Our Estate Plan package generally includes a Will, a Trust, a Power of Attorney and an Advanced Healthcare Directive. We also draft and execute necessary corollary documents.
A Will is an instrument by which a person records their desires regarding distribution of property and their specific wishes after death. Two major disadvantages of relying on a Will alone to manage your Estate Planning goals include:

• A Will is not effective in the event you become incapacitated;
• A Will subjects your loved ones to a lengthy, public and expensive probate process.

A Trust is a legal relationship between its creator (“settlor”), its manager (“trustee”) and its beneficiaries. A Trust can be drafted to achieve any legal purpose during the settlor’s life and will determine the management of your estate in the event you become incapacitated or pass away.
Durable Powers of Attorney allow you to nominate the person of your choice to make decisions regarding your finances and healthcare decisions in the event you become incapacitated.
An Advanced Healthcare Directive allows you to make specific decisions regarding your end of life wishes in order to eliminate the “Terri Schiavo” problems of today’s medicine.

How would you like to plan for your family’s future and who will be the beneficiaries of your estate?

What are your wishes should you become incapacitated?

Who will raise your minor children should you be unable to care for them?

Basically, everything you own!  Your Estate includes all of your real estate, bank accounts, investments, insurance policies and any other assets you acquire during life.

Everyone. Whatever the size of your estate, the management and distribution of your assets is an important part of providing for loved ones.  Estate Planning will help eliminate or significantly reduce your estate tax obligation on your passing. 

Your loved ones are forced to endure a public court process known as Probate.  This is a proceeding where the court will oversee the distribution of your Estate.

If you don’t have a Will, the court will pay your debts off and will then distribute your remaining assets according to statutory guidelines, not according to your own wishes!

If you have a valid Will, the Court will pay your debts and will oversee the distribution of your assets according to the provisions in your Will.

As mentioned above, a Will is only effective upon your death.  It is not operative if you are alive but incapacitated.

Joint tenancy means that when the first owner dies, title automatically passes to the surviving owner.

The simple answer is no.  Here is why:

If you hold property as Joint Tenants with your spouse, Probate proceedings will be initiated on upon the death of the surviving spouse.  Additionally, holding property in joint tenancy with your spouse prevents your family from optimizing estate tax savings available to married couples.

Yes.  If you hold property in Joint Tenancy with someone other than your spouse, you may cause the “unintentional disinheritance” of your children.  This can occur because, on your death, the surviving Joint Tenant has no obligation to provide for your children or your spouse because they hold the property outright.

On June 7, 2001, President Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001, which made significant changes to Federal estate, gift and generation-skipping transfer taxes.

Generally, the government assesses estate taxes when the gross value of your estate exceeds the applicable federal exclusion during the year of your death.  Currently, the following exclusion amounts apply:

This means that if your gross estate is less than the applicable exclusion amount during the year of your death, your estate will pass to your heirs estate tax-free.   If your estate exceeds this amount, your estate will pay significant estate taxes prior to distribution to your heirs. Click here for more information about estate and gift taxes from the Internal Revenue Service (IRS).  Click here for the Internal Revenue Code.

Absolutely.
Married couples should contemplate drafting their estate plan together to include a trust instrument to take advantage of the Federal exclusion for both parties.
Everyone should consider strategies aimed at reducing the size of your estate by removing assets from your estate. Two common examples of removing assets from your estate during life include:

Making annual gifts of $12,000 or less to persons or entities; and

Placing life insurance policies into irrevocable life insurance trusts.

Call the local funeral home Bring the deed to the grave plot, pre-paid cremation documents and/or military discharge papers (if applicable). Also bring any written instructions your loved one left behind regarding viewing and burial preferences. And note that it is customary for friends and family to call the funeral home to find out more on the funeral arrangement such as the date and time of any viewings, church funerals, burials, and treatment of flower arrangements and preferences regarding charitable donations.

