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Entries in living trust (4)

Tuesday
Aug132013

Creating a Living Trust Makes (Dollars and) Sense

 

by Robert A. Hull

“How much will it cost?"

For estate planning attorneys, this is usually the follow-up question we’re asked after “Do I need a Trust or Will?" After discussing a prospective client’s estate planning needs, some are surprised and a bit bothered at the approximate cost.  

Rightfully so. It is a fair amount of money for most of us. But, when you actually break down the potential costs to the beneficiaries of your estate without having a trust in place, that amount becomes much less daunting (also, the cost includes so much more than a trust – namely, a complete estate plan including wills, financial powers of attorney, health care powers of attorney, an assignment, deed, document summaries, etc.).

Why Do You Need an Estate Plan?

Some background: If you die with only a will – including those cheapies you can get online, or without any will at all – your assets can pass to beneficiaries in generally two ways: 

1. Via non-probate or probate transfers (more on “probate” in a minute). Non-probate assets include assets in a living trust, proceeds from life insurance, assets held in joint tenancy/community property with a survivorship right, payable/transferable on death accounts or retirement accounts with beneficiary designations.

Non-probate assets can generally be transferred without court supervision and approval. Contact the bank, insurance company, etc. and provide the death certificate/fill out a short form and bingo, assets transferred.

2. Your other assets are generally probate assets. Transferring probate assets requires Court confirmation that the correct assets are to be transferred to the correct beneficiaries (i.e., those named in the will or those listed in the intestacy statutes, if there was no will).

But, before those assets can be transferred, you must first open a “probate” with the Court, publish the probate with a newspaper of record, appraise the assets, send notice to the decedent’s creditors and pay any outstanding debts, file one or more accountings of the assets subject to probate, etc. ALL of these actions are performed under scrutiny by the court.

 

The Costs of Probate in California

 

Probate attorney’s fees are statutory, meaning they are set by California law. Absent any unusual circumstances, the normal fees paid by the decedent’s estate for the probate will be a pre-set percentage of the assets probated. This percentage is 4% of the first $100,000 of the value of the probate assets; 3% of the next $100,000; 2% of the next $800,000; 1% of the next $9 million (we’ll stop at the $10 million estate, for now).

So, if you die with probate assets worth $1,000,000, which is easier to reach than one might think given Southern California home values, your estate would pay $23,000 in statutory attorney’s fees to probate those assets – and all with the extra hassle of being supervised by the court, on the court’s timetable.   If your home is being probated and has a mortgage, the mortgage balance will not be considered when calculating statutory attorney’s fees (such fees for a home valued at $500,000 with a $400,000 mortgage will be calculated using the full $500,000 value).

The cost of an average estate plan is NOWHERE NEAR this amount – not in the same ballpark or even in the same universe. And, as mentioned, you can generally administer the estate generally without court supervision if your assets are in a trust.

Also, in a probate the Executor of the estate may claim an additional $23,000 in statutory fees, leaving that much less to the beneficiaries.  If you die with probate assets worth $500,000, your estate would incur $13,000 in statutory attorney’s fees plus, another potential $13,000 in executor fees (the executor may choose to waive those fees).

If you had your assets in a trust, the trustee could handle all of the property transfers per the terms of the trust, without court supervision, and perhaps with only some small attorney’s fees for assisting with deeds or other transfers, if desired.

If there’s a legal dispute, that could increase the attorney fees significantly, but would also increase the statutory fees in a probate significantly because such fees would be “extraordinary”, and the attorneys are entitled to such fees as long as they’re reasonable. Attorneys are also entitled to extraordinary fees in probate for activities not in the normal course of a probate, such as buying/selling real property or running a business.

So, is the cost of a trust and estate plan money well spent? Significantly smaller out-of-pocket costs now and perhaps some small attorney’s fees at your death.  Versus, a percentage of your entire probate estate (cash out of your beneficiaries’ pockets) later?

Seen in this light, getting a complete estate plan sure makes dollars and sense. How much will your estate plan cost, and what else can having an estate plan do for you? It all depends on how you want your estate handled, and the complexity of what you want done. 

 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.
Wednesday
May152013

A Living Trust – One of Many Tools for Protecting Your Estate

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

 

A living trust is not the only vehicle that individuals need to consider when completing an estate plan. There are several other types of trusts and tools, some of which are equally as important as a living trust, necessary to accomplish and complete planning goals.

