Estate Planning FAQ’s

I. What is Estate Planning?

A. Estate planning by an attorney means helping people plan for what happens to their assets after they die. Estate planning attorneys work with your financial planners and life insurance agents to create a plan so that your property goes to the persons or charities you want, and to minimize taxes. Estate planning for an attorney usually means preparing a will and trust, and powers of attorney.

II. Do you sell insurance or stocks?

A. No. Insurance and stocks are an important part of an estate plan, along with other retirement accounts. I can put you in touch with financial planners and insurance agents who can assist you with your long term financial needs.

III. I’m not rich, do I need an estate plan?

A. Yes, although you may not need a will or trust. Wills determine where your property goes when you die and if you have any assets you want to give to your spouse, children, specific relatives or charities, you need a will.

B. A trust is necessary if you own ANY real estate, or the value of your assets exceeds $150,000.

IV. What is intestacy?

A. Intestacy means someone dies without a will or trust. When that happens, then in California, the Probate Code determines who gets your assets. The percentage each person gets depends on whether you are married or have children.

V. What is probate?

A. Probate means that you died either without a will or you only had a will and not a trust. Someone must “open” a probate case in your county and the probate court will divide your property among your heirs according to a formula.

B. Note that probate is usually much more expensive than having a proper will and trust. It is not unusual for the probate attorney fees to exceed $10,000 on a smaller estate.

VI. Why do I need a will?

A. A will tells the court and your heirs where you want your property to go when you die. You can give specific things to specific people. For instance, you can leave certain paintings to your favorite niece. You can leave your tools to your youngest son. You can make donations to charity.

B. A will is also the place to nominate a guardian for your minor children. Courts rarely do not approve of the person you nominate as guardian of your minor children.

VII. Why do I need a trust?

A. A will alone does not avoid probate. A trust is necessary to avoid probate. A simple way of looking at is like this: A trust becomes the owner of most of your property so that when you die, the trust continues to own your property and someone else gets to use it. No court approval is necessary, thus saving thousands in legal fees.

B. Most trusts help reduce or eliminate taxes. The federal and state estate taxes can often be avoided through a well written trust.

C. Children are a major reason to have a trust. You want to provide for your minor children through insurance and your financial planning. However, no 10 year old knows how to handle a lot of money and cannot legally make decisions for your estate. In fact, many people in their twenties cannot handle a lot of money. For that reason, many people set up trusts that provide for the care of their minor children, college expenses as they get older, and graduated distributions of funds depending on the age of their children.

D. The physical and mental condition of your spouse or children. A mentally handicapped child or a spouse suffering from a major disease or trauma may need special financial planning including a Special Needs Trust or other type of trust to preserve your assets for their care.

E. To leave a lasting legacy. You may have been blessed with a very prosperous life. You may want to set up a trust the continues to give to charities long after you die. You may have a favorite charity, church or synagogue you want to support with annual gifts or a school you want to receive annual donations.

VIII. What is the federal estate tax?

A. You’ve heard the saying that the only things certain in life are death and taxes. That is true! There are state and federal taxes on your estate when you die. The federal estate tax rate is 40% for every dollar over the federal exemption. Good financial planning can limit and perhaps avoid those taxes altogether.

IX. What is the federal exclusion?

A. The federal gift tax exclusion or deduction, refers to the amount of your estate that is NOT taxed when you die. That is, the government taxes the amount of your estate OVER the federal exemption. The federal exemption changes each year. The gift tax exclusion is $5,000,000 plus adjustments for inflation after 2012. For 2015, the federal exemption is $5,420,000.

B. This is different than the annual gift tax exclusion which was $14,000 per person for 2015.

C. This is a very complicated area and there are many rules that require expert analysis.

X. Will I lose control of my property if I have a trust?

A. You shouldn’t! Most people name themselves as the trustee of their trust. That means that you, as the trustee, make all the decisions about what happens to your property, such as whether to buy or sell property, etc. Most trusts are “revocable” trusts which mean you can change or revoke the trust at any time.

XI. What are different types of trusts?

A. Most trusts are revocable trusts, also called Living Trusts, or Loving Trusts. These are trusts that can be changed or revoked during your lifetime. They become irrevocable, that is, most terms cannot be changed, upon your death.

B. There are many variations of revocable trusts, depending on your marital status and even your nationality.

C. Sometimes it is important to protect your assets in the event you or your spouse or children become incapacitated and need state or federal care, such as Medical or Medicare. Certain types of Special Needs Trusts may be appropriate to maintain assets so that the government does not take them or you do not have to reduce your assets to qualify for certain government assistance.

XII. Do I need a power of attorney?

A. Yes. Powers of attorney allow someone else to make decisions on your behalf while you are alive. For example, you are injured in a car accident and someone must pay your bills and make medical decisions for you. A proper power of attorney makes that much easier.

B. Everyone needs two powers of attorney. One called a Durable Power of Attorney which allows someone to make financial decisions while you are alive but incapacitated, and a Medical Power of Attorney or Advanced Health Care Directive, which likewise allows someone else to make medical decisions for you while you are alive but incapacitated. Many people do not want to be kept on life support indefinitely if there is no hope of recovery. A Medical Power of Attorney is necessary to carry out those wishes or else hospitals and doctors have no choice but to do all they can to keep you alive regardless of your resources or chances for survival or meaningful life.

XIII. Should I put my IRA or life insurance in my trust?

A. It depends! Life insurance proceeds, for example, are not taxable, but you may want to name your trust as your beneficiary if you have minor children. Each person’s needs require individual planning and it is important to plan for each type of asset, cash, stocks, IRA’s, insurance proceeds, real estate, or pensions, etc.

XIV. How often do I need to update my will or trust?

A. Update your trust if you move to a different state, marry, divorce, have children or retire. You can change beneficiaries without completely redoing your will or trust. It is a good idea to have your estate planning documents looked at by your attorney every five years or so.



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