FAQ's:  Frequently Asked Questions About Living Trusts, Wills,
    Probate & Estate Plans

1. Who needs estate planning?

Everyone. Selecting the guardian for your children is perhaps the most important reason to have an estate plan. You want to say who will be the guardian for your children and not leave the decision to the probate court. Even if you do not have a large estate you probably want to avoid probate. A living trust reduces the attorneys fees and costs of probate and passes that inheritance on to your heirs. If your gross estate is over the amount Congress allows you to shelter we can help you minimize your estate tax and gift tax exposure.

2. I thought Congress and the President did away with the estate tax. Did they?

No. Not yet.

3. What is the Unified Credit?

The Unified Credit was a tax credit that when applied “sheltered” a certain amount of property from estate tax. The Exemption Equivalent Amounts were increased by Congress as a result of the Economic Growth and Tax Recovery Act of 2001 (EGGTRA) as follows:

2002 - 2003 $1,000,000 per person;
2004 – 2005 $1,500,000 per person;
2006 – 2008 $2,000,000 per person;
2009 $3,500,000 per person;

2010 One year repeal of the estate tax.
2011 $1,000,000 if estate tax repeal not made permanent.

4. How did the practice of making a will begin?

Some believe that soldiers made plans to pass on weapons if they were lost in battle even before the rise of the Roman empire. Most scholars agree that the Romans used wills to transfer their property.

5. What is a will?

I tell my clients that a will is a letter to the judge. California probate courts have jurisdiction over all cases where a person dies with a will or “intestate” which is without a will or any estate plan whatsoever.

6. What is probate court?

Probate courts in California are similar to most other courtrooms you might see on the evening news or a television drama series. California probate hearings and trials are court trials with only a judge presiding. A party might file a will contest challenging the authenticity of the will or its provisions or have a grievance concerning probate administration. The Court sits without a jury and California probate attorneys do not get on television very much.

Generally, the functions of the probate court are to:

     • Determine if a will is valid or decide if a person died intestate without a will
     • Litigate any will contests or other challenges to the will such as capacity,
        undue influence, probate administration or fraud
     • Inventory the assets of the probate estate
     • Determine the final debts of the probate estate by giving notice to creditors
        and setting a four (4) month time period for creditors to file their claims with
        the probate court
     • Ensure the filing of 1040 income tax returns, 706 estate tax returns and
        payment of federal and state estate tax, gift tax and income tax
     • Distribute the remainder of the probate estate to the beneficiaries
        according to the terms of the will or according to California intestate
        succession law.

7. What is intestate succession?

Intestate succession is the “Do nothing I’ll never die program.” Intestate succession can be a bit complex. However, very generally speaking, intestate succession is a California “pecking order” of who is legally entitled to have your property should you die without a will, living trust or other estate plan.

8. How much does it cost to go to probate court?

Probate attorney fees and probate executor fees are fixed by California law, which generally provides for a graduated fee depending upon the size of the gross estate. The probate attorney and executor fees are based upon the gross probate estate because we have to “probate” or administer an asset even if it has an encumbrance upon it such as a mortgage on a residence. For example, say a house is worth $500,000.00 but has first and second mortgages on it totaling $450,000.00 leaving only about $50,000.00 equity in the property. The attorney and executor fees would nevertheless be based upon the entire amount of $500,000.00 because they had to inventory, account for and dispose of the entire property even though the asset has only $50,000.00 equity.

To account for a one million dollar ($1,000,000) estate the attorney’s fees and executor fees would be approximately $46,000 plus court costs such as filing fees, service of process fees and related court costs such as copies, depositions, etc. A probate case is similar to a civil lawsuit. If the probate case is complex or unusual the attorney may also be awarded extraordinary attorney’s fees. (See, California Probate Code section 10800, et seq.)

9. How long does it take to litigate a probate case?

The time varies but it can take from twelve months to two years. Some cases can take several years.

10. Is confidential family information such as a person’s assets kept private in probate court?

No. Most information is public record.

11. When did the "living trust" concept begin?

Although subject to scholarly debate, some say that the “living trust” concept was adopted from the English Courts of Chancery that emerged during the feudal system around the time of the Norman Conquest in 1066 A.D. During that time the ownership of land was considered of supreme importance. A “lord” was granted a parcel of land and would “rent” it to a tenant or “vassel” who would provide goods or services to the lord in exchange for protection. (Hence the modern term “landlord.”) Land was kept in the lord or vassel’s family and handed down from generation to generation. From time to time the king would summon a poor soul to the crusades on the king’s behalf.

