​​​AVOIDING PROBATE

​Q.    What are the probate fees?

A.    Probate fees are the fees paid by the estate during the probate process.   The probate fees consist of executor’s or administrator’s fees, attorney’s fees, appraisal fees, court filing fees, bonds and publication fees.  Probate fees are generally a percentage of the gross value of the estate.  These fees average approximately four to ten percent of the estate’s total value.

Probate Fees: 4% to 10% of Gross Value

Size of Estate  Approximate Probate Cost

$100,000         $8,500

$200,000         $15,000

$500,000         $27,500

$1,000,000      $48,000

These are examples of statutory fees (attorney and executor) plus approximate court costs


Q.    What is the gross value of the estate?

A.    The gross value of the estate is the fair market value of the estate before the debts are paid.  For example, if a $200,000 home is left to a child by a parent in a Will, in order to probate the will the estate will have to pay probate fees of approximately $15,000.  This is the case even if there is a $180,000 mortgage against that home, because the fee is based on full fair market value before paying off the mortgage.  This rule can cause a severe hardship to many estates.


Q.    How can probate be avoided?

A.    The safest and best way to avoid probate is by using a Revocable Living Trust.


Q.    Are there benefits to avoiding probate with regards to Medi-Cal repayment?

A.    Yes.  A bill was signed into law by Governor Jerry Brown effective January 1, 2017 stating that Medi-Cal can only be recovered from the “probate estate,” not from an estate held in a revocable living trust. This now means those with low value estates should set up a trust to keep your estate from reimbursing Medi-Cal at your death. Doing so will give more to your heirs.
 

Q.   What is a Revocable Living Trust?

A.   The Revocable Living Trust is an alternative to a will.  You transfer property from yourself as trustor, to yourself as trustee.  No one else is involved with your trust while you are living.  You can buy, sell, trade, invest, and reinvest property without the consent of any other party.  In your trust document you name who will be successor trustee and successor beneficiaries.


​Upon your death, the successor trustees distribute the estate to the successor beneficiaries exactly as you have directed in your trust.  This can be accomplished through specific gifts, percentages, or a combination of both.


Q.    Can a single person create a Revocable Living Trust?

A.    Yes, a single person can create a Revocable Living Trust.  In fact, it is often more important for a single person to have a Revocable Living Trust than it is for a married couple.  This is because a single person needs to name someone to handle his or her affairs in the event that he or she becomes incapacitated or suffers some other disability.  (See Part 3 “Other Benefits of the Revocable Living Trust” under the section “Avoiding conservatorships.”)

The single person names in his or her trust the person(s) who will handle the estate not only in the event of incapacity, but also upon the death of the single person.  A parent will often name his or her children to become trustee or co-trustees upon his or her death.
 

Q.    What Kind of Revocable Living Trusts can a married couple create?

A.    Basically there are three types of trust for married couple.  The first type is called a simple or basic trust.  With the simple trust, while both spouses are living, they continue to manage the estate together as they had before creating their trust.  Upon the death of one spouse, the surviving spouse has sole and absolute control over the estate.  When the second spouse dies, the assets are distributed to the heirs as directed in the trust.

B.    If the spouses want to put restrictions upon the estate once one spouse has died, then the couple would need an A-B Trust.  (See Part 2 “Taxes” and Part 3 “Other Benefits of the Revocable Living Trust” under the section “Using the A-B Trust for Control.”)

C.   The final type of trust is a combination of the two above and is called a "Disclaimer Trust."  This type of trust will allow the surviving spouse after the first spouse dies, to choose whether or not to split the trust between an A and a B trust, or to simply keep it as if it were a simple trust.  With portability, there is usually no reason to split the trust between an A and B trust unless the spouses are looking for controls placed on their share of the estate after their death.

The simple trust or disclaimer trust is advisable for husbands and wives whose estates meet the following conditions:

1.    The combined estate is under the Federal Estate Tax exemption amount for the two spouses combined, and will not grow to exceed that amount.  (See Part 2 for an explanation of the Federal Estate Tax exemption amount).

