WHAT IS ESTATE PLANNING?

  • It’s not just about living trusts and wills. It’s also about IRAs, life insurance, lifetime gifts, family limited partnerships, lifetime distributions, etc.
  • It’s about planning so that as much of your assets as possible goes to people or institutions you want to have them, and as little as possible goes to, say, the government.
  • It’s about planning so that what you leave goes where you want it as inexpensively as possible.
  • It’s about planning so that what you leave goes where you want it as quickly and efficiently as possible.

It’s about planning for incapacity, as well as for death.

WHY DO ESTATE PLANNING; OR, “I WON’T BE AROUND, SO WHAT DO I CARE”?

  • Estate planning ALSO includes planning for incapacity. Do you care what happens to you while you ARE around but unable to care for yourself?
  • Control from “beyond the grave.”
  • Without planning, people you don’t want to share your estate may be able to share in it.
  • Without planning, people you do care about may be short-changed.
  • What about care of minor children?
  • What about children from previous marriages, whom you DO want to inherit?
  • What about spouses from previous marriages whom you DON’T want to inherit?
  • What about people who aren’t blood relatives or related by marriage, whom you want to inherit?
  • Are you so much of a patriot that you want the government instead of your loved ones to get what you’ve worked hard for?
  • Estate planning can make it cheaper and faster to get assets to heirs. For example, avoiding probate.

WHY SHOULD I CARE ABOUT AVOIDING PROBATE?

  • Probate can take a long time.
  • Probate can be expensive. California statutory fees to Personal Representative and to attorney for an estate can add up. (Just for example, if gross estate is “merely” $1,000,000, the Personal Representative AND the attorney for the estate are EACH entitled to statutory fees of $23,000 – more if there are any “extraordinary” services rendered.) Probate Referee charges to value real estate and personal property assets can be ridiculously high, as well.
  • If you have assets in multiple jurisdictions, you may face multiple probates, extra delays, extra expenses.
  • Court supervision can be good, but Court won’t necessarily do what you want done.
  • If you have probate AND no will, your heirs may be unpleasantly surprised by the rules of “intestate” (without a will) succession.
  • Probate is public. Anybody can see all the records, many on-line.
  • Creditors of the estate can easily make claims in probate. When there’s no probate estate, it’s harder to make and collect on claims.
  • Probate Court also gets control of assets at time of INCAPACITY, unless there’s a living trust arrangement, or at least a Durable Power of Attorney.

DO I HAVE TO USE A LIVING TRUST TO AVOID PROBATE?

  • No. Many vehicles are available to avoid probate, including:
    • Joint tenancy assets
    • Community and separate property assets passing to a surviving spouse
    • Assets held in trust with a designated beneficiary (e.g., inter vivos (“living”) trusts, testamentary trusts, Trusts)
    • Life insurance on the decedent's life designating a beneficiary other than the estate
    • Retirement plans designating beneficiary other than the estate (e.g., pension plans, profit-sharing plans, plans, IRAs)
    • Life estates
    • U.S. savings bonds
    • Real and personal property held in the decedent’s name IF it has a total value of less than $150,000 (the “small estate” exemption).
    • Not all methods of probate avoidance are created equal.  They may avoid probate, but…

WHY CAN’T I JUST LEAVE PROPERTY IN JOINT TENANCY?

  • No double step-up in basis, as for community property.
  • Property is subject to debts of the joint tenant, which can ruin your credit.
  • Creating joint tenancy may create irrevocable lifetime gift to other joint tenant.
  • Both joint tenants have access to, and can dispose of or encumber, property.
  • If not bank account, may create taxable gift if contributions unequal.
  • ENTIRE VALUE of joint tenancy property acquired by purchase may be included in gross estate absent proof of contribution by other joint tenant.
  • No chance to maximize use of BOTH estate tax exemptions for married couples.
  • For married couples, think of “community property with right of survivorship” instead.

WHY CAN’T I JUST GIVE AWAY MY PROPERTY BEFORE I PASS AWAY?

  • That little problem called “gift tax.” Even though personal gift tax exemption is equal to personal estate tax exemption ($5.45 Million for 2016), unfortunately, any gifts given during lifetime greater than the annual gift tax exemption ($14,000 per gift in 2016), wind up decreasing the estate tax exemption!
  • There are ways to do this – GRITS, GRATS, GRUTS, FLPs. Each has its own benefits and problems.
  • Remember the story of King Lear.

LIVING TRUSTS ARE GREAT, BUT . . . SOME MYTHS ABOUT LIVING TRUSTS

  • An ordinary, revocable living trust will “avoid” estate taxes. No, it won’t, except for maximizing marital deduction, and allowing some planning using bypass trusts, etc.!
  • An ordinary, revocable living trust will provide asset protection against lawsuits, etc.
  • Exactly, but maybe, sometimes. Make sure you don’t use your own name for the trust!
  • Just having a living trust will keep my estate out of probate.
  • Not unless you actually transfer assets into the trust.            
  • If I have a living trust, I don’t need a will.
  • Wrong, you should have a will in addition to your trust. And both a Durable Power of Attorney and an Advance Health Care Directive.
  • As you can see, there’s a lot more to estate planning than what’s contained in the mailers for “free dinners” we get all the time, or the ads we constantly see promising one size fits all solutions at rock-bottom cost. Contact us to discuss your own planning needs.