FAQ
Wills & Probate FAQSTrusts and Administration FAQSAdditional Estate Planning FAQS
What is intestacy? If there is no surviving spouse (or domestic partner), California law provides an elaborate hierarchy of distribution designed to ensure that an intestate estate will be distributed in any event with each class of heirs taking to the exclusion of all subsequent classes, e.g. if there is a surviving spouse or children, no other classes of heirs would be entitled to any distributions. The intestate estate first passes to surviving issue, i.e. children grandchildren, by representation. If a decedent spouse died less than 15 years before the decedent and the decedent had no surviving issue, the portion of the decedent estate attributable to the predeceased spouse passes to the surviving heirs of the deceased spouse. Then, an intestate estate next passes to the decedent's parents; then, to the surviving issue of parents by representation then to surviving grandparents or their surviving issue by representation; then, to the surviving issue of your predeceased spouse by representation; then, to surviving next of kin by representation; then to the surviving parent of a spouse or their surviving issue by representation; then, to the state of California after all other possible heirs. What is probate? Should you consider avoiding probate? In a probate, the personal representative and the attorney for the estate are each entitled to be paid statutory commissions for their work during a probate. These commissions are paid from the estate which would otherwise pass from probate to the beneficiaries. Although these commissions are set by law, commissions can be a significant expense because they are generally based on the gross value of the estate (before debts, taxes and other expenses are paid). The statutory commissions payable for ordinary services to the personal representative and the attorney are calculated as follows:
If a decedent dies with a $1,000,000.00 estate, the statutory commissions for the personal representative and the attorney for ordinary services are $23,000 (= $ 4,000.00 + $3,000.00 +$16,000.00) each, i.e. $46,000 total or 4.6% of the gross estate. This may or may not be well earned depending on what work the estate required performed. Additional fees can be requested for extraordinary services like asset sales, litigation matters or any other extra activity and there is no limitation on their amount except they must be just and reasonable. If there is no need for court supervision of your estate, probate can be a more expensive and slower process for distributing your estate to your beneficiaries. However, if you suspect that there will be disputes after your death, the court supervising your estate is immediately available to determine such disputes. In addition, your executor or administrator must report to the probate court and account for all financial transactions which must be approved by the court. What types of property pass outside of probate? If you own property in other states, your estate could require multiple probates in each one of those states. If your family needs money to live on, they must request a living allowance from the court which could be insufficient or denied. Trusts and Administration FAQS What is a revocable living trust? Revocable living trusts are usually created by a declaration of the owner of the property that the owner holds some property or assets as trustee, or by a transfer of these assets by the owner during the owner's lifetime in trust to the trustee (called "living trusts ") or by a transfer property by the owner by will or by other instrument taking effect upon the death of the owner (called "testamentary trusts") to another person as trustee. All trusts must be funded by transferring the trust assets to the trustee of the trust to make your trust effective. You can be the initial trustee of your revocable living trust. If you cannot act as trustee, a person whom you appoint can then act as successor trustee. The successor trustee could be your spouse who could also be your co trustee. If you or your spouse become incapacitated, the successor trustee assumes responsibility to manage your trust without any court action. At your death, the then trustee inventories your assets, pays your debts and taxes and your assets distributed as you direct in the trust. The trustee functions like an executor would in a probate of your estate but there is no probate action or court supervision. These are many types of trusts and some of the trusts commonly used in estate planning are living trust and testamentary trusts. There are also a irrevocable life insurance trusts which are designed to hold and then distribute of life insurance proceeds in order remove the proceeds from your gross estate and eliminate estate taxes on the policies' proceeds. Why you should consider a living trust?