2.    The spouses are willing to allow the surviving spouse to have full and unrestricted use of the trust assets after the death of one spouse.



​Q.    What are some other ways of avoiding Probate?

A.    Other ways of avoiding probate are Pay on Death Accounts and Joint Tenancy.
 

Q.    What is a Pay on Death Account?

A.    A Pay on Death Account (sometimes known as “beneficiary designated bank account” or a Totten Trust) is a bank account in which the title is held by one person in Trust for another.  For example, a bank account could be titled, Amy Smith, Trustee for Jane Smith.  These bank accounts avoid probate.  At Amy’s death, such an account may be paid to Jane without the need for probate.

The main disadvantage of the Pay on Death Account is that such accounts do not avoid a conservatorship, and do not provide for what happens to the property if Jane dies first.  (See Part 3 “Other Benefits of a Revocable Living Trust” for an explanation of a conservatorship.)
 

Q.   What is Joint Tenancy?

A.    Joint Tenancy is a means of holding title to property so that two or more persons (the joint tenants) hold title together with “right of survivorship.”  This means that the surviving joint tenant is entitled to the property upon the death of one joint tenant, without probate.
 

Q.   What are the dangers of Joint Tenancy?  *****

A.   One danger of joint tenancy is that when you name someone as a joint tenant to your property, you make an immediate gift of one-half of that property to that person; therefore, you have lost control of that property.   The property cannot be sold without that joint tenant joining in.  Another serious danger is that the property then becomes subject to attachment for the debts or tax liens of that other joint tenant.  For example, a parent often puts a child on the joint tenancy deed as a joint tenant simply to avoid probate, without realizing that the property could then be used to satisfy the child’s debts.

Another problem is that joint property is not subject to a will.  Often, a parent puts one child on the joint tenancy deed as a joint tenant, expecting that child to share the property with the other children.  However, legally there is no obligation for that child to do so unless the other children can prove that the parent’s intent was to share the asset.  Unfortunately, it sometimes requires litigation to prove the parent’s trust intent.
 

Q.    Are the Beneficiaries protected under a Revocable Living Trust?

A.    With a Revocable Living Trust, the property will not necessarily be under the control of the Superior Court as it would be in a probate.  Therefore, if you are concerned that the trustee may not properly  perform his or her duties, you can build into the trust the protection you desire:


​You can choose a corporate trustee, such as a bank or title insurance company.  The disadvantage of this is that those institutions will charge a fee for their services, which will be an expense to your estate.

You can require the trustee to immediately request court supervision pursuant to the Probate Code.  This will provide protection for the beneficiaries.  The disadvantage is that this may make administration as expensive and time-consuming as a probate would have been.

You can make all or some of the beneficiaries co-trustees.  This will create a checks and balances” system.  However, it may make administration more difficult because more than one signature will be required in order to conduct transactions.

You can give all the beneficiaries a copy of the trust so that they know what their rights are.  Court supervision is always available if any beneficiary requests it.  This alternative has the advantage of not requiring court supervision when it is not necessary.
 

Q.   Is Maintaining a Trust expensive?

A.   No.  If you are your own trustee, during your lifetime there will be no management expenses.  Even your income tax returns do not change.  They are filed exactly as they had been before the trust was created.
 

Q.    Do I need a Living Trust if my estate is not large?

A.    Many people believe that if the estate is not taxable there is no need for a Revocable Living Trust.  However, smaller estates can benefit greatly for example, let’s say your mother owns a home worth $160,000 and bank accounts or other investments worth $60,000.  If she leaves it to you in a Will, the probate fees will be over $10,000 even if you waive your executor’s fees.  As a general rule, any estate over $150,000, or any estate with real property, can benefit by having a Revocable Living Trust.


​​​​​​TAXES - ESTATE TAXES


Q.    What are estate taxes?

A.    Estate taxes are the taxes paid to the federal government for the transfer of property upon death.  Federal Estate Taxes are based on the size of the estate.