Trust law was established to keep the property in the family. It generally provided that the lord or warrior (Settlor or Trustor) would “trust” his child (Trustee or manager of the property) to hold and manage his property until the warrior’s return. If the lord was any good with his axe and bow, then upon his victorious return the child give the land back to his dad. Should the lord ‘s arrow miss its mark then the eldest son would become the owner (Beneficiary) and inherit the land.

12. Why do they call it a “Living Trust”?

Because the trust instrument is revocable or changeable while you are “living,” you manage it while you are living, because it provides for your care while you are “living” during any period of incapacity and because we would have a terrific “PR” problem if we called it a “Dying Trust”.

13. What is a Living Trust?

A living trust is a legal document, similar to a will, but it allows your successor trustee to perform the functions of the probate court mentioned above without the supervision and costs of the probate court. Your “successor trustees” typically are your spouse, then a child if they are old enough, or one of the remainder beneficiaries who ultimately receive your property. There are also corporate fiduciaries who act as successor trustees. (I never knew why the banks were called “ABC Bank & Trust” until I got in this business years ago. I thought it meant that we could just “trust” them!)

14. What are the advantages and disadvantages of a Living Trust?

The advantages of a living trust are:

a. A Living Trust avoids probate. If you do not need to “probate” your estate your heirs will avoid the time, emotional trauma and the cost of bringing a legal action to administer your estate.

b. A Living Trust is private. Probate files are public. The administration of a Living Trust is generally a private affair.

c. A Living Trust is fast. A probate case may take eighteen months to two years to complete. A Successor Trustee who does not “dillydally” can usually administer in much less time than a probate. Also, a successor trustee can take immediate action whereas an executor must petition the court to take certain actions. For example, if a child’s tuition was due a successor trustee can simply write a check whereas an executor must oftentimes go to their attorney to prepare and file a motion with the probate court to authorize such a large distribution.

d. You see your trust in action. If you (and your spouse) are the co-trustees of your trust as is often the case you get to see how your trust works which builds confidence that your trust will do what you designed it for.

e. Peace of mind. You know that your affairs are in order and you can stop procrastinating and worrying that you have not tackled down a difficult life project.

f. Money. You will probably save your heirs a substantial amount of money for filing fees, costs, attorneys fees and executor fees of a formal probate. In California the executor and the attorneys each receive:

4% of the first $100,000 of the estate = $4,000
3% of the next $100,000 of the estate = $3,000
2% of the next $800,000 of the estate = $16,000

TOTAL $23,000 each

In other words, for a one million dollar estate your heirs may pay $46,000 in executor and attorneys fees plus court costs to probate your estate. There may also be an award for “extraordinary fees” in the event of a complicated matter. California Probate Code sections 10800 and 10810.

g. Management at incapacity. Your living trust should provide management of your affairs if you become incapacitated.

h. Control of the disposition of your property at death. A living trust should see that your property is passed to the persons you intended it to go to without resort to intestate succession or the risks of litigation

i. No property tax reassessment under Prop. 13. There is an exemption available under the California Revenue & Taxation code that allows settlors to transfer their property into their living trust without any reassessment of their real estate under California’s Proposition 13, also known as the Gann initiative passed in 1978.

15. Living trust disadvantages are:

a. Initial cost and difficulty designing your estate plan. While the estate tax and tax planning are not that time consuming for an experienced California trust lawyer the emotional strain some clients go through dealing with their own mortality and planning issues are often challenging. However, peace of mind is immediate and the relief on the faces of my clients who have completed their estate plan is apparent.

b. You must maintain your living trust. Buying and selling property and refinancing your home is slightly more complicated than if you owned your property individually.

d. No asset protection. A living trust does not provide for asset protection.

e. No immediate tax benefit. There is no tax savings associated with setting up your living trust. The transaction is tax neutral

f. Living trust funding. Clients must educate themselves on the importance of properly funding their trust and coordinating the beneficiary designations associated with non-probate assets such as life insurance, deferred compensation accounts, stock and margin accounts and certain bank accounts.

Even with its disadvantages most clients use a living trust to provide peace of mind, substantial savings of probate attorney fees, executor fees, court costs and the emotional drain of litigation and trial.

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If you have further questions please call me, California trust attorney R. Anthony Bauman, at (858) 793-7007.

I “trust” that this information is useful to you but it is not intended to serve as legal advice. Only a trained attorney or other professional can advise you concerning your estate plan after analyzing all of the facts and circumstances of your particular situation.
Thank you for visiting my Carmel Valley-San Diego California law firm at www.sandiegotaxlaw.com.

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