A well rounded estate plan must also consider potential income tax problems, estate and generation skipping transfer tax consequences, as well as planning trusts for minor children or protecting a child’s inheritance from his or her spouse or creditors.

In the first of a six part series on Gift Tax and Estate Planning blogs, I'll explore how Living Trusts can help protect and secure you and your family members for the future.

 

What is a Living Trust?

 

A living trust is a way of holding title to your assets so they will not be subject to Court Conservatorship or Probate Proceedings during your life or upon your death.

The trust governs what happens to your assets if you are incapacitated during your lifetime, as well as providing for the distribution of your assets when you die. You can change your living trust while you are living and you keep control of the assets you place in the trust.

Estate for Federal Estate Tax purposes includes:

A living trust also includes estate tax planning provisions so that your family will not pay estate tax unnecessarily.

Estate taxes are presently at a 40 percent rate (of the value of all of your assets when you die). Your assets include your:

  • Real Estate
  • Personal Property
  • Business Interests  (Partnerships, LLCs, Corporations, Joint Ventures)
  • Money
  • Promissory Notes
  • Deeds of Trust
  • Investment Accounts
  • Retirement Plans (such as IRAs and 401(k) plans)
  • Life Insurance
  • Annuities

If the total value of these assets exceeds $5,250,000 (Federal Estate Tax Exemption in 2013), there will be an estate tax when you die on the amount in excess of the exemption at the rate of 40 percent.

While leaving your assets to your spouse avoids the estate tax at your death, it compounds the estate tax at his or her death. Therefore, it is not always the best strategy to leave all your assets directly to your spouse in joint tenancy or payable upon death accounts.

Instead, there are ways of allowing your spouse to have control over the assets, while still avoiding death taxes on those assets upon his or her death.  A living trust will generally provide estate tax planning provisions for a married couple by allocating the deceased spouse’s estate tax exemption to an Exemption Trust upon his or her death, so that his or her estate tax exemption will be fully utilized, thereby reducing the value of the surviving spouse’s estate upon his or her death.

Though a living trust is a very important and basic estate and tax planning tool, it is not the only one.  My next blog in this series will discuss Life Insurance, and how you can use that vehicle in conjunction with an irrevocable trust.

 

Kira S. Masteller is a Gift Tax & Estate Planning Attorney in our Trusts and Estate Planning Practice Group. Contact her for more information via email: kmasteller@lewitthackman.com.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
May092012

Getting Clear on Creditor Protection: The Limitations of the Revocable Living Trust

 

by Robert A. Hull

People often believe that if they set up a revocable living trust, and put their assets into the trust, their assets are protected from creditors.  

While a revocable living trust can provide numerous benefits – namely, the distribution at death of one’s property without court supervision and, possibly, substantial tax advantages – such a trust does not provide creditor protection.

General Rule of Thumb: The ability of a creditor to reach your assets is directly proportionate to how much control you can exercise over those assets (and/or whether you are a beneficiary of that trust, in which case the trust is called a “self-settled” trust). The greater control you have over your assets and/or benefit you derive from your assets, the greater chance a creditor can reach those assets.  

If you are the trustee of your revocable living trust, you are able to effectively control your assets as much as you can without such a trust.  You can amend or revoke the trust (hence, the name “revocable” trust) and withdraw assets from the trust, at will.  Thus, since you have the same degree of control over your property, creditors may access the trust’s assets almost as easily as they can access your assets which are not in such a trust.

On the other hand, the less control you have over those assets, the less chance a creditor can reach those assets.

In the most obvious case, if you give away assets, you no longer have control of those assets.  Hence, a creditor cannot normally reach them (unless there are mitigating circumstances such as the transfer was a fraudulent attempt to evade those creditors or a preferential transfer prior to a bankruptcy filing, etc.). 

However, you can achieve some protection from creditors and still maintain a degree of control over your assets for a period of time, even though you are effectively giving your assets away. 

 

Three Ways to Better Protect Your Assets  from Creditors

 

1. Irrevocable Trusts: Certain people set up “irrevocable” trusts for the benefit of their children, etc.  With these trusts, you are making a present gift of property, the bulk of which the beneficiary may receive at your death, or some other time in the future (note:  the gift needs to qualify as a present interest to be eligible for the gift tax annual exclusion). 