Q.   What is the Federal Estate Tax exemption amount?

A.    The Federal Estate Tax exemption amount is the amount of the estate that can pass tax free upon your death.  From 2004 through December 31, 2005 that amount was $1,500,000.  It increased to $2,000,000 in the year 2006 through December 31, 2008.  In 2009, the exemption was $3,500,000.  In 2010 there were no estate taxes.  In 2011 and 2012 the exemption amount was $5,000,000 and in 2013 this exemption was made "permanent" and indexed with inflation. In 2017 the exemption amount for each person was $5,490,000. In 2018 under the Tax Cuts and Jobs Act of 2017, the federal estate tax exemption is $11,200,000 per individual.


Q.     What is the Unlimited Marital Deduction?

A.     The Unlimited Marital Deduction means that an unlimited amount can be transferred from one spouse to another without any federal Estate Taxes.
 

Q.    What is an A-B Trust?

A.     An  A-B trust is a means of dividing a “husband and wife” estate into two trusts upon the death of one spouse.  The main purpose for using the A-B Trust use to be to prevent losing any portion of the Federal Estate Tax exemption when the first spouse dies.  With portability, we no longer worry about losing the first spouse's exemption. Now, An A-B trust may be used to provide separate instructions for the estate of each spouse.  For instance, when spouses remarry, they wish to provide gifts to their separate families.  If that is the case, an A-B Trust may be necessary to keep the deceased spouses  share separated.

EXAMPLE:

A-B Trust

$7,000,000 Estate

$3,500,000 Trust A

$3,500,000 Trust B

Trust B will be distributed to those beneficiaries as designated by the first spouse to die, generally upon the death of the second spouse, and Trust A will be distributed to those beneficiaries as designated by the last spouse to die.    


Q.      Is an A B Trust required in order to preserve the first deceased spouse's estate tax exemption with PORTABILITY?

A.      No.  With PORTABILITY the surviving spouse can now elect to preserve the deceased spouse's $11,200,000* exemption for him/herself. Within nine months of the first spouse's date of death, the surviving spouse must file an estate tax return.  This return will allow the surviving spouse to preserve the deceased spouse's $11,200,000.00 exemption. Where before if you did not split the estate into an A B Trust you would lose the first spouse's exemption, you are now able to preserve it and use it along with the survivor's exemption when the last spouse dies. With PORTABILITY it is imperative that you preserve the first spouse's exemption regardless of the size of the estate. This is because you do not know how much your exemption will be when you die. If the exemption is done away with, you should still have the exemption amount from the first spouse. If the exemption were reduced or eliminated and you have not preserved your spouse's exemption within the required nine months, then you may have NO exemption to use.  (* for year 2018)

INCOME TAXES

Q.    Will I have to pay income tax on the value of property I receive as a gift or inheritance?

A.     No.  Except for tax-deferred assets such as retirement plans, property or money received as a gift or inheritance is not considered income to you when you receive it.  However, you may have to pay income tax when you sell the property if the property does not receive a “stepped-up basis.”
 

Q.     What is the “Stepped-Up Basis” of Property?

A.      The basis of property is the value used to determine gain or loss for income tax purposes.  Basically it is the cost of the property (what you paid for it).  The “stepped-up basis” is a new basis, which is available to property received through an inheritance.  This means that the value of the property on the date of the death of the decedent is the value used to determine gain for income tax purposes.
 

Q.    When does property receive a “Stepped-Up Basis?”

A.     Where property is received as an inheritance, (either through a Revocable Living Trust or        through a will), the property receives a stepped-up basis.  However, if the property is    received as a gift (for example, through a quitclaim deed prior to death, as an inter vivos gift), then the property retains the basis (value) established by the person who made the gift.

