Learn more about estate planning for you and your family by reading the answers to some of our most frequently asked estate planning questions:
Estate Planning FAQ's
Q: What Is a California Living Trust & Why Do I Need One?
A: A California Living Trust is a legal document that replaces what most people think of, when they think of a Last Will & Testament. In other words, a living trust makes sure your assets go to the people you choose. In practice, to establish a living trust, a Trustor (who is the person who creates the trust) signs a document called a Declaration of Trust, usually naming him or herself as Trustee of that Trust. At the same time, the Trustor transfers his or her assets to the trust. Transferring assets into the trust is known as funding the trust. When properly funded, a CA revocable living trust enables an estate to avoid probate upon death. A living trust also avoids a second probate for your spouse or partner when he or she passes away, and if you hold property in other states, it avoids a probate there as well. Click here to read more...
Q: Why Do I Need A Living Trust Instead Of Just A Last Will & Testament To Avoid A CA Probate?
A: There are three main ways people pass their estate (things they own) to others in California. You can either do nothing, set up a Last Will & Testament, or create a California Living Trust. If you do nothing, your estate will pass via California's Intestate Succession Laws and could very well require an expensive California Probate. This means that you have no control over who gets what of your assets and your loved ones will probably be forced into an expensive CA probate court proceeding. A Last Will & Testament, by contrast, is a set of instructions regarding who gets what of your assets, at what time, and under what circumstances. Wills generally also require Probate if you own your home, or have personal property assets, such as investments, totaling over $184,500. Some people think if they have a Will they can avoid Probate. The opposite is true though. Having only a Will virtually guarantees that a Probate will need to be opened. Still, a Will is better than doing nothing, because at least you can ensure that your estate goes to the people you want it to go to (something you can't do under the intestate succession laws). BUT, if you set up a Living Trust, you get both benefits: you can avoid an expensive Probate and ensure that your assets go to the people you want, under the terms/conditions in which you want them to get the assets.
Q: Does A Living Trust Provide Asset Protection? How Can I Protect My Assets From Creditors?
A: A Revocable Living Trust generally does not provide asset protection. This upsets people at times because they really want protection and they have "heard" they can get it with a trust. We suspect people are confused because sometimes asset (i.e. creditor) protection is available with trusts, even a revocable living trust. That protection is not available to the person(s) who set up the trust however. Rather, it is later available to beneficiaries, if there is a spendthrift clause in that trust and those beneficiaries have limited access to the trust assets. Which really brings up how asset protection is achieved in the first place. It is achieved by giving up the control and benefit of those assets. This occurs when a revocable living trust becomes irrevocable (for example, the person who set up the trust passes away or other triggering event occurs) or during life people sometimes set up an irrevocable trust and voluntarily give up the “direct” control and benefit of those asset(s). Click here to read more...
Q: How Does A Living Trust Affect My Taxes? Can I Reduce Taxes By Setting Up A CA Living Trust?
A: It depends. First of all, there are dozens of different taxes in America. Usually, when people wonder about taxes, they are thinking of income taxes. But in the world of trusts and estates, attorneys are always talking about three main categories of taxes: that is, (1) property taxes and/or (2) income taxes, as well as (3) estate, gift, and generation skipping taxes. With regard to property taxes, a Living Trust does not help or adversely hurt people, so long as they know what they are doing when “funding” their trust. When it comes to income taxes, a living trust will not affect you at all, while you are alive. After you are gone however, there are a few concerns to think about. First, you probably do not want to hold assets in a trust, and have that trust earn income, without passing that income out to trust beneficiaries. The reason is that trust income tax rates are usually much higher than individual income tax rates. Second, if you hold capital assets (i.e.-real estate, stocks, etc.) in your revocable trust, you will be entitled to a step-up in tax basis, upon your passing. In other words, your beneficiaries can turn around and sell the trust's capital assets, tax free. This same benefit is not always otherwise available. For example, if you hold an asset (most commonly, a home) in joint tenancy there will not be a 100% step-up in tax basis. That means capital gains taxes might be owed. Finally, transfer taxes (or estate, gift, and generation-skipping taxes) don't affect many people anymore. That's because everyone can pass $12,920,000 (in 2023) to their heirs tax free. Moreover, that number goes up over time, with cost of living adjustments. If you are fortunate enough to have an estate that is greater than this amount, you will face an additional tax rate of forty cents on every dollar above the current exemption amount that you give away. Clearly if you are affected by transfer taxes, this tax is draconian in nature and you should engage in transfer tax planning, both with and without the use of trusts. (Please note that this is an extreme simplification of the tax system as it applies to estate planning and you should not reply upon the information herein, without consulting with a tax and estate planning attorney.)
Q: What's The Difference Between California Estate Planning And California Elder Law?
A: This is a great and relatively new question being asked by people. Traditionally, estate planning practices have focused on issues surrounding death, incapacity, and taxation. But as the population continues to age, how to get and pay for long term care has become a major part of the estate planning equation. Besides all the “normal” estate planning and probate issues that arise in trusts and estates practices, elder law attorneys also focus on long term care issues, such as social security disability, Medicaid (Medi-Cal in California), and Veteran's Pension Benefits. While many estate planning and elder law issues overlap, very few trusts and estates attorneys have dedicated themselves to learning both of these intricate areas of law. Nowadays, this is extremely unfortunate since lots of estate planning attorneys are not truly giving their clients the best advice. Sometimes the advice given, or services provided, are just plain wrong, in fact. So how is one to know what is the right thing to do? Well, here is a basic guideline: If you are older than 65 and have assets that total less than $1,000,000, you are doing yourself a huge disfavor by not talking to an estate planning attorney that also focuses on elder law. Even if you are younger than 65 and have assets above $1,000,000, you would do well to find an attorney who is experienced in both areas as well as tax. The difference in who you hire, could literally be the difference between aging gracefully, or going broke in your golden years and having to rely on family members to take care of you.