However, as trustee, you can still manage the property in the irrevocable trust until that future time, although you will not want to hold powers which will cause the trust to be included in your taxable estate at your death.  This is especially helpful when gifting business or real property interests.  Remember though, that you cannot modify these trusts, or remove property from them, without complying with state law and without risking its tax treatment, and in some cases exposing the trust to taxation.  Hence, your creditors cannot normally reach such property (except if there are mitigating circumstances, as mentioned above).

2. Gifts: In addition, you may wish to make a gift to heirs, but asset protection of such heirs may be a consideration (e.g., minimizing a child's exposure to divorce, tax problems, professional liability and general creditor problems).  Protection may be achieved to some degree by leaving the beneficiary’s bequest in trust, rather than gifting assets outright.

3. Business Structures: You may set up a business entity structure which can make it more challenging for creditors to reach your assets.  But, setting up and maintaining such entities, and also irrevocable trusts, involves some time and expense (e.g., in certain cases, the filing of annual income tax returns, payment of annual fees, substantial legal and accounting fees, etc.).

There are many terrific reasons for executing an estate plan, including a trust and a pourover will.  However, if creditor protection is an important consideration for you, you need to carefully implement the right devices to minimize the risk of creditors successfully coming after your property.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

Thursday
Jan122012

Funding a Living Trust -- Estate Planning Advice

Trusts & Estate Planning Attorney

by Kira S. Masteller
818.907.3244

The most common reason for establishing a living trust is to avoid probate and take advantage of estate tax exemptions.

If you don’t have a revocable trust, your heirs could spend months or even years waiting for the California court to approve the administration of your assets, the payment of your debts, and the distribution of whatever is left of your money/property to your family, friends, charitable organizations or other heirs.

Properly executed Trusts avoid probate. Wills do not avoid probate.

A revocable trust simply means that your trust can be changed or even revoked whenever you like during your life; while a living trust means it goes into effect while you are still alive, unlike a Will, which is not effective until your death. A revocable living Trust avoids probate and can avoid a Conservatorship proceeding while you are living in the event you are unable to manage your own affairs.

Depending on the value of your estate and what type of assets you have, you will decide with your estate planning attorney whether or not the use of a revocable living trust is for you.

Upon executing your revocable living trust, you will need to “fund” your trust. Establishing the trust without putting your assets into the trust defeats the purpose of having a trust in the first place.

A Properly Funded Revocable Living Trust

 

Estate planning does not end with the execution of the trust document. You actually have to transfer title of your assets into the name of the trust (i.e., John Doe, Trustee of The John Doe Family Trust). If you leave an asset out of your trust, that asset could wind up going through probate.

So which assets should be used for funding a trust? Here are some important ones:

▪ Bank Accounts
▪ Brokerage Accounts
▪ Business Interests, i.e. professional corporations, partnerships, sole  proprietorships, etc.
▪ Certificates of Deposit
▪ Investments
▪ Life Insurance
▪ Real Property, i.e. home, land, commercial buildings, etc.
▪ Recreational and Other Vehicles, i.e. cars, motor homes, boats, planes, motorcyles, etc.
▪ Time Share Ownerships

*Note: Retirement assets, annuities and life insurance do not get transferred into your trust. You will work with your estate planning attorney to determine how to name the beneficiaries of these assets so that they are in alignment with your estate and tax planning objectives.

Let’s say you have a lot of assets, and are not sure where to begin when funding your trust. The first step is to make a complete list of all of your interests, property, and investments. You can check off items on this list as you start funding.

Next, I always recommend that my clients check their mail. Every time you get a monthly statement from your bank or brokerage company, make sure the name on your statement is listed with your name as Trustee of your Trust Name. If it isn’t, call that institution to get that particular asset transferred to your living trust, rather than leaving it in your individual name.

Your estate planning attorney will change the title to your real property by recording a Deed with the County. Your real property in other states should also be titled in the name of your trust so that these assets will not go through probate. You will save your heirs a lot of time, money and headaches by properly funding your trust, not to mention utilize all of the estate tax planning exemptions available.

If you have questions about how a particular asset should be handled, ask the professionals. Talk to your estate planning attorney or accountant.

Last, don’t forget to provide copies of your list to the Trustee, your accountant, and your attorney. Establishing a revocable living trust avoids probate court, but filing your list of assets and keeping good records will make handling your estate a lot easier for your beneficiaries.

Kira S. Masteller is a California Trust and Estate Planning Attorney. Call her at 818.990.2120 if you have questions regarding funding a trust, probate or estate planning for yourself or your business interests.

 

 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120