for several reasons:

• As a safety net to pour assets into your trust if you have forgotten to put something into it.
• To provide for the care (guardianship) of your minor children or other dependents.
•  To give instructions for the disposition of your remains (burial instructions.)

Yes. Financial Powers of Attorney are extremely important if you have only a Will. With a living trust, a Special Financial Power of Attorney allows your Agent to transfer assets to the trust, sign income tax returns, deal with Social Security, pensions, IRAs, insurance, and other legal non-trust documents where your signature is required.

You need a special document known as an Advance Health Care Directive. This document is invaluable in the event you become incapacitated for whatever reason, since it allows you to designate who will make health care decisions for you if you are unable to make them for yourself. Without such a document, you may be required to go through an expensive, time-consuming and public conservatorship proceeding before anyone will be allowed to make such decisions for you.

Advance Health Care Directives should contain correct addresses and telephone numbers of your named agents, and should typically have an unlimited duration.

Corporate Executor/Trustee

Individual Executor/Trustee

NO! If you do so, the entire amount of your retirement account will be immediately taxable. If you have a “Roth” IRA, its benefits will not be taxable to your children or your estate. If you have a “Non-Roth” IRA and your children or anyone other than a spouse is the beneficiary, there will be a tax. If you are married and your spouse is the only beneficiary of your retirement account, taxes can typically be deferred on your “Non-Roth” IRA.

Despite a potential tax disadvantage, some people consider designating the trust as beneficiary of all or a portion of their “Non-Roth” IRA in order to care for special needs children who would otherwise receive the IRA portion outright.

Yes. Leaving part of your estate to a special-needs child who is receiving disability or Medi-Cal payments could have the effect of terminating those payments until the child has exhausted the entire amount of the bequest. If you find yourself in this position, discuss it with us privately and carefully consider what you should do before you make any decision.

We normally recommend that you name your revocable living trust as the primary beneficiary of your life insurance. If you are married, your surviving spouse is typically the trustee and beneficiary of the trust, and thus would manage any insurance proceeds paid to the trust for his or her own benefit.

In the event that the surviving spouse is legally incapacitated, the successor trustee will step in to manage and distribute the insurance proceeds for the benefit of the incapacitated surviving spouse. If you are single, or your spouse predeceases you, the proceeds are paid to the trust and the successor trustee then administers and distributes those funds to your contingent beneficiaries (children, grandchildren, etc.) in accordance with the distribution provisions you have outlined in your trust. This is particularly
beneficial for beneficiaries who are still minors.

In the event that the net value of your insurance policy(ies), when added to your remaining estate, will cause your estate to exceed the estate tax exemption limit then in effect, we recommend establishing an Irrevocable Life Insurance Trust for your life insurance to remove the proceed value from your taxable estate.