Write up an obituary. Write out information on your loved one’s education, career, surviving family, military service, notable achievements, etc. to help assist the funeral director in drafting information for the obituaries in local newspapers.

Get certified death certificates. You can typically obtain death certificates from the funeral director or from the County Assessor/Recorder’s Office. Request at least 10 certified copies. In San Diego County, Certified Death Certificates are $12 for each copy. See the attached forms for obtaining Certified Death Certificates by mail and in person.

Review Will and/or Trust. Search for your loved one’s original will. This will often times be kept at the drafting attorney’s office or in a fire proof safe or safety deposit box. Hopefully, your loved one kept the document at home in a fire proof safe or with the drafting attorney since the safety deposit box could be “frozen” at death which could make it difficult to obtain. After a death, the original will should be lodged with the Probate Court in the region where the person was a resident. After you have located the will and/or trust, the next step is to take these documents to an attorney.

Call an attorney. You may or may not need the help of an attorney for a probate or trust administration. It is best however to consult with an attorney to best make that determination. There are many steps in a trust administration that if not done or done improperly, could lead to legal liability for the successor trustee or executor.

Contact current and former employers. Contact current and former employer human resource departments and ask them to fax or mail you a benefits summary for life insurance, accident insurance, profit sharing plans, retirement plans, flexible spending plans, etc. Former employers may have pension or annuity benefits listing beneficiaries.

Contact the Social Security Administration. Contact the local Social Security Office and notify them of the death. You can find an office at www.ssa.gov. If your loved one was covered under Social Security, his or her spouse may be eligible for a lump-sum death benefit. Spouses must have been married for 9 months or longer before the death, unless the spouse’s death was the result of an accident or military service.

Contact life insurance and annuity providers. Obtain any policies for life insurance or annuities and notify the carriers of the death to process the claims.

Access safety deposit box. In order to access the safety deposit box, you will need to be listed as a signatory on the box and have the key. Most banks will not allow you access without these two requirements being met. It is also possible to obtain an Order from the Probate Court to gain access to the box

Call the accountant. The executor/executrix of the estate will need to know what taxes, if any, are due to the IRS and State. The accountant (if the decedent had one) should be called as soon as possible to make sure that any estate tax that is due is paid within 9 months of the date of death as required by Federal law. The estate may need to file a separate tax return and a 706 tax return may be necessary in a larger estate.

Pay any bills that are outstanding. Make sure to open a bank account for the estate if you are the executor or a trust bank account if your loved one had a trust and you are the trustee. Transfer liquid funds from assets in the estate or trust to the new bank account to pay things like funeral expenses, utility bills, credit card payments, mortgages or any other debts your loved one had. The executor or trustee needs to make sure these payments are made and that records of all expenses are kept up-to-date. This will be important information that should be shared with the accountant for the filing of tax returns.

Notify the post office. If you are the trustee or executor of the estate, you need to contact the post office to forward any future mail to your address. You may need to cancel certain utilities and subscriptions as well

Re-title any joint tenancy accounts. Make sure to re-title any accounts that were in joint tenancy to the survivor’s name only. The bank or other financial institution will likely request a certified copy of the death certificate and that you fill out their appropriate form to make the change. If the joint tenancy asset is real estate, an Affidavit of Death of Joint Tenant along with a Certified Death Certificate will need to be recorded at the County Assessor’s Office.

The primary goal of estate planning should be to protect yourself and your family, and to ensure that your ultimate plans for the transfer of your wealth are achieved. Nevertheless, estate taxes are a major consideration, as they can devour a substantial portion of your accumulated wealth. Currently, estate taxes top out at 45%, and must be paid within nine months of the date of death. However, there are a number of estate planning strategies that can reduce or eliminate estate taxes for families with estates over $3.5 Million.

