1. What Will Happen To My Assets If I Die Without A Will Or Living Trust?
California law sets forth a statutory scheme to determine how your assets will be divided upon your death in the event that you die without a Will or Living Trust. For example, if you are married, your assets may transfer entirely to your spouse or some of your assets may be split between your spouse and your children. If you are unmarried and have children, all of your assets will pass to your children. If you are unmarried and have no children, your assets will pass to your heirs, as determined by California law.
2. What Will Happen To My Minor Children If I Die Without A Will Or Living Trust?
The court will decide where your children go. By preparing an appropriate estate plan, you can express your intentions in writing as to whom you would like to be the Guardian of your minor children.
3. What Can A Will Do?
A) Provide for the distribution of property owned by you at the time of your death. Your will cannot, however, govern the disposition of properties that pass outside your probate estate (such as certain joint tenancy property, life insurance, retirement plans, and employee death benefits) unless they are payable to your estate.
B) Designate a guardian for your minor child or children.
C) Designate an executor of your estate and eliminate the need for a bond.
D) You may choose to acknowledge or otherwise provide for a child (e.g., stepchild, godchild, etc.) in whom you have an interest, an elderly parent, or other individuals.
4. What Will Happen To My Estate If I Do Not Have A Living Trust But Have A Will?
A probate will be required unless there is an alternative procedure set forth in the California statutes applicable to your situation (for example, small estates and spousal property petitions). There are also other things you can do while you are alive to avoid probate; however, they may be useful but they also may be counterproductive. Some techniques are as follows:
A) Transferring title to joint tenancy or community property;
B) Payable on death accounts;
C) Life insurance proceeds;
D) Retirement proceeds;
E) Appropriate gifting.
5. What Is A Living Trust?
Unlike a will that comes into play only after you die, a Living Trust can actually start benefitting you while you are still alive. A Living Trust is used as a mechanism to manage your property before and after your death and to provide how those assets, and the income earned by the Living Trust, are distributed after your death.. It is revocable, which allows you to make changes. If you should become incapacitated or disabled, the Living Trust is in place to manage your financial affairs, usually by a successor trustee, if you were serving as trustee. A Living Trust is not subject to probate, and therefore, all provisions of the Living Trust will remain private, except from a certain group of people pursuant to California statutes.
6. What Does A Living Trust Consist Of?
The Living Trust consists of four components:
A) The Grantor, who creates the Living Trust (also called the Trustor or Settlor).
B) The trust property, which are the properties transferred to the Living Trust.
C) The Trustee, which is the person or entity that manages the Trust's property and that distributes the property according to the terms established by the Grantor. The Grantor can also be the Trustee, at least while the Grantor is alive.
D) The Beneficiary or Beneficiaries, who are the persons or entities who receive the benefits (income and/or principal) of the Trust.
7. What Can A Living Trust Do?
A) Provide for the management and distribution of property during the Grantor/Trustor's life and after his/her death;
B) Designate a Trustee to administer the Living Trust during the Grantor/Trustor's life and after his/her death;
C) Avoid Probate;
D) Minimize estate taxes to the maximum extent possible;
E) Retain privacy for family assets and finances;
F) Lessen capital gains taxes;
G) Avoid conservatorship;
H) Provide some creditor protection for your beneficiaries.
8. Who Can Benefit From A Trust?
In larger estates, where tax savings are an important consideration, the use of trusts may play a paramount role. Even relatively small estates can usually benefit from the probate avoidance offered by a Trust. Oftentimes, individuals do not realize just how large their estate is. This is especially true since all assets owned or in which one has an interest are included, including:
A) Property owned, including joint tenancy and community;
B) Life insurance;
C) Business interests.
9. What Does A Proper Estate Plan Include?
A proper estate plan to provide for the needs of your family may include:
A) Will;
B) Trust;
C) Written agreement concerning the status of your assets;
D) A directive to your physician ("Advanced Health Care Directive");
E) Springing Durable Power of Attorney;
F) Proper funding of the Trust.
10. Is My Estate Too Small For A Living Trust?
If your estate is less than $100,000 and there is a high probability that your assets will not grow to over that amount during your lifetime, then a will may be sufficient for you as there are alternatives to probate for estates less than $100,000. However, if there is a possibility that your estate will increase to over $100,000 by the time you die, then a Living Trust is probably the better choice for you.
11. Will I Lose Control Over My Assets If I Have A Living Trust?
No, establishing a proper Living (Revocable) Trust will not affect your ability to manage or control your assets while you are alive. While you are alive, it remains completely revocable and amendable. While you are alive, you have the same control over your assets with the Living Trust as you did before your Living Trust was created.
12. What's Wrong With Probate?
A) Probate takes a lot of time. Most estates are distributed to the heirs between 6 months and 2 years after the death.
B) Probate can be very expensive as probate fees are calculated on the "gross" amount of the estate.
