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Message #663 Estate planning (Pt. 2)?

mp3 #663 Do You Need Estate Planning? Part 2 (mp3 file)


What is a will?

What is a Revocable Inter Vivos Trust?

What is Probate?

To whom should you leave your property?

Whom should you name as your executor or trustee?

Does estate planning involve tax planning?

How should you provide for your child?

 

 

What is a will?

 

First, a will is a traditional legal document in which you identify those individuals (or institutions) that will receive your property and possessions when you die. These individuals and institutions are commonly referred to as beneficiaries. In a will, you appoint or name an executor who may be an individual or an institution. After your death, your executor will manage your affairs, and will insure that your property is distributed in accordance with the provisions of your will. In a will, you also may name the guardian or guardians of the person or estate of your minor children, make specific gifts to individuals or charities, or even include burial instructions.

SmartLaw message 660, entitled "Do you need a will?" Provides more detailed information about wills.

For some people, a California Statutory Will may be appropriate. The California Statutory Will is a fill-in-the-blank form which can be used by any California resident competent to make a will. The best way for you to understand your choices on the statutory will form is to download your own copy of the form from the State Bar Association’s website http://calbar.ca.gov, and read it for yourself. The form is also printed in the California Probate Code, section 6240. The California Probate Code is available in all county law libraries, some public libraries or online at www.leginfo.ca.gov.

Regardless of whether you use a California Statutory Will or a lawyer-prepared will, you must execute your will in the manner required by law. Failure to execute your will in a proper manner may invalidate your entire will. You should discuss the requirements of properly executing your will with your attorney.

 

What is a Revocable Inter Vivos Trust?

 

A Revocable Inter Vivos Trust is also commonly referred to as a "living trust" or a "family trust." a Revocable Inter Vivos Trust may be amended or totally revoked at any time during your lifetime, as long as you remain competent.

A trust is a written agreement between the individual creating the trust (commonly known as a "trustor," "grantor" or "settlor"), and the person or institution who is to manage the assets held in the trust (commonly known as the "trustee"). The trustee may be either an individual, or a bank or trust company; for a bank or trust company to act as a trustee, the institution must be licensed by the state of California.

You create a trust by executing a written agreement. In the written agreement, you give the trustee the legal right to manage or control your property; identify the persons or institutions ("beneficiaries") who are to receive income or principal; and, set forth the provisions which will guide the trustee in the management and distribution of the trust property.

The trustee is a fiduciary, a person who occupies a position of trust and confidence, and is subject to strict fiduciary responsibilities. Usually, a fiduciary is held to higher standards of performance than is a person or institution that is not a fiduciary. Without the settlor's express written permission, the trustee cannot use trust property for his or her own personal use, benefit or self-interest, but must hold the trust property solely for the benefit of the beneficiaries of the trust.

Often the major purpose of a Revocable Inter Vivos Trust is to avoid probate. With only a few exceptions, to avoid probate, title to all of a settlor's assets must be transferred to the trustee of the Revocable Inter Vivos Trust. For example, a deed is used to transfer title of real property from the settlor to the trustee. One exception to the general transfer rule, is that probate still will be avoided, even though certain assets with a value of $100,000 or less are not transferred to the trustee. Other assets, such as those that are held in joint tenancy, or which could pass by beneficiary designation, do not have to be transferred to the trustee to avoid probate.

 

What is a probate?

 

Probate is a court- supervised process, which has as its ultimate goal, the transfer of property from an individual who has died (the "decedent") to that individual's beneficiaries who are identified in a will.

A probate has advantages and disadvantages. For example, if a dispute arises about the distribution of a decedent's property, the probate court is accustomed to resolving such disputes expeditiously, and in accordance with well-defined rules. Disadvantages of a probate include its public nature and, sometimes, the expense. Also, many probates are very lengthy, particularly when compared to the time required to administer the estate of a person who has created and funded a Revocable Inter Vivos Trust.

Another advantage of a Revocable Inter Vivos Trust is that it enables you to have assets managed during your lifetime, if such management is necessary or desirable, and it may enable you to avoid a conservatorship, a court-supervised proceeding in which the court appoints an individual to take care of you and your property if you are unable to do so for yourself.

A number of other differences exist, between a will and a fully-funded Revocable Inter Vivos Trust. These differences, and whether or not they represent advantages or disadvantages for you, should be discussed thoroughly with your estate planning attorney.

 

To whom should you leave your property?

 

Regardless of whether you have a will, or if you create a Revocable Inter Vivos Trust, the primary purpose of the estate planning document is to identify those persons or institutions who are to receive your property upon your death, and to determine how the property is to be distributed. The beneficiaries who are to receive property must be clearly and accurately identified. Often disputes arise after an individual dies, because the identities of the beneficiaries, or the terms and conditions under which beneficiaries are to receive property, are unclear.

 

Who should you name as your executor or trustee?

 

After an individual's death, the executor of a will, and the trustee of a Revocable Inter Vivos Trust, serve almost identical functions. Both the executor and the trustee are responsible for insuring that the decedent's wishes, as expressed in the will or Revocable Inter Vivos Trust, are fully implemented. Although the executor is generally subject to direct court supervision, both the executor and the trustee have similar fudiciary responsibilites. For example, both a trustee and an executor must act solely for the benefit of the beneficiaries named in the trust or will.

In most instances, the settlor (the person creating the trust) acts as trustee for as long as he or she is capable. Thus the settlor continues to manage and distribute trust assets for his or her own benefit. Whether or not you should act as your own trustee is a decision which you should discuss with your attorney. If a settlor becomes incapable of functioning as a trustee, however, the designated successor trustee will act as trustee.

Persons named as an executor or a successor trustee, often include a spouse, adult children, other relatives, family friends, business associates, or an institution. In determining who should act as an executor or a trustee, you should select someone who is responsible, well-organized, and experienced in maintaining books and records. In addition, it is useful if an executor or successor trustee has had business experience and is knowledgeable about making investments. It can also be very helpful if that person understands the needs and relationships of the members of your family.

If a Revocable Inter Vivos Trust is part of your estate plan, and if an individual who is not a close relative or if an institution, acts as trustee, you generally will have to pay an annual fee to that person or institution. The amount of compensation charged by various trustees may vary, so you might want to "shop around" before you decide whom to name as successor trustee. You should also expect to pay additional fees for any accounting, tax or investment advice that your trustee may need.

 

Does estate planning involve tax planning?

 

The creation of a will or a Revocable Inter Vivos Trust will often involve substantial tax planning, particularly for larger estates. Estate planning generally focuses upon federal estate taxes, but also may encompass income, gift, real property or qualified retirement plan taxes.

Federal estate taxes are imposed upon an estate which has a value of more than two million dollars. Although significant federal estate taxes can be saved by proper estate planning, the planning usually must occur before death. Qualified legal advice about federal estate and other taxes should be obtained during the estate planning process.

 

How should you provide for your child?

 

If both parents die, a minor child is not legally qualified under California law to care for himself or herself, or to manage property. A minor child is a child under 18 years of age. In planning your estate, you should consider what would happen to your child if both you and your spouse died. To plan for occurrence, you should name a guardian, to supervise your child and his or her property, until the child reaches 18 years of age. To provide for the management of the child's property, you also might want to consider alternatives to a guardianship of property, such as a trust, or a transfer under the Uniform transfers to Minors Act.

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