In 2009, each person is entitled to a $3.5 million dollar exemption from the Federal Estate Tax. This is called the “Federal Estate Tax Applicable Exclusion Amount”. I refer to it as your Federal Coupon. If you die in 2009 with less than $3.5 million dollars, and you made no taxable lifetime gifts, no estate tax will be owed by your estate

In 2010, estate taxes will be repealed for exactly one year (but a capital gains basis system will be in effect for the year 2010). So you can die in 2010 with any size estate and owe no estate taxes (but your estate will likely have to pay capital gains tax instead). However, in 2011 the federal estate tax will be reinstated with a Federal Coupon amount of $1 million per person. Because of the uncertainty in knowing what the Federal Estate Tax will be when you die, or what changes to the tax laws may be made in the future, we recommend estate tax reduction strategies for any clients with currently at least $3.5 million in their estates.

A Credit Shelter Trust (also commonly known as a “B” or “Bypass” Trust) is a trust created within your revocable trust at the death of the first spouse. This allows a husband and wife to effectively double the amount they can give tax free to their children. If drafted correctly, this trust can:

• Shelter trust assets from federal estate taxes
• Provide the surviving spouse substantial access to trust income and principal for the remainder of his or her life
• Protect substantial sums from creditors and predators who may prey on a surviving Spouse
• Seamlessly transfer assets to children or other beneficiaries when the surviving spouse dies
• Keep trust assets out of the surviving spouse’s estate.

• If your estate exceeds the amount of the Federal Estate Tax exemption, one way to reduce the size of your estate and avoid estate taxes is to make gifts to your family members while you are still alive. As long as these gifts do not exceed the annual exclusion amount, which is currently $13,000 per recipient per year, you will not have to file a gift tax return on the gifts. This means that you can give away up to $13,000 to each of your children and/or grandchildren each year without any gift tax consequences.
• A lifetime gifting program allows you to avoid gift, estate and generation-skipping transfer tax on transferred assets. Under the Internal Revenue Code, you can transfer up to $13,000 per year, per person, to anyone without incurring gift tax or the generation- skipping transfer tax. With a lifetime giving program, you can transfer this amount annually to the individuals of your choice, typically children, grandchildren and other close family members.
• For example, if you give $13,000 per year to two beneficiaries for five years, you will have removed $130,000 from your estate for estate tax purposes. After 10 years, you will have removed more than $260,000 and nearly $650,000 after 25 years. We have many clients who would like to make annual gifts, but who don’t want to lose control of the assets that they give away. For these clients, we recommend the Family Bank Trust. A Family Bank Trust is a type of irrevocable trust that provides complete asset protection for your spouse, children and/or grandchildren. It also removes the trust assets from your estate and the estates of your spouse, children and/or grandchildren for estate tax purposes. This type of trust is very similar to a “bypass” trust (one that bypasses the Federal Estate Tax) at death. You don’t lose access to the assets because your spouse can withdraw from the trust for health, education, maintenance or support.

Annual exclusion gifts are used to shield transfers to the Family Bank Trust from gift and generation-skipping transfer taxes. The beneficiary must have the right to withdraw up to $13,000 of the transferred funds, but if that right is not exercised, the gifted funds can then be used to purchase life insurance on the life of the transferor or for other investments. This trust can be a multigenerational estate tax exempt trust or it can become a family “bank” for:
(1) education;

• (2) business acquisitions; or
• (3) home purchases,
• among other things. With a Family Bank Trust, you irrevocably transfer assets to the trust of which your spouse is trustee (or co-trustee) and beneficiary. Your children and other descendants can also be beneficiaries during your spouse’s lifetime, or they can be remainder beneficiaries after the death of your spouse. A married couple can create similar trusts for each other’s benefit, and thereby obtain the asset protection and estate tax benefits, but the trusts cannot be identical in all respects. This gives each spouse access to the assets in the other spouse’s trust.
• In addition to annual exclusion gifts, medical care and tuition paid to assist family members or any other individual may be made free of gift tax. As long as the gifts are made directly to the medical facility or educational institution, donors can exceed the $13,000 annual exclusion amount without imposition of gift taxes.