Like anything else, a living trust can appear to be complicated at first but it is quite simple. The trust will own your property and you will own the trust. When you create a living trust, you transfer your assets to your trust which you control so there is no danger of losing the property you placed in your trust. Further, since you don't own the property you transferred to the trust, there is no property for the courts to probate after you die. A revocable living trust avoids the probate of assets located out of state. A trust also allows you to keep control of your assets while you are living even if you become incapacitated through a successor trustee you appoint. Following your death, your desires for the distribution of the trust are carried out by person you designate as your successor trustee and no probate is required for this change of trustees. A surviving spouse can be put in charge of the trust, and to be able to use the trust for the spouse's own health, education, maintenance and support, as well as to be able to make payments to others. A so called "living trust" is made during your life and it can be fully amendable or revocable prior to the death of the first spouse to die. It will allow your heirs to avoid probating your assets and allow you to manage these assets in much the same manner as you currently has been. Your management duties and authority as Trustees will be essentially the same as they were before you establish the Trust. It is not necessary to obtain any special tax I.D. numbers or keep special types of accounting records other than careful records such as a prudent person would generally maintain regarding the management of his or her property. You are not required to file any special tax forms. How can a living trust minimize taxes? These potential estate tax savings diminish because in 2009 the value of an estate will increase to $3,500,000 before it will be subject to tax. This means that you and your spouse leave up to $7 million estate tax-free to your heirs. Then, the estate taxes are repealed in 2010 but the estate tax will be back in 2011 with the effective exemption amount of only $1 million and a top marginal tax rate 55% if no further legislation is passed and beneficiaries will no longer enjoy a step in basis to fair marker value for inherited property. Since your date of death is unknown, all these confusing tax rules mean you should assume the most likely worse case scenario that your estate taxes and, if estate taxes may be reduced or eliminated by a trust, you should consider such a trust. If there are no potential estate taxes to reduce, you need to determine whether it makes sense to put your home in trust to avoid probate or consider the other alternatives discussed on this site. What does a trust cost? The cost of having a trust drawn up professionally usually depends on the size and complexity of your estate. More comprehensive estate planning and preparation of other documents are usually charged at an hourly rate. However, if you have a simple estate, the cost may be modest, and you will have the benefit of professional assistance to ensure that your trust meets the standards for validity with one of our TRUST packages. Call to make a complimentary No-Obligation 30 Minute initial estate planning consultation. Then, download and complete the appropriate worksheet which will provide the information needed for our initial consultation. Should everyone have a living trust? Additional Estate Planning FAQS
A surviving joint tenant or spouse who had provided no financial contribution toward the acquisition of an appreciated asset like a home often ends up with a new adjusted basis equal to its value as of he date of death for capital gains and depreciation purposes which is beneficial but spouses typically do provide contribute financially toward the acquisition of assets like a home. A surviving joint tenant spouse who had provided a financial contribution on assets that had appreciated in value often ends up without a new adjusted basis that is less than what surviving joint tenant spouse would receive if the spouses held property as community property. Upon a death of a spouse, if spouses hold property as joint tenants or tenants in common, the property is treated as the separate property of each spouse and only the decedents' half of the property receives the stepped-up basis. Upon a death of a spouse, if spouses hold property as community property , the surviving spouse's half interest in community property, as well as the decedent's half, both get a so called stepped-up basis. Where property has appreciated at the time of the first spouse's death, this step-up of both halves of community property provides potentially advantages to the surviving spouse over jointly held property. A higher basis translates to a smaller gain should the spouse sell the property, and if the asset is depreciable, larger depreciation deductions will result. Since assets generally appreciate over time, there usually is a tax incentive for most spouses to classify assets as community property. Even though Federal tax laws allows each individual taxpayer to exclude up to $250,000 of gain from the sale of a home, if certain ownership and occupancy requirements are met, i.e. lived in the home for two years of the last five years before sale, many California residences have appreciated beyond the $250,000 exclusion. If an individual is unable to exclude all or part of the gain, then the gain is taxable as a capital gain in the year of sale. The following examples illustrate the potential advantage that an appreciated asset classified as community property would have over an asset held in joint tenancy when that asset passes to a surviving spouse. Example 1. Husband and wife own a house with a basis of $20,000 that is considered to be community property. Husband dies leaving his community interest in the house to his spouse. The house is valued at $150,000 for estate tax purposes. The basis in the house is stepped up from $20,000 to $150,000 and one-half of the value of the house would be included in the husband's estate. A marital deduction is allowed for the portion of the house included in the husband's estate since the husband's community interest in the house passes to his wife. The result is no increase in the husband's taxable estate. Example 2. Assume the same facts as in Example 1 except that the house is held in joint tenancy instead of as community property. The wife's basis in the house would be $85,000, computed as follows: $10,000, which is the wife's one-half share of the original basis of the house, plus $75,000, which is the husband's stepped up basis in his one-half share. Since the surviving spouse will receive full