Blog

Below please find 6 basic steps to create an effective estate plan:

1.Make a valid California will, also known as a last will and testament.

2.If there are sufficient assets, perhaps a revocable living trust is a better option.

3.Make a power of attorney to manage assets in the event of incapacity.

4.Make an advance health care directive to cover medical wishes in the event of incapacity.

5.Make valid guardian nominations if there are minor children.

6.File or update appropriate beneficiary designation forms.

Matthew W. Harris, Esq., LL.M assists clients with estate planning, probate, conservatorship, and trusts and estates disputes.   The Law Offices of Matthew W. Harris is conveniently located in Marin County, and City of San Rafael.

Please call Matthew W. Harris, Esq., LL.M., at (415) 521-5610 for a free estate planning consultation.

Will

A will is a written document in which an adult person (the testator) makes a disposition of his or her property that only takes effect after his or her death and is subject to probate court proceedings.

Overall, wills are simpler and shorter instruments than a standard revocable living trust.  Because wills are simpler and shorter documents, they are generally less time-consuming to create and less expensive.  If a person has a relatively small estate, then a will might be the better choice than a standard revocable living trust.

How Do I Create A Will?

A witnessed will or a formal will, must be in writing and signed by an adult testator (or in the testator’s name by another person in the testator’s presence and direction).  Generally, the will must be witnessed by at least two competent and disinterested witnesses.

A holographic will is document whereby the material provisions are in the handwriting of the testator, and signed by the testator.  A holographic will does not have to be witnessed.

Revocable Living Trust

A trust is defined as a relationship whereby property is held by one party (the trustee) for the benefit of another (the beneficiary).  The person who creates the trust is called the settlor, grantor or trustor.  The settlor, grantor or trustor often serves as the initial trustee of the trust.

How Do I Create A Trust?

A trust can be created by agreement, declaration or exercise of a power of appointment to another person as a trustee.  If a person is under a court-ordered conservatorship, then the conservator can create and fund a revocable trust to avoid the expense and delay of probate.

There are five legal elements to create a trust: (1) a settlor, trustor or grantor; (2) the settlor, trustor or grantor’s intent to create a trust; (3) trust property; (4) a trust beneficiary; and (5) a valid trust purpose.

Note:  Attorney advertising.  Nothing posted on this blog by the Law Office of Matthew W. Harris, is intended, nor should be construed, as legal advice.  Blog postings and hosted comments are available for general educational purposes only and should not be used to assess a specific legal situation.  Nor does any comment on a blog post create an attorney-client relationship.  The presence of hyperlinks to other third-party websites does not imply that the Law Office of Matthew W. Harris, endorses those websites, their contents, or the activities or views of their owners.

Trust Defined

A trust is defined as a relationship whereby property is held by one party (the trustee) for the benefit of another (the beneficiary).  The person who creates the trust is either called the settlor, grantor or trustor.  The settlor, grantor or trustor often serves as the initial trustee of the trust.

Advantages of Trusts

Assets transferred to a revocable living trust before the settlor’s death can avoid the imposition of a conservatorship proceeding in court.  After the settlor’s death, the assets held in trust are not subject to probate proceedings.  As a result, a trust may save significant administrative costs for both a conservatorship and probate.  A trust also allows the trustee to act more quickly than an executor or administrator in probate court. And unlike a public probate proceeding, a trust administration is handled privately and out of the purview of the courts.

Under California law, a settlor can be the trustee of his or her own trust.  In fact, this arrangement is very typical.  The settlor can also choose a trusted family member, friend or financial advisor to serve as trustee of the trust. A settlor can also appoint a “special trustee” or “trust protector” to serve specific and limited roles during the trust administration.

Disadvantages of Trusts

The biggest disadvantage of a trust is the initial costs of planning, drafting, and funding a revocable living trust, which is generally higher than the cost of planning and drafting a will. Another disadvantage of a trust is the actual process of funding the trust with assets.  The funding of the trust can be time-consuming because assets have to be retitled in the name of the trust.  If the trust will continue long after the settlor’s death, significant trustee fees could be incurred. Unlike a will, trust beneficiaries do not have the oversight and protection of the superior court.

Note:  Attorney advertising.  Nothing posted on this blog by the Law Offices of Matthew W. Harris, is intended, nor should be construed, as legal advice.  Blog postings and hosted comments are available for general educational purposes only and should not be used to assess a specific legal situation.  Nor does any comment on a blog post create an attorney-client relationship.  The presence of hyperlinks to other third-party websites does not imply that the Law Offices of Matthew W. Harris, endorses those websites, their contents, or the activities or views of their owners.

Revocable and irrevocable trusts have many similarities. Both types of trusts provide for the transfer of trust property to a trustee who administers and distributes the property as governed by the trust document.