Life insurance is a unique asset in that it serves numerous diverse functions in a tax favored environment. Life insurance proceeds are received income tax free and, if properly owned by an Irrevocable Life Insurance Trust, life insurance proceeds can
also be received free of estate tax. Some of the frequent uses for life insurance include:

• Wealth Creation: Where age or other circumstances have prevented one from accumulating a desired level of wealth, life insurance can create instant wealth, for example, to build an estate, to replace a key employee, to buy out the interest of a business co-owner at death, or to pay off a mortgage.
• Income Replacement: Life insurance can provide wealth to replace income lost upon the premature death of the family “bread winner.”
• Wealth Replacement: Life insurance can provide the liquidity to pay estate or capital gain taxes after death. Life insurance can also be used to replace the value of gifts to charity or non-family members.
• There are several types of life insurance, including term, permanent, and survivorship or second-to-die insurance. Term insurance, which includes annual renewable and fixed-level term (for example, 20-year Level Term) is temporary. At the end of the term, the policy terminates and the insured must reapply at the then-going rates, based upon age, health, etc. Therefore, term insurance is often recommended for temporary needs.
• Permanent insurance, of which there are several types- whole life, universal life, and variable universal life– are intended to remain in force until the insured’s death, and thus are often recommended for permanent needs.
• Survivorship or second-to-die insurance pays out at the death of the survivor. Therefore, second-die insurance is often recommended in those circumstances where the liquidity need arises only at the second death; for example, the need for liquidity to pay estate taxes or to care for minor children.

Contrary to what many people think, at death, the death roceeds of life insurance you own are included in your estate for estate tax purposes. This adverse result can be avoided by transferring the life insurance policy to an Irrevocable Life Insurance Trust (or having the trust purchase a new policy on your life) that would become the owner and beneficiary of the policy. The disposition terms of the trust would mirror the terms in your revocable living trust. However, note that it is much more favorable to have the Irrevocable Life Insurance Trust purchase a new policy on your life as opposed to transferring an existing policy to the trust. This is due to the IRS three-year look back rule that could pull the insurance proceeds back into your estate if you die less than three years after the transfer of an “existing” policy to your irrevocable life insurance trust. A properly drafted Irrevocable Life Insurance Trust (ILIT) can accomplish the following
objectives:

• Provide income and/or principal to your heirs
• Prevent life insurance proceeds from being included in your estate
• Provide your family with funds to pay estate tax and settlement expenses
• Provide your surviving spouse with access to the death benefit for his or her health, education, maintenance or support
• Protect the proceeds of the life insurance from creditors and predators
• Care for your minor children
• If you are concerned about accessing the cash value of the insurance during your lifetime, the trust can be carefully drafted so that the trustee can make loans to you during your lifetime or so that the trustee can make distributions to your spouse during your spouse’s lifetime. Even with these provisions, the life insurance proceeds will not be included in your estate for estate tax purposes.
• You can create these trusts individually (and typically own an individual policy on your life) or they can be created jointly by you and your spouse (with a survivorship policy).

A Qualified Personal Residence Trust (“QPRT”) is a type of trust specifically authorized by the Internal Revenue Code. It permits you to transfer ownership of your residence to your family during your lifetime and retain the exclusive right to live in the residence, while reducing the size of your estate for estate tax purposes.

The residence is transferred to the Qualified Personal Residence Trust for a designated initial term of years. Provided you survive the initial term of years, ownership of the residence will be transferred to your family at a fraction of its fair market value. If you die during the initial term of years, the property will be brought back into your estate, but you will be no worse off than had you not created the Qualified Personal Residence Trust. You may transfer up to two (2) personal residences into Qualified Personal Residence Trusts.