ownership in the house, including one-half the value of the house in the husband's estate would be neutralized by an offsetting marital deduction. If the property is the separate property (solely owned) of the first spouse to die, there would be a full income tax basis adjustment upon the death of the first spouse. This result is the same as if the property were community property. On the other hand, if the property is the separate property of the surviving spouse, there would be no income-tax basis adjustment upon the death of the first spouse. Joint tenancy is also problematic because it can negatively impact your ability to refinance or sell your home. Deeding your home to another person as joint tenants makes that person is an owner. If you want to refinance or sell the property, it requires a court partition action if the other joint tenant refuses. Further, if you do sell, the other joint tenant may not be eligible for capital gains exclusion if the other joint tenant did not own the home and live in it for two of the five years prior to the sale. If so, if there was for example $250,000 of gain on the sale, the other joint tenant would pay taxes on ½ that gain. Joint tenancy also does not provide for children from prior marriages because the surviving tenant spouse inherits all of joint tenancy property. If a joint tenancy doesn't accomplish your objectives or could result in adverse taxes consequences to your heirs, put your home in a revocable trust to avoid probate. What is community property with a right of survivorship? If a married couple combined estates is less than the applicable exclusion amount , there is usually no need for estate tax planning. Even in a estate with a need to avoid estate taxes, a community property with a right of survivorship deed may preferred to transfer to the surviving spouse the personal residence. However, holding title as community property with right of survivorship is not always superior to holding title in joint tenancy between spouses because certain creditor's claims (e.g. not consensual secured loans) against the deceased spouse are cut off. Upon death of a joint tenant, the jointly held property will then pass to surviving spouse not subject to these creditor's claims unlike title to property held in community with right of survivorship property. Further, if you own property which you acquired prior to marriage or by gift or inheritance during marriage, that is your separate property. If you deed your separate property into community property, you will be transmuting or changing your separate property interest which you own 100% into a community interest in which you have only a one half interest with the same control problems as a joint tenancy. A community property deed with a right of survivorship deed is available on this site for download subject to this website's general disclaimer and the other specific limitations discussed above. The deed must be completed with a legal description included on it or attached as Exhibit A, signed by each spouse on title to the property, notarized, and recorded with the County Recorder's Office for your property. A Preliminary Change of Ownership Report should be presented with the deed to the Recorder's Office and box A in Part 1 should be checked to indicate that this deed is exempt from property tax re-assessment as a exempt spousal transfer. The Preliminary Change of Ownership Report should be obtainable from your local County Recorder's or Assessor's office. If a community property with a right of survivorship deed doesn't accomplish your objectives, put your home in a revocable trust to avoid probate. What is a power of attorney? If you do not have a power of attorney and become unable to manage affairs, it may become necessary for a court to appoint a conservator to act for you and you may not have the ability to choose the person who will act for you. With a power of attorney, you choose who will act and define their authority and its limits, if any. A statutory power of attorney is available on this site for download subject to this website's general disclaimer and the other warnings stated on the form. This is a comprehensive form although it is brief. Make sure that the form has been properly signed, dated, and notarized. Witnessing is not sufficient. Keep the original in a safe place where the person you appoint can find it quickly. Give copies of the completed form to the people you have appointed as your agent and alternate agent(s), and to family members or anyone else who is likely to be called if there is a medical emergency. What is an Advance Health Care Directive? Is an Advance Health Care Directive different from a living will? Is an Advance Health Care Directive different from a Durable Power of Attorney for Health Care? An Advance Health Care Directive is available on this site for download subject to this website's general disclaimer and the other warnings stated on the form. Make sure that the form has been properly signed, dated, and either notarized or witnessed by two qualified individuals (the form includes instructions about who can and cannot be a witness). Keep the original in a safe place where your loved ones can find it quickly. Give copies of the completed form to the people you have appointed as your agent and alternate agent(s), to your doctor(s) and health plan, and to family members or anyone else who is likely to be called if there is a medical emergency. You should tell these people to present a copy of the form at the request of your health care providers or emergency medical personnel. Take a copy of the form with you if you are going to be admitted to a hospital, nursing home or other health care facility. Copies of the completed form can be relied upon by your agent and doctors as though they were the originals. What if I change my mind after completing an Advance Health Care Directive? You should complete a new form if you want to name a different person as your agent or make other changes. However, if you need only to update the address or telephone numbers of your agent or alternate agent(s), you may write in the new information, and initial and date the change. Of course, you should make copies or otherwise ensure that those who need this new contact information will have it. You should make a list of the people and institutions to whom you give a copy of the form so you will know whom to contact if you revoke the Advance Health Care Directive, update contact information, or make a new one. Do I need an Authorization for Release of Medical and Health Information? What is an Assignment? What is a community property agreement? The agreement acts like a pour-over will, but transfer to the trust is accomplished without probate. |