        For example, let’s assume a man purchases a piece of investment property for $100,000 in 1975 and it was worth $350,000 at the time of his death.  If the heirs of that man received the property as an inheritance (for example, through a Revocable Living Trust) then the basis of that property would be $350,000. This means if the heirs sold the property for $350,000 value, no income tax liability (capital gains) would accrue.  However, if the man transferred the property to the heirs during his lifetime, then the heirs would not benefit from a stepped-up basis and the basis would be the original $100,000.  The heirs then would pay up to $40,000+ in capital gains tax if they sold the property for the same $350,000 value.  If the property were held in joint tenancy so that it would pass at death, only that portion the decedent is deemed to own will receive a step-up.  (Father and two sons own equally a $100,000 property.  At father’s death, the property appraises for $350,000.  The new basis would be 1/3 of the new basis or $116,666.66 plus 2/3 of the old basis or 66,666.66 for a total of $183,333.32 and if sold for $350,000 – capital gains taxes would be approximately $25,000.00+).  Clearly, transferring property to your heirs before your death can become a severe income tax trap.

OTHER BENEFITS OF THE REVOCABLE LIVING TRUST

Children’s Trust

Q.  Can I arrange for my assets to be used for the care, support, and education of my children so that it is distributed to them at an age I choose?

A.      Yes, with a Revocable Living Trust you can specify a trustee to hold the trust assets and to keep them invested until your child or children reach an age with which you feel comfortable.  You can arrange for the trustee to pay for the child’s college education, care and support until that age.  This prevents the beneficiary from squandering the inheritance at a very young age.  Most people choose between 21 and 30 years at the age for distribution.


Avoiding Conservatorships (Incapacity)

Q.    What can I do to protect myself and my estate in the event that I become incapacitated?

A.     If you have a Revocable Living Trust, your successor trustee can step in and manage your estate during your incapacity for your benefit.  The trustee can pay your bills, invest and reinvest assets, and even sell assets if necessary to maintain liquidity.  If you do not have a Revocable Living Trust, ANYONE can apply to the court for a conservatorship.

This can result in the following problems:

1)     A conservatorship is expensive and time consuming and requires at least biannual accountings;

2)     You may end up with a conservator you would not have chosen; or worse yet,

3)     There may be a battle over the conservatorship resulting in high legal fees, which will be paid from your estate.

 You can eliminate all this by having everything spelled out properly in your Revocable Living Trust.
 

Avoiding Guardianships (Minors Inheriting)

Many times gifts will be left to minors.  If that gift is not left in a trust with a trustee in charge, the minor will not be able to gain access to their inheritance.  In order for the minor to get his inheritance, an adult must petition the court to be that child's guardian of the estate.  A parent does not automatically step into this role.  A guardian will be named by the court and that person will then be able to control the inheritance of the child until that child reaches his/her 18th birthday.
 
Using the A-B Trust for Control

Q.    How can I make sure that my current spouse and children from a former marriage are both protected?

A.     You can use the A-B Trust to control your share of the estate upon your death.  You can provide for lifetime use of the assets to your spouse, such that upon death of the second spouse, the principal can return to your original family.  The second spouse’s estate then would go to that second spouse’s family.  This helps ensure that both sides of the family receive their proper inheritances.
 

Without an A-B Trust, for example, where property is left in joint tenancy or outright to a spouse, an estate can shift from your own family entirely to your second spouse’s family even if you happen to die shortly before your second spouse dies.
 

Privacy

Q.     How can I be assured that my estate will be distributed without undue publicity?

A.     With a Revocable Living Trust, the estate is distributed privately without the opportunity for detailed and possibly unwanted publicity.  With a will, on the other hand, the entire probate file becomes a matter of public record.  Anyone requesting to do so can review the probate file of any decedent.  Anyone can find out the value of each and every asset in the probate estate, since public inventory is a requirement in every probate.

A-B-C (Q-TIP) TRUST AND GENERATION-SKIPPING TRUST

An Explanation of A-B-C or Q-Tip Trust

The A-B-C- or Q-Tip (Qualified Terminable Interest Property) Trust is a way to accomplish the following goals with your estate plan:

1.      It will ensure that the surviving spouse obtains the full marital deduction.  That is, there will be no Federal Estate Tax due upon the death of the first spouse for any assets remaining in trust for the benefit of the surviving spouse.  Furthermore, if the surviving spouse’s estate does not use the entire Federal Estate Tax exemption ($11,200,000 * year 2018), any unused portion of the exemption is available to the estate of the deceased spouse. (This is portability).

