Articles Posted in Trusts

Dynasty Trusts ensure that wealth gets passed down to successive generations. In fact, the special tax provisions in this wealth-building vehicle can allow you to amass a fortune relatively quickly. So much so— in fact— that $1 million can turn into roughly $20 million over the course of just three generations (assuming that the trusts balance grows by a net of 6%, annually). 

However, with so much wealth going to such a (potentially) small clique’ of future progeny, you may be wondering how non-family members can also be made to benefit from your fortune-accruing efforts.  
Of course, were referring to the philanthropic considerations so common among the truly noble wealthy.  

It’s true.  Sometimes referred to as “companion animals”, California Probate Code §15212 specifically provides for the creation of a trust to care for your beloved dog, cat or other companion animal after you pass.

An “animal” is defined as a “domestic or pet animal” (California Probate Code §15212(i))…. could be a horse or pot-bellied pig so long as it can fit the definition.

Per the statute, any money left for the care of the animal can only be used for the animal’s care; not for the benefit of the trustee (California Probate Code §15212(b)(1)).  Further, when the trust terminates (presumably after the passing of the animal), the remaining money goes in accordance with the terms of the trust or in accordance with a residuary clause in the decedent’s will (California Probate Code §(b)(2)).

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A frequent question that comes up when doing estate planning in my Newport Beach, California office is why should one pay for a trust, when a will is so much cheaper.  My response is are you thinking long-term or short-term?

If you are thinking short-term, a will is always going to be cheaper than a trust.  The cost, however, comes at the end, because you have virtually guarantied that there will be a probate of that will.  Probate fees will far exceed the cost of any trust.

Probate fees in California are set by statute.  As an example, if you have an estate valued at $500,000.00 that is subject to probate, the statutory fees for the attorney are $13,000.00.  That is a number of times more expensive than the cost of establishing a trust. Continue Reading

Virtually every decision regarding probate is based on title to or value of assets owned by the decedent.

Title is important because ownership can transfer as a matter of law (e.g. joint tenancy with right of survivorship, where the surviving joint tenant takes by recording an affidavit, death of joint tenant); or a bank account might be titled to a trust (e.g. John Doe and Mary Doe, trustees of the John Doe and Mary Doe 2015 Family Trust), in which case the trust controls what is in the account.  In these instances, for those assets, a probate would not be necessary.

However, where there are no joint tenancy assets, payable on death accounts, trusts or other legal means by which property transfers to another without probate, one must then look to value.

In general, if the total estate of the decedent (not counting those assets which pass because of their title as described above) is $150,000.00 or less and does not include real property, California law permits the heirs to use an affidavit procedure (Probate Code §13101) to obtain ownership of the assets.  This is very easy when the sole account of the Decedent is $149,000.00.  However, if the assets exceed $150,000.00, probate will be necessary to have those assets transferred to the decedent’s heirs.

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In other words, must there be a full-on probate in California because the real property asset (assuming a value in excess of $20,000.00, no joint tenancy or transfer on death provision in the deed) was in the decedent’s name alone when he/she died?

Likely the answer is no.  Assuming that there is a trust and for purposes of example, a surviving spouse, there will have to be a petition filed in the probate court (per Probate Code §850) to get the real property asset transferred to the trust, but that is not the same as a full-on probate.

Consider this set of facts:  Husband, in California, acquires a parcel of land while he is married and fails to have his wife’s name put on it.  In fact, let’s say that he takes title as a married man, as his sole and separate property.  He dies.  There is a family trust and if someone had thought about it, the decedent would have been counseled to place the property into the name of the trust, thus avoiding any probate proceeding.  Alas, that was not done.  Please note, I am ignoring any Family Law issues in this discussion.

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In California, a typical estate planning tool is the revocable trust. A husband and wife usually create one jointly, with the two of them serving as co-trustees until one dies. Then the other becomes the sole trustee. When the surviving spouse dies, the trust will usually name a successor trustee to take over the responsibilities of trustee.

A key feature of a revocable trust is to recognize that what was once a revocable trust becomes an irrevocable one when both of its creators/settlors/grantors die ( a portion of it could become irrevocable on the first death, depending on the language of the trust).

As the successor trustee, one of your responsibilities is to notify all named beneficiaries of the trust and heirs of the decedent that the trust has become irrevocable. This is as set forth in California Probate Code §16061.7, which prescribes the notice that is to be given by the successor trustee.

In California, Probate Code Sections 15300-15301 protect the principal and income of a spendthrift trust from judgment creditors. A spendthrift trust is one where there is a restraint written the trust instrument to prevent a transfer of a beneficiary’s interest. This protection does not exist with respect to distributions from a spendthrift trust, once the distributions become due and payable (Probate Code Section 15301(b)); it also does not exist with respect to support orders for spousal or child support that exist against the beneficiary of the trust (Probate Code Section 15305).

Further, under Probate Code Section 15306.5, up to 25% (but no more) of the principal of a spendthrift trust may be reached by judgment creditors. Additional rules apply if there are both support orders and judgment creditors, with the general rule being that the support orders have a priority over those of judgment creditors.

The take away is that while spendthrift trusts are useful, they are not 100% bulletproof. Some portion of them will be made available to creditors regardless of the grantor’s intent.

Roughly 10,000 Baby Boomers will turn 65 today, and about 10,000 more will cross that threshold every day. (Pew Research)

With the massive increase in baby boomers retiring over the next decade, proper estate planning is more important than ever! When you are looking for an estate lawyer to assist you with planning — experience and knowledge from a reputable attorney is key.

What is estate planning? Estate Planning isn’t just about protecting assets, it’s about peace of mind for you and your loved ones. Our comprehensive approach is a cost-effective “no homework” way to protect your assets and prevent disputes that might arise in the future.

Don’t be tempted by “Do It Yourself” guides and kits. I have known experienced professionals whose loved ones have seen estates ruined by poorly thought-out cookie cutter solutions that left families vulnerable to taxes, litigating family members, probate, guardianship issues and unknown creditors.

Here are a few questions to consider:
• How do I insure the financial security of my spouse and children?
• How do I avoid family conflicts and ensure equitable treatment of my children?
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1. Each US citizen has a lifetime exclusion amount from estate taxes of $5,340,000 (this amount adjusts for inflation each year).

2. There is an unlimited marital deduction for gifts from a deceased spouse to a surviving spouse who is a citizen.

3. The two concepts at play at the threshold are whether to simply leave everything to the surviving spouse and take advantage of the unlimited marital deduction (therefore no tax on the first death) which may result in a tax at the second death (while the unused portion of a decedent spouse’s lifetime exclusion may be “ported” over to the surviving spouse, the total assets on the second death may still exceed the surviving spouse’s lifetime exclusion amount). or 4. Alternatively, fund a bypass trust to the maximum amount of the lifetime exclusion of $5,340,000…. This will not be taxed at the first death and will “bypass” the estate of the survivor (i.e. not be subject to tax at the survivor’s death; and if the survivor’s estate is $5,340,000 it will not be taxed on the survivor’s death).

A typical case will involve a family member contacting me to complain about the dispositions in a will or trust of a deceased relative, with allegations that another family member or a caregiver “got” to the deceased relative to unduly benefit themselves at the expense of the other family members.

To properly analyze the case, I obtain copies of all prior testamentary documents (to determine if the terms are at variance with the current documents, and how great a variance there is).

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