Estate Planning FAQs

Estate planning enables you to:

• Avoid putting your family through the stress that comes with the probate process while they are trying to adjust to life without you
• Save potentially thousands of dollars in unnecessary probate costs
• Control who will receive your assets after your lifetime
• Control under what conditions your beneficiaries will receive your assets
• Structure gifts to your children and grandchildren so that they can receive money for things like education or retirement, but they will not have unrestricted access to any money until the age(s) you deem appropriate
• Keep your assets, debts, and identities of your beneficiaries private
• Save potentially thousands of dollars in estate taxes
• Authorize other persons to make financial and medical decisions for you in the event you are unable to make those decisions for yourself

Probate is a legal process supervised by the court. The purposes of probate are:

1. To identify a deceased person’s assets, debts, and beneficiaries;
2. Ensure proper payment of debts; and
3. Distribute assets

A deceased person’s assets and debts may be subject to the probate process when that person dies with only a will or dies intestate (i.e., without a will).

There are many significant disadvantages to the probate process, such as:

• Excessive paperwork – probate involves the court system which means there can be extensive paperwork and accountings which must be filed with the court
• Time – probate can take a long time, anywhere from several months to years
• Lack of privacy – probate is a matter of public record, so anyone can see what the deceased person’s assets and debts are, and know who the beneficiaries are
• Expense – probate can be very expensive (see the chart below):

Statutory Probate Fees

The California Probate Code provides that the fees listed below be paid to the deceased person’s personal representative (aka “executor” or “administrator”) and the attorney for the personal representative.     The size of the estate is based on the fair market value of the estate assets without any deduction for debts or mortgages. For example, if the deceased person’s house is worth $400,000 and there is a mortgage of $375,000, then there is $25,000 of equity in the property. However, the amount subject to probate is $400,000 (the fair market value), not merely $25,000 (the equity).

If you die without a will, your property will have to go through the probate process, if your assets are sufficient to trigger the probate process and the transfer of your property is not controlled by the title to the property (ex: joint tenancy). Your assets will be distributed through the courts and will go to the people determined under California’s intestacy laws (aka “intestate succession”). The court will appoint an administrator to handle the estate. In addition, the court will appoint a guardian for any orphaned minor children. If you die without a will (i.e., “intestate”), the State of California has already predetermined how your property will be distributed. Contrary to popular belief, a surviving spouse does not necessarily inherit everything. For example, a surviving spouse may only get one-half (1/2) or one-third (1/3) of the decedent’s (deceased person’s) separate property, depending on if the decedent died leaving children, grandchildren, parents, siblings, or nieces/nephews. A surviving spouse will inherit the decedent’s share of any community or quasi-community property. If the decedent’s children are minors and they receive an interest in the separate property, a guardianship must be created for the children’s funds and the guardian must report annually to the court until the children reach age 18. If the children are orphans, the court will also need to appoint a guardian to raise the children.

A will does not shield assets from probate. However, there are still benefits to having a will, such as:

• The ability to name any person you want to receive your property under the will (which may or may not be the same persons entitled to receive property under the intestate succession laws)
• Identification of the person(s) whom you want to serve as guardian of your minor children
• Identification of the person(s) you want to act as your executor to administer your estate

A trust is an arrangement in which a trustee (similar to a manager) holds title to property for the benefit of the trust beneficiaries. This relationship is governed by a document often called a “trust declaration” or “trust agreement”. The trust declaration or agreement identifies:

• The creators of the trust (aka “settlors”, “grantors” or “trustors”)
• The trustee (manager)
• Beneficiaries
• When and under what conditions the trust property is to be distributed to the beneficiaries
• Rules the trustee must follow when managing the trust property for the beneficiaries

When you transfer title of property from your individual name to the name of the trustee, you no longer own the assets. However, you maintain control over those assets when you are the trustee of your trust. You can be your own trustee, or you can share that role with another person or institution. You can choose to have all or some of your assets in the trust.

A trust enables you to:

• Control who will receive your assets after your lifetime
• Control under what conditions your beneficiaries will receive your assets
• Structure gifts to your children and grandchildren so that they can receive money for things like education or retirement, but they will not have unrestricted access to any money until the age(s) you deem appropriate
• Avoid probate (no mandatory probate fees, paperwork and accountings which must be filed with the court)
• Keep your assets, debts, and identities of your beneficiaries private
• Save potentially thousands of dollars in estate taxes

A single person, a married person or a married couple may establish a trust.

A Living Trust is another name for a Revocable Inter Vivos Trust, which is one type of trust. “Inter vivos” means “during life,” and refers to a trust that is created when the settlor (aka “grantor” or “trustor”) starts the trust during the settlor’s lifetime. Usually a Living Trust may be revoked or amended (changed) during the settlor’s lifetime. There are other types of trusts which have specific tax, economic or management purposes.