Estate Planning Frequently Asked Questions (FAQs)

Do I Need A Trust?

If you own real property or estate with a gross value over $150,000, you should consider establishing a revocable trust.  In California, all estates with a gross value in excess of $150,000 require a probate. The attorneys’ fees and costs on such a probate would exceed $5,000.  A $1,000,000 estate would have attorneys’ fees of $23,000 plus court costs.  These fees would double if the court appointed personal representative claims their fee.  These fees are owed by the estate before your beneficiaries and heirs receive their inheritance and without consideration of the debt that may be owed on such assets.  For example, if you own a home worth $1,000,000, with a $700,000 mortgage, which is not unusual in this area, the probate fees and costs of about $50,000 would be deducted from your estate, resulting in a 16.7% charge on your net worth.  A revocable living trust avoids this costly scenario.

A revocable trust also can assist in avoiding a conservatorship while affording disability protection.  If you are unable to manage your own finances due to disability, your named successor trustees can assist you in paying bills, arranging for your care and comfort, and properly investing and safeguarding your estate.

Finally, a revocable living trust can help reduce federal estate taxes for joint estates larger than $10,860,000 by taking advantage of the Internal Revenue Code sections protecting surviving spouses through use of Bypass trusts, Marital deduction trusts and other irrevocable trusts.  For many estates other tax considerations must be considered, such as capital gains tax implications.

What Is A Revocable Trust?

A revocable trust, also known as a living trust, is essentially an agreement with yourself that is executed and valid during your lifetime, unlike a will that becomes operative only upon your death.  With a trust, your estate avoids probate because you have established a mechanism to provide for the transfer of your assets to your beneficiaries upon your death.  During your lifetime (or joint lifetime with your spouse if you are married), your trust remains fully revocable, so long as you are competent.  If you become incompetent or pass away, all or a portion of the trust will become irrevocable.

The trust does not require any special accountings or different tax reporting while you are alive.  Only when all or a portion of the trust becomes irrevocable will a separate tax return be required.

You retain control of the assets placed in the trust.  You can invest and reinvest as you see fit to meet your financial needs.  This is generally true, even when all or a portion of the trust becomes irrevocable.  Your successor trustee must invest assets as instructed in the trust, or as a prudent investor would.

What Should I Do If My Child Has Special Needs?

The Internal Revenue Code provides rules for trust to benefit a spouse, child or other beneficiary who is disabled and receiving or likely to receive governmental benefits like Medi-Cal (Medicaid) or Social Security disability benefits (SSI).  Special Needs Trusts are designed to supplement government benefits without disqualifying the beneficiary from those benefits. For example, what if your child or nephew has autism and is receiving Medi-Cal benefits and lives in a group home?  If you pass away, leaving ¼ of your $1,000,000 estate to him, he would become ineligible for benefits and may even have to move from a very comfortable living arrangement.  A conservator or guardian would need to be appointed to manage his finances and it could become difficult to re-qualify after the $250,000 is exhausted.  A Special Needs Trust avoids these disruptive and unintended problems.

What Is The Amount Exempt From Federal Estate Tax?

In 2015, the exemption is $5,430,000 for a single person and $10,860,000 for a married couple.

Is The Exempt Amount Going To Change?

Each year the Internal Revenue Service adjusts the exemption amount equal to the cost of living, but not necessarily the increases in the value of your estate.

Can I Avoid A Conservatorship For My Elderly Parent Or Grandparent?

A revocable trust can help to avoid a conservatorship as part of a well crafted estate plan.  An estate plan with a financial powers of attorney and a health care directive can avoid a costly and intrusive court-supervised conservatorship.  In most cases the successor trustee can manage your estate and your attorney-in-fact for health care decisions can handle your affairs.

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