Answers to the most frequently asked questions according to attorneys
By: Linda Honey, Esq., lrasema Rocha, Esq.
As you consider the upcoming year, you may be thinking about the future of your family and the importance of planning for the “what-if” situations. Estate planning requires you to make important but difficult decisions that most find easier to procrastinate and even easier to avoid. Unfortunately, not having an estate plan at the time a “what-if” situation arises could leave your loved ones dealing with your estate in difficult and expensive court processes while mourning.
If you have no plan, you’llhavenosayand the government will decide on your behalf
This article addresses the importance of planning ahead by answering some of the most common questions and issues we encounter as estate planning attorneys.
Why do I need an estate plan?
An estate plan generally consists of a living trust, will, power of attorney, and a healthcare directive. All these documents work together to help your loved ones manage your estate in the event of an accident, illness, or death. If you do not have an estate plan at the time of your death, the distribution of your property will be handled by the probate
court according to California law. The probate process is costly and can take several months if not years to finalize. A I iving trust and wi11 are used to control the distribution of your estate to your family or beneficiaries. The power of attorney is useful during your life in the event of incapacity. The healthcare directive helps your agent make healthcare choices on your behalf based on your wishes.
What is the difference between a trust and a will?
A living trust is revocable and amendable anytime during your lifetime as long as you are able. Living trusts are designed so you have complete control over your property during your life and are generally the most effective way to avoid probate. A will is not sufficient to avoid probate but is still a necessary part of your estate
plan. Even though wills are probated, they can be used as a catchall method to transfer property that was inadvertently left out of your trust allowing your overall distribution goals to be maintained.
I already have a trust, so I don’t need to worry right?
Creating an estate plan is the first step. In order for your estate to be administered by your trust outside of probate, you will need to make sure your assets are either titled in the name of your trust or the trust is the beneficiary named at your death (with some limited exceptions for tax deferred accounts). It is always a good idea to have your trust reviewed every 4-5 years to make sure your trust is up to date with the current estate and gift tax laws and to address any changes in your personal circumstances. Most of these trust transfers can be done without an attorney; however, if you need to transfer real property or business interest, it is highly recommended that you work with an experienced attorney to avoid inadvertently triggering reassessment of property taxes or violating any business agreements.
What are some common mistakes people make?
Aside from failing to plan, the most common mistake is failing to transfer property to the trust or failing to name your trust as a beneficiary. As families acquire more property, it is important to make sure you name beneficiaries to all your accounts or hold title to property in the name of your
trust to avoid probate. Another common mistake made by parents is adding their children as joint account holders or joint owners to property without understanding the legal and tax implications. Although joint ownerships avoid probate, it can have tax consequences that are not beneficial to the children added as joint owners. Joint ownerships also do not solve problems associated with simultaneous deaths.
Doesatrustalsohelpprotect me from creditors?
Generally, living trusts do not protect you from creditors. However, an irrevocable trust can be a helpful tool to protect you from future creditors. These types of irrevocable trusts have specific legal and tax consequences that require very careful planning.