2.       It will protect the estate of the first spouse to die from being attached by the creditors of the surviving spouse.

3.      It can ensure that the assets remaining in the decedent’s estate upon the death of the surviving spouse will be distributed to the beneficiaries chosen by the deceased spouse and will not be given away by the survivor to a new husband or wife or to someone outside the family.

Where neither spouse has an estate over the Federal exemption amount, an A-B trust will also accomplish these goals.  Where both spouses have an estate that exceeds the Federal exemption amount, an A-B-C trust is often recommended to accomplish these goals.  The value of the estate is determined at the time of death, so you must allow for growth and appreciation.

If you and your spouse have different beneficiary choices, it is extremely important to have an A-B-C rather an A-B trust if there is any possibility that either estate could exceed the Federal Estate Tax exemption.  The reason for this is that with an A-B Trust, the excess of the decedent’s estate over the Federal Estate Tax exemption would be allocated to Trust A (the survivor’s trust), to be ultimately distributed to the surviving spouse’s beneficiaries rather than the deceased spouse’s beneficiaries.  For example, with an A-B Trust, if the combined estate was valued at $25,000,000 at the time of the death of the first spouse, assuming there are no changes in value, when the second spouse passes away, the family of the first spouse to die would inherit $11,200,000 and the family of the second spouse to die would inherit $13,800,000.  With an A-B-C Trust, each family in the example would receive equal inheritances ($12,500,000 each).

There are some burdens that go along with the A-B-C Trust: each of the three trusts must have a Tax Identification Number and must be administered as a separate trust for as long as the surviving spouse lives. This burden is typically acceptable for this given situation.
 

What is a Generation-Skipping Trust?

For Federal Estate Tax purposes, the general rule is that family wealth is taxed at the end of each generation.  This means that the assets parents leave to their children will generally be taxed again as part of the children’s estate when they pass away.  A way to avoid this re-taxation is by using a Generation-Skipping Trust.

Beneficiaries are often puzzled when they learn that their inheritance has been left in a Generation-Skipping Trust.  The name of the trust seems to imply that the decedent meant to “skip” them.  Actually the decedent left the assets in this fashion to skip a generation of estate taxes when the beneficiary dies and to provide other protections for the beneficiary during his or her lifetime.  These are some of the ways a Generation-Skipping Trust benefits the beneficiary:

1.      The assets in the trust are protected from certain liabilities such as car accidents and certain other types of lawsuits.

2.      The assets in the trusts remain separate property and are protected from division in divorce.

3.      If the beneficiary becomes incapacitated, the assets can be managed by the successor trustee for the beneficiary’s benefit without necessity of a costly court conservatorship.

4.     When the beneficiary dies, the assets pass on without necessity of a costly and time consuming Probate Court proceeding.

5.     When the beneficiary dies, the assets will not be subject to estate taxes in their estate; they will “skip” a generation of taxes when the beneficiary dies.

A trustor is only allowed to leave up to the exemption amount in this fashion without penalty tax.  Therefore, Generation-Skipping Trusts generally provide for any amount beyond this exemption from penalty tax to go directly to the beneficiary.  Once the assets are in the Lifetime Benefit Trust, however, they can grow in value to over the yearly exemption level.
 

Q.  How Does a Generation Skipping Trust Work?

A. Instead of the beneficiary owning the assets, a trust for the beneficiary’s lifetime benefit will own them.  The Lifetime Benefit Trust and its terms are set out in the trust of the deceased person who left the assets.

The Lifetime Benefit Trust will have its own Federal Tax Identification Number, which will be used instead of the social security number of the beneficiary to report income earned by the trust assets.  Title to the trust assets will be in the name of the trustee of the trust in his or her capacity as Trustee of the Lifetime Benefit Trust.