The Qualified Personal Residence Trust is a particularly noteworthy estate-planning tool to reduce federal estate taxes . It permits you to transfer a residence out of your taxable estate while retaining the right to use it during your lifetime. The gift for federal gift tax purposes is based upon IRS published interest rates at the time of the transfer, and this rate does not take into consideration actual appreciation in the value of the property. Accordingly, these trusts are particularly useful to transfer residences in which significant future appreciation is anticipated. The Qualified Personal Residence Trust permits you to continue to enjoy your residence, knowing that the value at the date of death will not be included in your estate.

During the term of years of the trust, you have the absolute right to remain in the residence rent free. After the initial term, you can be granted the right to rent the residence for the balance of your lifetime for its fair rental value. During the term of years, you can be the sole trustee or a co-trustee of the trust with complete control over all decisions of the trust and the assets in the trust. You may also sell the residence and buy another residence during the trust term.

Because the Qualified Personal Residence Trust is a “grantor trust” under the income tax laws, you are treated as the owner of the property for income tax purposes during the initial term of years. Therefore, all items of income, gain, loss and deduction with respect to the trust are treated on your personal income tax return. So for example, the deduction for real estate taxes remains available to you. In addition, favorable capital gains treatment, including capital gain rollover and the $250,000 individual exclusion of capital gain are still available to you. This strategy is particularly useful for a vacation home that you wish to keep in the family.

Gifts to charities are fully exempt from gift and estate taxes. In addition, they qualify for current income tax deductions. These lifetime gifts can reduce your estate by both the value of the gift and any subsequent appreciation. Various charitable trusts can be created which offer additional advantages. These trusts, Charitable Remainder Trusts and Charitable Lead Trusts, are discussed below.

Charitable Remainder Trust

The Charitable Remainder Trust (“CRT”) is a type of trust specifically authorized by the Internal Revenue Code. These irrevocable trusts permit you to transfer ownership of assets to the trust in exchange for an income stream to the person or persons of your choice (typically you). This can be for life or for a specified term of up to 20 years. With the most common type of Charitable Remainder Trust, at the end of the term, the balance of the trust property (the “remainder interest”) is transferred to a specified charity or charities. Charitable Remainder Trusts reduce estate taxes because you are transferring ownership to the trust of assets that otherwise would be counted for estate tax purposes.

A Charitable Remainder Trust can be set up as part of your revocable living trust planning, coming into existence at the time of your death, or as a stand-alone trust during your lifetime. At the time of creation of the CRT, you or your estate will be entitled to a charitable deduction in the amount of the current value of the gift that will eventually go to charity. If the income recipient is someone other than you or your spouse, there will be gift tax consequences to the transfer to the CRT.

Charitable Remainder Trusts are tax-exempt entities. In other words, when a Charitable Remainder Trust sells an asset, it pays no income tax on the gain in that asset. Therefore, after a sale, the trust has more available to invest than if the asset were sold outside of the Charitable Remainder Trust and subject to tax. Accordingly, Charitable Remainder Trusts are particularly suited for highly appreciated assets such as real estate and stock in a closely held business, or assets subject to income tax such as qualified plans and IRAs. While the Charitable Remainder Trust does not pay tax on the sale of its assets, the tax is not avoided altogether. The payments to the income recipient will be subject to income tax.

There are several types of Charitable Remainder Trusts. For example, the Charitable Remainder Annuity Trust pays a fixed dollar amount (for example, $80,000 per year) to the income recipient at least annually. Another type of CRT, the Charitable Remainder Unitrust, pays a fixed percentage of the value of the trust assets each year to the income recipient (for example, 8% of the value as of the preceding January 1). A third type, perhaps the most common, allows you to transfer non-income producing property to the CRT. This converts the trust to a Charitable Remainder Unitrust upon the sale or happening of a specified event (for example, upon reaching a specified retirement age).