A trust is revocable by the settlor or settlors unless expressly made irrevocable by the trust instrument. Most revocable trusts become irrevocable on the death of the settlor or cosettlor.

Irrevocable trusts involve a relinquishment of control or enjoyment by the settlor and have a gift and other tax consequences. On the other hand, a revocable trust usually does not have such substantive tax effects because it may be revoked by the settlor at any time. Moreover, so long as the trust is revocable, the settlor’s creditors are able to attach the assets of the trust.

What Are the Different types of Irrevocable Trusts?

1. Trusts for Minors

Trusts for minors are specialized forms of permanent trusts that more narrowly focus on the specialized circumstances and requirements of minors.

2. Special Needs Trusts

The primary purpose of a special needs trust is to preserve and supplement government benefits for a disabled or aged beneficiary.

3. Life Insurance Trusts (ILIT)

An irrevocable life insurance trust is typically used to remove the proceeds of life insurance form the insured’s gross estate, while making the proceeds available as a source of liquid funds.

4. Charitable Trusts.

A charitable remainder trust is designed to provide benefits to named individuals for a specified period of time, with the remainder interest passing to charity.  A charitable lead trust is designed to provide benefits to a charity for a specified period of time, with the remainder interests passing to individuals.

5. Qualified Domestic Trust (QDOT)

Generally, no estate tax deduction is allowed for transfers to a surviving spouse who is not a citizen of the United States.  A variation of the marital deduction can be obtained if the transferred property is put in a qualified domestic trust (QDOT).

6. Estate Balancing Trusts

If one member of a married couple is wealthy and the other has a few assets, an inter vivos qualified terminable interest property (QTIP) trust can be used to provide the less wealthy spouse with a taxable estate, thereby making it possible to take advantage of that spouse’s unified credit on his or her death.

7. Permanent Trusts.

The permanent trust is designed for the management of irrevocably transferred assets.  The trust objectives include immediate removal of the transferred property from the settlor’s estate for estate tax purposes (at the price of making an immediate gift for gift tax purposes).  The trust terms are also designed to ensure that the taxable income form the trust corpus will no longer be includable in the settlor’s taxable income for income tax purposes, although irrevocable trusts are sometimes drafted intentionally to cause the trust income to be taxed to the grantor (intentionally defective grantor trust).

8. Grantor Retained Interest Trusts or Grantor Retained Annuity Trusts

A grantor retained interest, or annuity, trust allows the settor to retain an interest, or annuity, in trust assets for a limited period of time, with the remainder interest passing to another person.  These trusts are designed to minimize taxes by incurring a gift tax only for the remainder interest that follows the settlor’s retained interest.

Note:  Attorney advertising.  Nothing posted on this blog by the Law Offices of Matthew W. Harris, is intended, nor should be construed, as legal advice.  Blog postings and hosted comments are available for general educational purposes only and should not be used to assess a specific legal situation.  Nor does any comment on a blog post create an attorney-client relationship.  The presence of hyperlinks to other third-party websites does not imply that the Law Offices of Matthew W. Harris, endorses those websites, their contents, or the activities or views of their owners.

Many Marin County Married Couples Have Antiquated Bypass Trusts That Need To Be Changed Now

Until recently, estate planning was mostly about avoiding or minimizing the dreaded estate tax.  From 2001 to 2009, the federal estate tax exemption amounts vary widely and unpredictably.  By way of example, in 2001, the estate tax exemption amount was $675,000 per person   In 2006, the estate tax exemption was $2 million per person, and in 2010 the estate tax was repealed all together.  On January 1, 2013, the 2012 Tax Relief Act was signed into law providing a “permanent” $5 million estate tax and gift tax exclusion per person (including an annual inflation adjustment), a 40% tax rate, and portability of unused exemption by the surviving spouse.  For 2016, the indexed exclusion amount is $5,450,000 per person and for 2017, it is $5.49 million per person, or approximately $11 million for a married couple.

So what does all this mean?  In 2016, an individual can leave $5.49 million to his or her heirs and pay absolutely no federal estate or gift tax.   Even better, a married couple will be able to combine both exemption amounts and shield approximately $11 million from federal estate and gift tax.

Prior to the significant tax changes in 2012, many estate planning attorneys routinely drafted bypass trusts (aka A-B trust, credit shelter trust or tax exemption trust) for married couples.   The trusts provided for the creation of subtrusts when the first spouse died.  In a typical AB trust, the “B” trust is funded with assets up to the amount of the exemption amount in the year of death.  Moreover, the “B” trust is irrevocable, which burdensomely requires a separate tax payer identification number and a separate accounting by the trustee.  The remaining assets are distributed to the “A” trust which is typically the survivor’s trust, and used for the surviving spouse’s lifetime.