Q.     Who is Trustee of the Lifetime Benefit Trust?

A.      The Lifetime Benefit Trust may have a special trustee, who may be the beneficiary or someone else if it does not specify a trustee, then the trustee is the same as the trustee on the main trust.  Successor trustees are usually named to serve in the event of illness or incapacity of the first appointee.         
               

Q.     Can the Beneficiary Change the Trustee?

A.      Some trusts provide that the beneficiary can change the trustee by an instrument in writing.  Others do not give this power, and in that event, the trustees must serve in the order appointed.  If no successor is named, usually the acting trustee may appoint a successor or, if he or she fails to do so, the majority of adult beneficiaries may be given the power to appoint a successor.
 

Q.     How is Income of the Trust Reported?

A.     The trustee of the Lifetime Benefit Trust must file a fiduciary tax return for the trust under the trust taxpayer Identification Number to report taxable trust income.  If the beneficiary of the trust is also the trustee with the power to distribute the income to himself or herself, the tax return is informational only and the income passes through to the beneficiary’s tax bracket.  If someone other than the beneficiary is the trustee, the income distributed to the beneficiary will be paid by the beneficiary.  The tax on undistributed income will be paid by the trust at the trust rate which, depending on the amount of income, may be higher than the beneficiary’s income tax rate.  Therefore, the fiduciary needs to consult with an accountant about income distributions.


Q.     When and How Does the Trustee Get a Tax Identification Number for the Trust?

A.     When the creator of the main trust passes away and assets are distributed to the Lifetime Benefit Trust, the trustee must request a Federal Tax Identification Number from the Internal Revenue Service.  A trust attorney or accountant can assist in this process.

Q.     For What Can the Income of the Trust Be Used?

A.     The Lifetime Benefit Trust will specify whether all income is to be distributed or income distributions are discretionary.  Discretionary distributions are generally for support, health, maintenance and education of the beneficiary.


Q.     For What Can the Principal of the Trust Be Used?

A.     The Lifetime Benefit Trust usually permits distribution of principal for the support, health, maintenance and education of the lifetime beneficiary.  If so provided, the trustee may distribute principal for the needs of the beneficiary, but the assets may not be given away.  Occasionally, more restrictions are placed on the use of the principal in an effort to preserve the assets for the remainder beneficiaries.


Q.     What Happens If the Funds Are Misused?

A.      The remainder beneficiaries may sue to recover the misused assets.  If, however, the lifetime beneficiary has a very broad power to change who the remainder beneficiaries will be, no one would have the right to challenge the lifetime beneficiary’s use of the assets.  If the remainder beneficiaries are fixed, however, they could seek recovery.  Additionally, if the assets are taken out of the shelter of the Lifetime Benefit Trust and put into the name of the life beneficiary, they may be taxed as part of the beneficiary’s estate when he or she dies and they will also be exposed to the liabilities of the lifetime beneficiary.
 

Q.     Can the Beneficiary Borrow Money from the Trust Instead of Taking Distribution?

A.      The trustee may lend money to the beneficiary or to the beneficiary and the beneficiary’s spouse if the loan is handled within allowed guidelines.  This can be a good way of allowing a married beneficiary to obtain assistance for the beneficiary and spouse to buy or enhance a home or business, for example, while maintaining the protection of the assets from division in divorce, from estate taxes, and from liability.  The loan would have to be properly secured.  An accountant and estate planning attorney should be consulted about the parameters of any such transactions.
 

Q.    Who Makes Investment Decisions for the Trust?

A.     The trustee of the trust makes all decisions about how the assets are invested.  The trustee has a duty under the law to make prudent investments, keeping in mind the purpose of the trust and the needs of the lifetime and remainder beneficiaries.  The trustee must balance the portfolio with respect to factors such as inflation, income needs, and safety of investment.  If the lifetime beneficiary and the trustee are the same, then the trustee/beneficiary makes all the investment decisions.  If the trustee is different from the beneficiary the beneficiary has the right to demand prudent investment decisions from the trustee and reasonable production of income.


