Estate Planning Resources for Wills and Trusts

Q: What is the difference between a Will and a Trust?

A: Both a Will and a Trust allow you to dispose of your assets when you die. However, a Will must go through probate, whereas a Trust avoids probate.

Q: What is probate and why do I want to avoid it?

A: Probate is a court process where a Judge appoints an Executor of your estate and supervises the actions of the Executor. Typically, the Executor must hire an attorney to represent him or her in court. Due to the congested court system and budgetary constraints, the average probate takes 15 to 18 months before the assets are distributed to your beneficiaries. Further, both the Executor and attorney are entitled to a fee that is a percentage of your estate. Therefore, probate is neither a very time efficient nor a cost efficient manner of distributing assets upon your death.

Q: Doesn't a Will avoid probate?

A: Having a Will alone does not avoid probate. Whether you die with a Will or without a Will (intestate), your estate may still have to go through probate. There are ways to avoid probate such as:

1. Have your assets owned by a Revocable Living Trust.

2. Have your assets titled in joint tenancy or by some other method whereby the assets pass by rights of survivorship.

3. Set up your accounts with named beneficiaries. and

4. Have a total estate of less than $166,250, and real property less than $50,000.

Therefore, assets owned by a Trust, held jointly with rights of survivorship, or which have a named beneficiary (such as life insurance policies, retirement accounts and annuities, and certain brokerage and bank accounts), and certain small estates do not have to go through probate.

Q: If I have a Living Trust do I still need a Will?

A: Yes, but your Will is a very simple document referred to as "Pour-Over" Will. Your Will simply states that when you die, all of your assets that have not been transferred to your Living Trust during your lifetime are to be transferred to your Living Trust when you die. However, if the value of the assets which need to be transferred to the Trust via your Will exceed $150,000, the Will has to be probated. Therefore, it is important that most, if not all, of your assets be transferred to your Living Trust while you are living.

Q: Are there any assets which I would not transfer into my Living Trust?

A: Yes, you would not transfer your 401(k), IRA, pension or profit sharing plan, 403(b) or any other qualified retirement account to your Living Trust. These accounts allow for you to designate a beneficiary to inherit the account when you die. Assuming you have a designated beneficiary, the account does not go through probate. In some instances, you may designate your Living Trust as the beneficiary. In other instances, you may designate one or more individuals as beneficiary. There are tax consequences to the beneficiary so you should pay particular attention to make sure the beneficiary designation is structured to minimize those tax consequences.

Most clients also do not transfer automobiles to their Living Trust, since automobiles, motorcycles, RV’s and other such assets registered with the DMV in California can be transferred without probate regardless of value.

Q: If I establish a Living Trust, do I have to file an income tax return each year?

A: No, since your Living Trust is a revocable trust it continues to operate under your social security number and is not required to file a separate income tax return.

Q: If I transfer real property into my Living Trust, will this cause a reassessment of my property taxes?

A: No, there is a specific exemption under Proposition 13 which prevents a reassessment of your property taxes when the property is transferred into your Living Trust.

Q: Does having a Living Trust avoid estate taxes?

A: Not necessarily, since the estate tax rules are different from the probate rules. Under current law, you can leave an unlimited estate value tax free to your surviving spouse (assuming your spouse is a U.S. citizen), and up to $12,060,000 (in 2022) of estate value tax free to other individuals. These estate tax exemptions are available whether your estate is in a Living Trust or not.

Q: If my estate value exceeds the estate tax exclusion, how can I avoid my children paying tax on my estate?

A: You will need to consider more advanced estate planning strategies in addition to a Living Trust. These strategies may include one or more Irrevocable Trusts, Family Limited Partnerships and other more complex structures, which are designed to reduce or eliminate estate taxes.

Q: What is the current estate tax rate?

A: For 2022, if the value of your taxable estate exceeds $12,060,000, the tax rate on the excess is 40%. Thereafter, the $12,060,000 estate tax exemption is indexed for inflation. As the law is currently written, in 2025 the estate tax exemption is reduced to $5.6 million (plus an inflation adjustment from 2018).

Q: Does California have an estate tax?

A: No, California does not have a separate estate or inheritance tax.