At the end of the term of a Charitable Remainder Trust, the remainder interest passes to qualified charities as defined under the Internal Revenue Code. Generally, any charity that has received IRS tax-exempt status qualifies, but this is not always the case. It is possible for you to name a private foundation established by you as the charitable beneficiary.

Charitable Lead Trust

The Charitable Lead Trust is a type of charitable trust that can reduce or virtually eliminate all estate tax on wealth passing to heirs. In order to accomplish this goal, you create a trust that grants to a charity or charities, for a set number of years, the first or “lead” right to receive a payment from the trust. At the end of the term of years, your children or grandchildren receive the balance of the trust property—which of ten is greater than the amount contributed—free of estate tax in most instances.

Although the Charitable Lead Trust is a complex estate planning strategy, the steps to implement it are few and simple from your perspective. Here is how one of the most frequently used Charitable Lead Trusts, the Charitable Lead Annuity Trust, operates:

You, as grantors, create a Charitable Lead Trust as part of your revocable living trust planning. Upon the death of the survivor of the two of you, a substantial amount of property will pass to the Charitable Lead Trust. The income beneficiary of the Charitable Lead Trust will be a qualified charitable organization, chosen by the two of you or by the survivor of you, named in your revocable living trust. The charitable income beneficiary receives a fixed, guaranteed amount from the trust for a certain number of years (determined by you with the assistance of your legal and financial advisors). Generally, any charity that has received IRS tax exempt status qualifies, but this is not always the case.

It is also possible for you to name a private foundation established by you as the charitable beneficiary. If so, you must have very limited authority over which charity is to receive money from the foundation. Too much control while you are alive will result in adverse tax consequences. At the end of the Charitable Lead Trust’s term, the remaining assets in the trust pass to non-charitable trust beneficiaries such as children and grandchildren, free of estate and gift tax. These assets can pass outright to the beneficiaries, or can continue to be held in trust, either in new trusts or in trusts previously established for the benefit and protection of the beneficiaries.

The charity will receive the same dollar amount each year, no matter how its investments perform. The remainder interest ultimately passing to the heirs, however, will be affected by the performance of the trust’s investments.

Charitable Lead Annuity Trusts are particularly suited for hard-to-value assets (such as real estate or family limited liability company interests) and assets which are expected to grow rapidly in value.

What is a Schedule A and Why is it Important?

Every revocable living trust should have a Schedule A attached to it. This is a document prepared by your estate planning lawyer to list all of the assets that are part of your trust, ie. they have been titled in the name of your trust “John Doe, Trustee of the John Doe Trust.”

There are two important things to keep in mind about your schedule A. First, it is just a summary of your trust assets. What is critical is that assets you want to be in your trust are indeed titled in the name of your trust. Assume for example that you buy a new home and that the deed to your new home lists your trust as the owner but you fail to get out your estate planning binder to add it to your Schedule A. Is the home “in” your trust? Is the home now a “trust asset”despite not being listed on your Schedule A? Yes, because what matters is how the deed is written, not whether you actually wrote it on your Schedule A.

The second important thing to know about a Schedule A is that although it is just a list, that list can in some circumstances assist in avoiding probate. As an example, suppose your Schedule A lists a particular brokerage account that you intended to title in the name of your trust but somehow forgot to mail in the necessary paperwork to make the change. Is the brokerage account “in” your trust (ie. is it a trust asset?) No, because it has not been properly titled in the name of your trust. In California however, if you have an assets listed on your Schedule A and have not transferred that asset by making the title change, you can file a petition called a Heggstad petition to show the court your intent was to transfer the asset into the trust.

Also important is that you keep your Schedule A up to date. Does it list bank accounts that you opened after you executed the trust? Does it show a vacation property you own? Are any businesses you operate in the trust? Have you sold some assets and bought other assets and listed those new assets on the schedule? An updated schedule can assist you during your lifetime in knowing which of your assets are trust assets and it can be useful for your successor trustee in handling your trust administration upon your death.