Q.    Who Gets the Principal of the Trust When the Beneficiary Dies?

A.     Many Lifetime Benefit Trusts give the life beneficiary the power to name who will get the remainder of the trust at his or her death within a given group of potential beneficiaries.  The power is called a “Limited Power of Appointment.”  In order to keep the generation-skipping protection, the power of appointment must at least be limited to beneficiaries other than the lifetime beneficiary with his estate, his creditors, and the creditors of his estate.  This is sufficient to protect the assets, and yet leaves the beneficiary with a very broad power to select beneficiaries.  Sometimes the power of appointment is limited to lineal descendants in the family or some other group, or there may be no power to specify remainder beneficiaries.


Q.     How Can the Beneficiary Exercise His or Her Power of Appointment?

A.      If the trustor left the beneficiary the power to appoint beneficiaries of the assets remaining in the Lifetime Benefit Trust at his or her death, this power can be exercised at any time after the trustor dies.  It must be exercised in a document signed by the beneficiary and delivered to the trustee of the Lifetime Benefit Trust.  The power of appointment usually will specify that the exercise must refer to that particular power of appointment and not powers of appointment in general.  It is best to have an estate planning attorney prepare the power of appointment and coordinate it with your overall estate plan.
 

Q.     How Does the Generation-Skipping Trust Impact Settlement of the Estate of the Trustor?

A.     Whenever a trustor dies, the assets need to be appraised to establish the new “tax basis” of the assets for any capital gains taxes on future sales and to determine the value of the estate.  If the estate is taxable, a Federal Estate Tax Return will need to be filed and taxes paid.  If the trustor left assets in a Generation-Skipping Trust, a Federal Estate Tax return may need to be filed even if the estate is not taxable so that the Generation-Skipping Exemption can be claimed to protect the assets from taxation when the beneficiary of the lifetime benefit trust passes away.
 

Q.    How is the Tax Basis of an Asset Affected by a Generation-Skipping Trust?

A.     When the trustor dies, the assets in the estate receive a new basis for determining any future capital gains tax upon sale.  The new basis is the market value of the assets on the date of the trustor’s death.  When the beneficiary of the Lifetime Benefit Trust eventually dies, the basis of the assets will not be changed again, however, because they will not be included in the beneficiary’s estate.  The basis of the assets in the Trust will remain the market value on the date of the trustor’s death (or the purchase price of the assets if they were purchased after the trustor’s death).


CONCLUSION

The Generation-Skipping Trust is an excellent estate planning tool.  It affords great flexibility to the beneficiary and still provides protection from creditors and Federal Estate Taxes.

HOW TO CREATE YOUR REVOCABLE LIVING TRUST


Q.     How can I create my Revocable Living Trust?

A.     Make an Appointment by contacting (714) 543-6829. Your first meeting with the attorney will be about one hour.

Bring the following documents to your appointment:

1)      A copy of the deed and tax bill to each piece of property you own (real estate);

2)     A copy of any deed of trust where you are collecting payments on a secured note.
 

Be prepared to discuss the following:

-person or persons to whom you want to leave your property upon your death (the successor beneficiaries);

-who will be the successor trustee (person(s) who will administer or settle your estate upon your death);

-contingent or secondary beneficiaries in case your first-named beneficiaries predecease you.
 

We will send you a questionnaire to fill out in advance so that you will be prepared to answer questions and make decisions at the meeting.


Signing Your Plan: 

Approximately one to two weeks after the initial meeting, you will return to our offices and review and sign your estate plan.

You will receive an Estate Organizer, which contains these documents:

1.   Living Trust

2.   Pourover Will (This legal document directs the distribution of your property into your Living Trust if not properly titled to your Trust).

3.  Deed(s)

4.  Power of Attorney for Asset Management (This document authorizes someone chosen by you to make financial decisions and handle matters in case you are unable to do so.  For example, it will allow your attorney in fact to file your income tax returns, deal with social security or other government agencies and deal with your retirement plans in case you are unable to do so).

