Estate Planning

Kathleen Franke has provided Estate Planning Services for over 20 years. An Estate Plan can provide significant benefits during your lifetime and continue to provide benefits beyond your lifetime. The following is a brief introduction to Estate Planning.

What is Estate Planning?

Estate Planning provides for the management of your assets both during your lifetime and the management and distribution of your assets following your death. In many cases there are considerable financial and legal benefits to the establishment of an Estate Plan. Estate Planning primarily entails creating several legal documents: 1) a Declaration of Trust, 2) a (pour-over to Trust) Will, 3) a Durable Power of Attorney for Business Matters, 4) an Advance Health Care Directive, and 5) documents that transfer title to assets to the Trust created by the Declaration of Trust.

Declaration of Trust Creating a Revocable Living Trust

A Declaration of Trust is a document that has instructions for how assets, which will be held in the Trust, are to be administered during your lifetime, and how the assets are to be distributed at your death. The Declaration of Trust specifies who will manage the assets in the Trust. The manager is called the Trustee. Typically, the individual(s) creating the Trust is/are the designated Trustee(s). For example, if a husband and wife are creating the Trust, they are typically designated as Co-Trustees. The Declaration of Trust also specifies who will act as Trustee when the original Trustee(s) is/are no longer willing or able to act for any reason including death. While the individual(s) that created the Trust is/are acting as Trustee(s), the individual(s) can use and/or consume the Trust assets as they would have done had they not created a Trust. If, the individual(s) that created the Trust becomes ill and unable to continue to manage the Trust assets, the Trust makes clear that the designated, successor Trustee must manage the Trust assets prudently for that individual's(s') sole benefit.

In general, a revocable living trust can be changed by the person(s) creating the Trust at any time before the person(s) creating the Trust die.

A Declaration of Trust for spouses can be written to use both spouse's estate tax exemption, minimizing if not eliminating estate taxes on the death of the surviving spouse. Additionally, provisions can be included in a Declaration of Trust to delay outright distribution to children until they reach a certain age. Until reaching that distribution age, the Trustee would continue to manage assets in the Trust for the children's benefit.

The most frequently cited benefit of a Trust is that it avoids a probate. In California the probate process is an expensive and lengthy legal process. It is also a matter of public record. Trust creation, funding, and administration is typically far less expensive, and Trust administration after death far less time consuming. Also, Trusts can be kept private.

Durable Power of Attorney for Business Matters

When individual(s) create a Trust, the Trustees designated in the declaration of Trust will be the only ones authorized to manage assets held in the Trust. Thus, the primary function of the Durable Power of Attorney for Business Matters is to give the agent designated in the Durable Power of Attorney the power to transfer title to assets to be held in the Trust to the Trustee(s) of the Trust, as well as the power to manage assets not held in the Trust (such as accounts with small balances, qualified retirement accounts, and life insurance policies). The agent may also be authorized to exercise powers such as filing tax returns, opening and/or closing credit card accounts, and applying for government benefits. Note the authority extended under a Durable Power of Attorney for Business Matters ends upon the death of the individual that created the Durable Power of Attorney for Business Matters.

(Pour-Over to Trust) Will

In California, in general, an individual can currently have a total of $150,000.00 worth of assets, in the individual's name, and which do not designate a living beneficiary, outside of the Trust, at their death, without triggering a probate. So, for example, an IRA that designates a living beneficiary would not be included in this $150,000.00 limit. If an individual creates a Trust and has a (pour-over to Trust) Will, on the individual's death, the designated, successor Trustee can collect titled assets with a sum total value of up to $150,000.00 for administration in accordance with the Trust, without a probate or court order. However, if an individual dies with accounts in their name and outside of the Trust, with no designated beneficiary, having a sum total balance of more than $150,000.00, a probate or, at least some court proceeding, will most likely be required to distribute the funds in the accounts to the intended beneficiaries. For this reason, the appropriate transfer of title to assets to the Trustee of the Trust is crucial.

Advance Health Care Directive

This document allows an individual to specify who they would want to make health care decisions for them, and specifies the individual's wishes concerning matters including life-sustaining treatment, the donation of body parts, and the disposition of remains.

Documents that Transfer Title to Assets to the Trust Created by the Declaration of Trust

An asset is "held" in a Trust when legal title (ownership) is placed in the Trustee(s) name(s) as Trustee(s) of the __________ Trust, dated ________ (e.g. John Doe and Jill Doe as Trustees of the Doe Family Trust, dated 01/01/13 (the date the declaration of trust was signed)). Title to real property is transferred to the Trust by a Deed that is recorded in the County where the real property is located. The transfer does not affect property taxes. Banks and brokerage firms typically require the first page, trustee designation page and signature page of the Declaration of Trust. They also typically require the completion of one or more forms, such as a new account application and Certification of Trust form to re-title accounts in the name of the Trustee of the Trust. Other assets such as stocks held in certificate form, membership interests in LLC's and partnership interests require specific documents to re-title ownership.

Variety of Other Estate Planning Methods When Estate Taxes are an Issue

An individual with an estate worth more than $5,000,000.00 or spouses with an estate worth more than $10,0000,000, may wish to consider the following methods to minimize if not eliminate estate taxes on their death.

a) Irrevocable Trust, which once established, cannot be charged or revoked. Types of Irrevocable Trusts include: Irrevocable Life Insurance Trusts, Qualified Personal Residence Trusts, Grantor Retained Annuity Trusts, and Charitable Remainder or Charitable Lead Trusts.

b) Business Entities (which have governing documents dictating the management of the entity's assets and designation of managers of the assets) such as Limited Liability Companies, Family Limited Partnership, and Subchapter S Corporations.

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