Frequently Asked Questions
What is an estate plan?
An estate plan is a set of legal documents that set forth instructions for the time of incapacity and death. A typical estate plan consists of a Last Will and Testament, a General Durable Power of Attorney, and an Advance Health Care Directive, and sometimes a Revocable Living Trust.
Do I need an estate plan?
Almost anyone can benefit from having an estate plan. In the event of incapacity or death, an estate plan will communicate your wishes and will make it easier for your loved ones to take charge of your affairs. An estate plan can reduce legal fees, delay, and hassle.
What happens I don’t have an estate plan?
Some of your assets may be distributed by means of joint tenancy with right of survivorship, transfer on death, or beneficiary designations. State law will determine who is entitled to receive your remaining assets. Estates with assets worth $150,000 or more, or having interests in real property worth more than $50,000, will be subject to probate.
What is probate?
Probate is the default process for administering estates in California. Probate is a court process. The court appoints an administrator, then oversees the work of the administrator, and ultimately approves distributions. Many people prefer to avoid probate, because the proceedings are costly, and even the simplest proceedings take six to twelve months.
What is a Revocable Living Trust?
A revocable living trust is a tool for avoiding probate. It is “living” because you establish it during life. It is “revocable” because you have the power to revoke or amend it. During your lifetime, you serve as your own trustee and you can use the trust assets for any purpose. Upon your death, a successor trustee whom you pick would then distribute the trust assets to your named beneficiaries, without the need for probate and usually with less cost and delay.
We are a same-sex couple. Do we need to set up separate estate plans?
If you are married, then because your marriage is now recognized by the federal government and all 50 states, you can set up an estate plan that is very similar to an opposite-sex couple, which often includes a joint trust. If you are California registered domestic partners (RDP), your RDP is not recognized by the federal government, meaning you do not have the same federal tax benefits as married couples. You may need separate trusts plus a joint trust. Couples who are not married and not RDP need separate estate plans, but may need to do careful planning with respect to their jointly held assets to avoid unexpected tax consequences.
Aren’t estate plans only for the wealthy?
People who are wealthy may need more complex estate plans to avoid or reduce the estate tax and the generation skipping transfer (GST) tax. But very few estates are subject to the estate and GST taxes. The primary purpose of an estate plan is to identify the beneficiaries of estate assets, and to name trustees, executors, financial agents, and health care agents. Everyone needs an estate plan for this primary purpose.
We want our children to inherit our assets if we died unexpectedly, but who would handle the finances for them while they’re still young?
In your estate plan, you can name a trustee to hold and manage the inheritance while your children are young. The trustee can be authorized to make distributions to them, or make payments for their benefit, e.g., for their education, health care, and support. You can then give the kids the right to withdraw their inheritance at a designated age. Alternatively, the inheritance can be held in trust for their whole lives and then used for future generations. Setting up a trust can avoid guardianship estate proceedings in the probate court for minor children.
I am a permanent resident. Is estate planning different for permanent residents?
Generally, a permanent resident can have an estate plan that is very similar to a citizen. But some aspects of the estate plan are unique. For example, if you are married, assets you inherit from your spouse may be subject to the estate tax, because bequests to non-citizen spouses do not qualify for the unlimited marital deduction. To avoid estate tax, a qualified domestic trust may be necessary.
I have property overseas. Will my U.S. trust and will cover my overseas property?
Based on international conventions and treaties, if a U.S. will follows a very specific format and execution procedures, it may be recognized as a valid will in certain foreign countries. But most countries will not recognize a U.S. will, and in most cases, it will not be possible or advisable to place foreign assets into a U.S. trust. You may have to execute a separate estate plan in the foreign country where you own property.
I am not a U.S. citizen and I live outside the U.S., but my children have moved to the U.S. and plan to stay there. When they inherit my property, will they pay tax on the inheritance?
It depends on the property. Your U.S.-situs property will be subject to U.S. estate tax, and the normal exemption for citizens and residents does not apply. There are strategies available for reducing or avoiding the estate tax, such as gifting, entity planning, and life insurance. It is advisable to put these tax-avoidance strategies in place before acquiring U.S.-situs property. Your overseas property will not be subject to U.S. estate tax, but may be subject to estate or inheritance tax abroad. Seek advice and counsel from a qualified estate planning attorney in the foreign country.
My parents set up a living trust, and they have passed away. What do I need to do?
The trust document should state who is entitled to receive the trust assets. The trustee is responsible for making distributions and/or holding assets in trust for the named beneficiaries according to the trust terms. In addition to administering the trust assets, the trustee is required to send legal notices, pay or settle debts, file tax returns and pay taxes, and prepare a fiduciary account, among other legal duties.
My child is disabled. Do they need a special needs trust?
Possibly. If your child receives needs-based public benefits, e.g., Medi-Cal , SSI, etc., then you should at least consider establishing a third party special needs trust to hold and administer their inheritance for their benefit. A proper special needs trust will keep them from losing their public benefits, while providing additional money to pay for other needs that the benefits will not cover.
I want to leave my home to my children. Will the property taxes go up after my death?
Under Prop. 13, real property is reassessed when there is a change of ownership, usually resulting in higher property tax. Certain changes of ownership, however, are excluded from reassessment. Under Prop. 58, the transfer of a parent’s residence to a child is excluded from reassessment, no matter how valuable it is, if the proper paperwork is filed with the County Assessor by the legal deadline. The home should therefore escape reassessment if you leave your home to your children and they timely file the proper paperwork after your death.
I work for myself. What estate planning do I need to do for my business?
It depends on your business goals. When you retire, or in the event of disability or death, do you envision that the business will continue to operate without you? If so, you may need a business succession plan, which will transfer ownership and management of the business to the new owners, while you or your beneficiaries receive compensation for the value of your ownership interest. The business succession plan may include a buy-sell agreement, to be funded by life insurance or other assets. If the business will not continue, then your estate plan should give your fiduciary the power and tools necessary to wind up and close the business.