C) The entire probate is a matter of public record and many people prefer to keep their affairs as private as possible.
13. If I Have A Living Trust, Do I Still Need A Will?
Yes, this is called a "pour over" will. It directs any assets that you have not put into your Living Trust into the Living Trust. It should be a relatively simple process to get those assets into the Living Trust upon your death so long as the total amount of "probatable" assets is less than $100,000. (Probatable assets are those that are required to pass through probate or a statutory alternative to probate). If, however, the total amount of probatable assets exceed $100,000 then a probate will be required to transfer those assets into the Living Trust. However, they will still go to the intended beneficiaries set forth in the Living Trust.
14. Do I Have To File A Separate Tax Return For A Living Trust?
No. You continue to file your taxes as always as long as you are alive. Since a Living Trust is revocable, it does not need a separate tax identification number or need to file a separate tax return. Upon your death, or the death of a spouse, a separate tax identification number will be required and a separate tax return will be required.
15. Will The Property Transferred To My Living Trust Be Reassessed?
No, as long as you file the appropriate documents to claim an exemption from reassessment.
16. Does A Living Trust Protect My Assets From Creditors?
No.
17. Can I Borrow Against The Assets In The Living Trust?
Yes, the Living Trust does not restrict your ability to borrow on your assets in any way.
18. Do I Have To See An Attorney If I Buy Or Sell Assets?
No. When you buy assets, you take title as trustee of the Living Trust. Once you sell an asset, and the title is transferred to someone else, it is no longer in your Living Trust.
19. If A Person Has A Living Trust, Are There Loose Ends To Tie Up When The Person Dies?
No matter how simple the estate, there are almost always at least some loose ends to tie up when a person dies. This is what we call Estate Administration. If the person's assets are worth more than the federal exemption amount (in 2006 - $2,000,000) at death, there will be substantial loose ends to tie up including the filing of a Federal Estate Tax Return and possible payment of estate taxes. If the person's assets are worth less than the exemption amount, there will usually be substantially less loose ends to tie up and settlement of the estate can generally occur pretty quickly.
20. My Child Is Married, Does His/Her Spouse Get A Share Of His/Her Inheritance?
Under California law, inheritances are the separate property of the person receiving the assets and not the community property of both spouses. Therefore, the non-benefitting spouse has no rights in or to the inheritance. Of course, what your child does after he/she receives the inheritance can change what was once his/her separate property into community property of both spouses. The most typical example of this is when the child who receives the inheritance places the assets into a joint bank account. Once he/she does that, it may not be his/her separate property anymore.
21. Can I Simply Add Another Person To My Accounts Or To My Real Property To Avoid Probate?
Yes. However, it is usually not suggested for various reasons. For example, the person you add may have (or in the future may have) creditors or a spouse that may try to levy or claim an interest in those assets. Also, there may be gift tax or capital gains tax issues. For example, if the amount transferred is over the gift tax exclusion amount, it may trigger a gift tax. Also, the interest transferred may loose the advantage of a step-of in basis that would ordinarily be seen by a transfer at death.
22. What Is A Springing Durable Power Of Attorney?
This is a document that allows you to appoint someone to make financial decisions for you in the event that you become incapacitated and can no longer make your own financial decisions. It allows that person to handle your financial affairs and to deal with other institutions regarding your financial affairs. It is called "springing" because it "springs" into effect upon you becoming incapacitated or incompetent. It is called "durable" because it continues in effect during the period of your incapacity.
23. What Is An Advanced Health Care Directive?
It is a document that allows you to appoint someone to make health care decisions for you in the event that you are unable to make your own health care decisions. Thus, the person appointed by you will make your health care decisions, with assistance from your physician during your period of incapacity. In this document, you can also state whether or not you want life support systems in the event that you are in an irreversible comatose or similar state; you can state whether or not you want to donate your organs, and you can also state your preferences as to the disposition of your remains.
24. When Should An Estate Plan Be Reviewed?
If you already have an estate plan, it should be considered permanent. However, conditions and/or desires may change. Therefore, estate plans should be reviewed at least every two to three years. Certain changes in your life may demand a more immediate review. These changes might include:
A) Birth, death, marriage, divorce, or disability of you or a beneficiary;
B) Large increase or decrease in the net worth of you or a beneficiary;
C) Substantial change in the type of your assets;
D) Change of residence to another state;
E) Change in laws (tax or otherwise).
DISCLAIMER: Marlene Sanborn is licensed to practice law in the State of California only. Her office is located in Elk Grove, (Sacramento County), California. The information provided in this FAQ page is offered for informational purposes only. It is not offered as and does not constitute legal advice. As you read this FAQ page, keep in mind that the answer to any given situation could change drastically with only a minor change in the facts. Therefore, do not rely upon these answers to solve your or someone else's problem. Instead, seek competent professional legal assistance.
