Estate Planning FAQ

Estate planning is a process involving the counsel of professional advisors who are familiar with your goals and concerns, your assets and how they are owned, and your family structure. It can involve the services of a variety of professionals, including your lawyer, accountant, financial planner, life insurance advisor, banker and broker. Estate planning covers the transfer of property at death as well as a variety of other personal matters and may or may not involve tax planning. The core document most often associated with this process is your will.

What is Probate?
Probate, also called proof of will, is the procedure by which a will’s validity is proven to the satisfaction of the court. If the validity of a will is proven to the satisfaction of the court, the will’s validity can not subsequently be challenged on the grounds of fraud, testamentary capacity, or under duress; however, the probate of a will does not affect an interested party’s rights to question the construction of the will, the legal effects of the will’s provisions, or the validity of the will’s provisions.

If I make a living trust, do I still need a will?
Yes. because a will is an essential back-up device for property that you don’t transfer to yourself as trustee. For example, if you acquire property shortly before you die, you may not remember to transfer ownership of it to your trust, which means that it won’t pass under the terms of the trust document. But in your back-up will, you can include a clause that names someone to get any property that you haven’t left to a particular person or entity. If you don’t have a will, any property that isn’t transferred by your living trust or other probate-avoidance device (such as joint tenancy) will go to your closest relatives in an order determined by California law.

Are there other ways to transfer assets to inheritors free of probate?
There are many ways to transfer assets to inheritors free of probate within weeks or, at most, months of death, including making gifts before death, adding a pay-on-death designation to a bank account, holding your house in joint tenancy with right of survivorship with your spouse or partner, and naming a beneficiary for life insurance and retirement accounts. Other estate planning devices that avoid probate include joint tenancy, a life insurance policy, and in-trust-for bank account (also known as a Totten Trust), and individual retirement, pension or Keogh accounts.

But only the living trust can be used for all types of property and offers the broad planning flexibility of a will. With a living trust, for example, you can name alternate beneficiaries to inherit property if your primary beneficiary dies before you do. That’s something you can’t accomplish with joint tenancy or a pay-on-death bank account.

Is it complicated to hold property in a trust?
Making a living trust work for you does require some important paperwork. For example, if you want to leave your house through the trust, you must sign a new deed, showing that you now own the house as trustee of your living trust. And in a few states, you may need to use special language in your trust document to avoid problems in your state’s income tax laws. This paperwork can be tedious, but the hassles are fewer these days because living trusts have become quite common.

How does a living trust avoid probate?
The person you appoint to handle the trust after your death the successor trustee – simply transfers ownership to the beneficiaries you named in the trust. Much of the time, this can be accomplished in a few weeks. When all of the property has been transferred to the beneficiaries, the living

Does a living trust protect property from creditors?
Yes and no. Since property in a living trust can be quickly and quietly given to the beneficiaries, your creditors may not know what you owned or find out about it until its already given out. Holding assets in a revocable trust doesn’t shelter them from a creditor who wins a lawsuit against you, since he can go after the trust property just as if you still owned it in your own name. It may not be worth the creditor’s time and effort to try to track down the property and demand that the new owners use it to pay your debts.

On the other hand, probate can offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they’re out of luck forever.

Who is included in a living trust?

• The name of the person creating the trust (the “trustor” or “grantor”). If it’s your trust, that’s you.
• The name of the person who will manage the trust (the “trustee”). Again, if it’s your trust, this is you.
• The name of the person who will take over as trustee and distribute property in the trust when the trustor dies or becomes incompetent (the “successor trustee”). This will usually be your spouse, child or close friend.
• The names of the people who will receive the property in the trust (your beneficiaries, just as with a will).
• The name of a person to manage any property left to minor beneficiaries.

Can a living trust be contested?
Yes. A trust can be contested in a special proceeding. There is no blanket rule that a living trust cannot be contested.

How does an AB LIVING TRUST works?
You create an living trust that takes effect at your death (up until your death, you are free to amend or revoke the living trust). You name your spouse as your beneficiary, who has certain rights to the living trust property during his/her life. Your surviving spouse is called the “life beneficiary” of the living trust.

The property you put into the living trust is part of your taxable estate. However, when you use an AB living trust, no estate tax will be due at your death – regardless of the value of your estate or the year you die (due to the unlimited spousal exemption). The main benefit of an AB living trust comes when the life beneficiary (i.e., the surviving spouse) dies. The tax-avoidance key to an AB LIVING TRUST is that the life beneficiary never legally owns the trust property; therefore when the surviving spouse dies, the property held in the living trust will not be considered part of his/her estate. This is true even if the life beneficiary had the rights to receive all income generated by the trust property, or to use the property during his/her lifetime – use of a house held in trust, for example. Because the life beneficiary never legally owns the property, it isnt counted as part of his/her estate for estate tax purposes when the surviving spouse dies.

When the life beneficiary (i.e., surviving spouse) dies, the trust property goes to the final beneficiaries you specify in the living trust document (usually your children). No estate tax is taken out of the trust property when the life beneficiary dies. By contrast, if you had left your property to the life beneficiary outright, it would have been included as part of that beneficiarys taxable estate when he/she died.

Both couples (married or not) and individuals can create bypass/ongoing trusts, but married couples can take optimal advantage of an AB LIVING TRUST.

With an AB LIVING TRUST - where property is left for the use of a life beneficiary and then goes to final beneficiaries – the life beneficiary never becomes the legal owner of the assets held in the ongoing, bypass trust.