Don't Put Off Preparing Your Estate Plan
It is something most Americans avoid and more often than not, never get around to preparing an estate plan. The excuses range from "Estate planning is too confusing" to "I don't have anything to leave behind" to "I will get around to it next year." By having an estate plan, however, you offer your family members peace of mind during a difficult period.
Here are answers to some of the most common asked questions about estate planning.
What is an Estate Plan?
An estate plan addresses not only the transfer of wealth at death, but also important end-of-life decisions, and guardians for minor children. A well-written estate plan can also avoid probate and provide tax savings.
Who Needs an Estate Plan?
Everyone needs some kind of an estate plan. Most often, a Trust-centered estate plan is most appropriate. However, in certain situations, a Will-centered estate plan may be sufficient. It is important to have a well thought-out estate plan, regardless of your worth as estate plans address so much more than simply the distribution of your assets. A well-crafted estate plan ensures not only the distribution of your assets at death, but also the care you receive in the event you become unable to care for yourself.
What is Probate?
Probate is the legal process in which a decedent's assets are distributed under court supervision. If the decedent had a valid Will, the assets are distributed according to the terms of that Will. If the decedent had no Will (died intestate), the California Probate Code dictates how the assets are distributed at the end of the probate administration.
Does a Will avoid probate?
A Will does not avoid probate. California law states any estate with a value of over $100,000 must be probated.
What is a Trust?
One of the simplest ways to avoid probate, a Trust is a legal arrangement in which a Trustee holds legal title to property for a beneficiary. You can be the Trustee of your Trust, which allows you to keep full control of your assets. There are three main "players" in a Trust:
The Settlor: the person who creates the Trust (also referred to as Grantor or Trustor);
The Trustee: the person who manages the Trust; and
The Beneficiary: the person who benefits from the Trust.
The Settlor is typically the only person who can make changes to the Trust document. In a conventional living (or intervivos) Trust, the Settlor, Beneficiary, and Trustee are initially the same person. It is only when the Settlor becomes unable to handle his or her own financial affairs that a successor Trustee (chosen by the Settlor) takes over the management of the Trust. The Trust assets are to be used first and foremost for the benefit of the
Settlor, with the remainder beneficiaries receiving an interest in the Trust only after the Settlor's death (the same way that a person's estate passes to his or her beneficiaries under a Will).
How does a Trust avoid probate?
When a Trust is created, the Settlor's assets are transferred to the Trust and the Trust becomes the legal owner of those assets. When the Settlor passes away, he or she does so holding title to little or no assets in his or her name. Because the decedent's estate is less than $100,000, no probate is triggered.
Does the Settlor lose control of his or her assets if they are transferred to the Trust?
No. Although the Trust is the legal owner of the assets, the Settlor does not lose control over those assets. The Settlor controls the Trust and thereby retains control of the assets owned by the Trust. There is no reassessment of property taxes when real property is transferred into a living Trust, and federal and state income taxes are still filed under the Settlor's social security number as an individual.