Q: What does it typically cost to establish a Living Trust?

A: The costs vary depending on the complexities. We offer a no cost and no obligation initial consultation to review your situation and, at the end of that review, we will be able to provide you with an estimated cost. Typically, for a fairly simple estate plan including a Living Trust, Will, Durable Power of Attorney, Advance Health Care Directive, and Deeds transferring your real property into your Trust, the cost is $3,000 to $4,000. This can either be done based on an hourly rate or a fixed fee, which can be discussed at the initial consultation.

Q: I have a disabled child who is receiving SSI and Medi-Cal. Can I structure that child’s inheritance to maintain his or her public benefits?

A: Yes, you can establish a Special Needs Trust to receive the child’s inheritance. The purpose of a Special Needs Trust is to act as a supplemental resource to any public benefit programs such as SSI and Medi-Cal, rather than a primary resource. Therefore, the assets and income of a Special Needs Trust are not counted as the assets and income of the beneficiary, and therefore, do not disqualify the beneficiary from continuing to receive those public benefits.

Q: My child was severely injured in an accident. How can I protect his or her settlement?

A: It is possible to have the court establish a Special Needs Trust for the benefit of the severely injured child. This will then protect the child’s public benefits from being reduced or eliminated as a result of the settlement.

Q: How frequently should I review and update my estate planning documents?

A: We recommend that you review your documents at least every three years, and preferably annually. Obviously, the tax and other laws are constantly changing, and we often find that clients inadvertently move assets out of their Living Trust (for example by refinancing their house where the lender requires the property to be taken out of the Trust).

Q: Does your office prepare Prenuptial Agreements?

A: No, a Prenuptial Agreement should be prepared by a family law attorney. We can recommend one or more family law attorneys who do prepare Prenuptial Agreements.

Q: I am in the process of a divorce. What changes should I make to my estate plan?

A: Once someone has filed for divorce, there is an automatic restraining order which prohibits any spouse from revoking their Living Trust, changing account titles, or changing beneficiaries on life insurance policies or financial accounts. However, it is possible to revoke your existing Will, any Durable of Power of Attorney for Finances, any Advance Health Care Directive, and to establish an unfunded Revocable Trust to receive your assets once the divorce is concluded. Since most clients in a divorce do not want their spouse making financial or medical decisions for them, and do not want their spouse to inherit their share of the assets when they die, it is important to revoke your existing Will and Powers of Attorney as outlined above.

Q: I recently had a death in the family and I am named as the Trustee and Executor of the estate. Can your office assist me with my duties?

A: Yes, we assist Trustees and Executors with the legal issues in administering a Trust or estate.

Q: Can your office assist me with contesting a Trust or Will?

A: No, our office does not handle Trust or estate litigation, but we can refer you to a competent litigation attorney who can assist you with initiating or defending a Trust or Will contest.

Q: My spouse and I each have children from prior marriages. I want to make sure my spouse is provided for during his or her lifetime, but I want to make sure my assets go to my kids when my spouse dies. Is there a way I can accomplish this?

A: Yes, you can structure your estate plan so that your spouse has the use of the Trust assets during his or her lifetime, but does not have the ability to change the beneficiaries of the Trust when he or she dies. Therefore, if you want to preclude your spouse from leaving the Trust assets to a new spouse or to his or her children to the exclusion of your children, your Trust can be structured to accomplish those goals.

Q: If I leave assets to my children and my children are married at the time they inherit the assets, are those assets considered community property?

A: No, under California law any assets which are gifted to your children during your lifetime or inherited by your children when you die are considered the child’s sole and separate property. However, if your child co-mingles the inherited assets with community property, the act of co-mingling can convert the assets from separate property to community property.

Q: Is there a way to prevent my children from co-mingling their inherited assets with community property?

A: Yes, you can structure your children’s inheritance so that their assets remain in Trust for the child’s benefit. Therefore, as long as the child leaves the assets in trust, those assets cannot be co-mingled with community property.

Q: Do you accept credit card payments?

A: Yes, we accept VISA, Mastercard, American Express and Discover cards. You may call the office at (800) 366-1186 to provide payment information.