Bypass trust receive special treatment and “bypasses” the surviving spouse’s taxable estate, passing the remaining trust assets to beneficiaries estate tax free.   These bypass trusts worked great when the federal estate tax exemption amounts were lower at $675,000 for 2001, and $2 million for 2006. But in 2013, all of this changed with the new era of significantly increased estate tax exclusion rates and the portability election.

Most married couples have a combined gross estate significantly less than $11 million.  According to the Joint Committee on Taxation, 99.8 percent of estates owe no estate tax at all.  Again, this is because of the significantly increased estate tax exclusion, which has jumped from $650,000 per person in 2001, to $5.45 million per person in 2016.   As a result, many of these bypass trusts are no longer needed for married couples.  However, many married couples still have these antiquated bypass trusts not knowing that this could lead to a very expensive and complicated mess on the incapacity or death of the first spouse.

When Should A Married Couple Update Their Trust Document Containing Bypass Trust Provisions?

The best time to amend and restate a trust containing a bypass trust is when both spouses are alive and have the requisite capacity.  When one spouse lacks capacity to amend and restate the trust, this often results in a complicated and expensive mess requiring court hearings, attorneys’ fees and ancillary costs.  When one spouse has passed away, the bypass trust becomes irrevocable.  Modifying an irrevocable trust is also a complicated and expensive mess requiring court hearings, attorneys’ fees and ancillary costs.

Matthew W. Harris, Esq., LL.M devotes a significant amount of his law practice to amending and restating antiquated bypass trusts for married couples.  Please feel free to contact The Law Offices of Matthew W. Harris for a complimentary estate plan consultation to see if amending and restating your old trust is a good option, before it is too late.

Note:  Attorney advertising. Nothing posted on this blog by the Law Offices of Matthew W. Harris, is intended, nor should be construed, as legal advice.  Blog postings and hosted comments are available for general educational purposes only and should not be used to assess a specific legal situation.  Nor does any comment on a blog post create an attorney-client relationship.  The presence of hyperlinks to other third-party websites does not imply that the Law Offices of Matthew W. Harris, endorses those websites, their contents, or the activities or views of their owners.

In this blog, I am not going to address the importance of estate planning to protect you, your family and your assets; believe me, I have hammered on this point many times.  This blog will simply address the many reasons why people fail to plan their estates.  I hate to use the word “fail,” but failing to plan, is planning to fail! Sadly, many legal problems caused by failing to plan could have been avoided if one had a power of attorney, or advance health care directive, or a revocable living trust.

I Know I Need An Estate Plan, But I Will Create One Later.

In my practice, the number one reason (or excuse) why people fail to create their estate plan is that they will get around to creating one in the near future.  Sadly, I have had many cases where the “near future” was too late.  By way of example, I have dealt with clients in their 30s, 40s and 50s who were either rendered incapacitated or deceased, who never got around to creating their estate plan.  As a result, a lengthy and costly conservatorship or a probate administration had to be commenced in court. Please do not let this happen to you and your family.

I Am Not Married, So I Don’t Need An Estate Plan.

Far too many individuals wrongly believe that they do not need an estate plan because of their unmarried status.  Generally speaking, if one is rendered incapacitated, then a lengthy and costly conservatorship proceeding will likely occur.  If one dies with a gross probate estate exceeding $150,000, then a lengthy and costly probate will likely occur.  Incapacity and death do not discriminate; they affect both married and unmarried couples.

I Don’t Like Talking About Death.

Simply put, many individuals do not like discussing their own death.  However, I tell people that if you do not make these difficult decisions, then your loved ones will be left to have to guess what their mother, father, sibling would have wanted.  The difficult decisions such as end of life, cremation or burial, should be made by you.  In my opinion, it is not fair, or responsible, to leave your loved ones to make these difficult decisions on your behalf.

Estate Planning Is For The Wealthy.

Simply put, if you own assets and have a family, then you need an estate plan.  Estate planning protects you, your family, and your assets in case of an unforeseen (or foreseen) event.   You do not have to be a millionaire to create an estate plan. In conclusion, if you are one of these individuals above, please feel free to call Matthew W. Harris, Esq., LL.M at (415) 521-5610 for a complimentary, no hassle, estate planning consultation.  Often times, the hardest thing is simply contacting and meeting with an estate planning attorney.  Many of my clients tell me that the whole estate planning process was easier than they had envisioned.  Furthermore, my clients feel very relieved that that have an estate plan in place just in case something should happen. Note:  Attorney advertising. Nothing posted on this blog by the Law Offices of Matthew W. Harris, is intended, nor should be construed, as legal advice.  Blog postings and hosted comments are available for general educational purposes only and should not be used to assess a specific legal situation.  Nor does any comment on a blog post create an attorney-client relationship.  The presence of hyperlinks to other third-party websites does not imply that the Law Offices of Matthew W. Harris, endorses those websites, their contents, or the activities or views of their owners.