5.   Power of Attorney for Health Care

(This document authorizes someone to make medical decisions in case you are not able to.  It also includes provisions that used to be known as the “living will.”  It provides that if you are in a hopeless medical situation you do not want to be kept alive by artificial life support systems; it requests that you be permitted to die naturally, with dignity).

The Estate Organizer also contains a concise summary of your estate plan in plain language, and instructions on how to maintain your trust.  Also included in the Estate Organizer will be instructions to your successor trustee on how to settle the estate upon your death.

The Estate Organizer is also a “workbook” in which you can list your assets, including bank account numbers, and leave any special instructions for your successor trustees.

Your Estate Organizer will become a very valuable tool.  When completed, it will provide your successor trustees with all the information necessary to settle your estate.  By listing all account numbers, you can be assured that your successor trustees will not miss a bank account or investment simply because they failed to realize it existed.

 
Funding the Trust: 

Once you have signed the estate plan documents, you will need to fund the trust with all your assets.  You will need to notify your banks, brokers, and partners so that the title to all of your accounts will be transferred into the name of your trust.  We will provide letters of instruction for your use.


Q.  If I own partial interest in property with others, can I transfer that interest into the Trust?

A.  Yes, you can transfer your share of any property into the Trust without affecting the shares of the others.
 

Q.  Does transferring the property into the Trust cause a reappraisal of the property so that property taxes are raised?

A.  No.  Revenue and Taxation Code Section 60, 62(d) specifically states that a transfer into a Revocable Living Trust does not cause a reappraisal of the property.
 

Q.  Can I put out-of-state property into the Trust?

A.  Yes, you can, and in fact, you should.  If you do not transfer out-of-state property into your Trust, your heirs will need to have a separate probate in each state in which you own real estate.  This may result in probate fees for each state.  If however, the property is transferred into your trust (and all of your properties can be transferred into the same Trust), the probate systems of all of the states involved are avoided.
 

Q.  If I want to sell assets or add new assets to the Trust, will I need to return to the attorney’s office each time?

A.  No, you will not.  You can freely sell assets and add new assets yourself without requiring a change of the Trust.  Your estate organizer will tell you how to do this.


Q.  Can I sell assets I have in the Trust without any complications?

A.  Yes, you can.  You can freely sell your property even if it is in the name of the Trust.  The only difference will be that your escrow company officials may ask for a copy of the Trust documents.
 

Q. Can IRAs, KEOGH plans, and other tax-deferred investments be transferred into the Trust?

A.  IRAs, Keoghs and other tax-deferred investments cannot be transferred into the Trust.  However, the Trust can be the beneficiary of those investments.  Each case must be discussed with the attorney to determine whether it is better to name the Trust as beneficiary; or the individuals themselves as beneficiaries.

WE’VE COVERED THE FACTS!

Now here are a number of other benefits of the Living Trust that cannot be measured in dollars.

You will have peace of mind knowing:

If you suffer a stroke, Alzheimer’s Disease, or a similarly disabling affliction, someone of your choosing will handle your affairs.

Your affairs and property are protected under a single umbrella plan.

Your loved ones ultimately will benefit from your advance planning:

In saving them the trouble and expense of probate.

In making it easy for them to care for you in the event your health fails.

In considering the feelings of your loved ones in their time of sorrow, your planning will help ease their burden during a difficult period.

  

CONCLUSION

The Revocable Living Trust is the safest and best way to avoid probate, save taxes, and obtain countless other benefits.  It is an approach to handling assets that should be considered for use by every estate, no matter what its size.

Do not procrastinate, consider all the issues today and decide which approach will be the best to put your own affairs in order!

So many of our clients tell us they would have come to us earlier if they had known it was so easy!

If you have further questions about Revocable Living Trusts or estate planning in general, please feel free to call the attorney or paralegal at (714) 543-6829.  We offer free telephone conferences and will be more than happy to discuss your estate planning questions with you to help you reach a decision that will be best for you.

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