Favorite Estate Planning Quotes: #5


Tombstone 7Quotation No. 5: 

“Those who inherit fortunes are frequently more of a problem than those who made them.”
~ Congolese Proverb

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20 Advantages to Having a Trust (Part C: Protecting Loved Ones) 


Why should I make a trust?  This is a common question. In this series of posts, here’s twenty great reasons to have a trust!

Part C: Trusts Allow You to Better Protect Your Loved Ones.

9. A trust can protect young heirs from themselves and others.

If you die without a trust, a child will be entitled to receive his or her inheritance – no strings attached – the moment the child turns 18. It is a rare 18 year old whom Kid Money
would be able to handle a significant inheritance at that age. And it’s not just the young heir you have to worry about, it’s all the charlatans around him, too. Don’t forget about the time before 18. Who will be in charge of the child’s money then?

With a trust, the world is your oyster! A trust leaves someone else – the trustee – in charge of the child’s inheritance until you say otherwise. You can instruct the trustee to hold everything and use it for specific purposes, such as education. You can provide for staggered distributions at various ages, so the child doesn’t get everything at once and has time to learn to manage money. You can keep it in trust for the child’s lifetime, or give it earlier as a reward or gift for major life events.

Other alternatives exist, but they make poor substitutes. For example, you can make a trust within your Will, known as a “testamentary trust,” but that’s a foolhardy remedy because it does not avoid the probate process (see #5 through 8) and may subject your trust to long term court supervision. Sometimes you can delay the inheritance to age 21 or 25 under the Uniform Transfers to Minors Act, but that usually doesn’t happen because people forget to write that into their Wills, it’s more complicated, you have little planning control, and you can’t control the future custodians of the funds.

10. A trust can be used to encourage behavior and instill values you cherish, even in your absence.

A trust can set aside funds to help cover the cost of major life events for your children or grandchildren. College education, a first Wedding 2home, starting a business, getting married — these are all worthy and expensive endeavors. A properly structured trust can go a long way toward making these dreams reality for your loved ones.

Of course, some children need motivation in addition to opportunity. A trust can help with this, too! Say you value education. Your trust can instruct the trustee to pay for education. It can specify the grades that must be attained. It can specify the college or the types of degrees for which you are willing to pay. It can also provide a reward when the goal is achieved. How about a nice cash gift on graduation day? Or a new car?

Want to encourage philanthropy? Community service? Religious observance? All of these, and many more, can be encouraged and assisted with a trust.

11. A trust offers protection from divorce and creditors.

Your trust can be structured to help protect your loved ones from their creditors or divorcing spouses. Nothing can protect them once the money is distributed and “theirs” to do with as they please. The protection comes prior to distribution.

Your trust can prohibit beneficiaries from assigning their interest to creditors, such as taking out a loan secured by their trust interest or pledging their next distribution to a creditor. And as long as the beneficiary’s interest is still being held by the trustee, those assets are not being commingled with the beneficiary’s marital property, so there is no question that the trust assets are separate property if the beneficiary divorces.

Creditors can reach money or property that is actually distributed to the beneficiary, but would not be able to touch assets still held in trust that the beneficiary is merely being allowed to use, such as a house. Some obligations can be reached even in a trust, but those are limited. The most common examples are payments due for spousal support and child support. But even then, a court order is usually necessary and that places another hurdle before the creditor.

12. A trust can provide for your spouse while protecting your children.

A trust is a wonderful tool for balancing your desires to provide for your spouse but leave something to your children as well. It can be structured to provide income to your spouse, and provide principal to your spouse if your spouse needs it for support, but to pass unused portions on to your children when your spouse dies.

This can be helpful if your spouse is not the parent of one or more of your children. By specifying these uses, you make clear to your children your intention that the spouse be supported; but by specifying where the remainder goes, you make clear to your spouse that you wish to benefit your children, if possible – it’s not up to your spouse where the remainder will pass.

This scenario also protects your spouse and your children from the spouse’s remarriage. Even if your spouse is the other parent of your children, he or she may fall prey to a second spouse’s influence. If you leave assets to your spouse outright, those assets may become part of the marital estate with the later spouse, or at least subject to the later spouse’s influence. A trust ensures that your children will receive something if your spouse did not need all of the assets. It also ensures that your assets remain segregated from the new marriage, thereby still available to your spouse in the event of need or later divorce.

13. A trust affords better management of life insurance proceeds.

Many people forget about life insurance when thinking about their estate planning, even though the life insurance is often one of the biggest assets. If you name your minor child as beneficiary, that child will receive the proceeds at age 18 and a guardian will be in charge of it prior to that age. (This presents the same problem described in #9.)

In addition to the problem of young heirs is the problem of intended use. Did you intend for the insurance to be used to pay off the mortgage? Was the insurance a safety net to pay for education? Did you want the insurance used for long term support? Any of these intentions may be lost if the life insurance is paid to the heirs directly, rather than being paid through a trust. If the insurance is paid to the trustee, it will remain under the trustee’s control subject only to the instructions you gave in the trust. Divide it, hold it for education, pay a mortgage, etc. Your wishes get carried out.

The only drawback is potential exposure of the insurance amount to your own creditors. If your life insurance pays out to your probate estate, your own creditors can reach it. If it pays out directly to a beneficiary other than your estate or your trust, then your own creditors cannot reach it – but the beneficary’s creditors can. If it pays to your trust, rather than your probate estate, the law is not clear whether or not your own creditors could reach the proceeds, but it appears to be leaning in that direction. However, unless you have a great deal of debt at the time of your death, the concern that your life insurance may be used for your own creditors should be relatively small, especially compared with the dangers of leaving insurance outright to your heirs.

Another concern is the condition of your heirs.  If you name a beneficiary other than your trust, and that beneficiary dies shortly after you do, the proceeds will pass through to the beneficiary’s heirs (spouse, children, etc.) whom may or may not be the persons you would have preferred to benefit.  It will also probably require a probate administration, costing unnecessary expense.

14. A trust can benefit loved ones receiving government benefits for special needs.

If you have a loved one receiving SSI, Regional Center Services, or other government benefits based on a developmental or related disability or special need, you know that income or property passing to that loved one risks loss of benefits (usually including medical coverage!) A trust can be structured to allow the trustee to provide assets and advantages to your loved one in a way that will not cancel those benefits. This must be done carefully and a trust is the only means for doing this safely.

You may be tempted to leave your assets to another child, feeling that child will “take care of” the sibling with special needs, but this is risky. The child’s creditors will be able to reach those funds to pay debts. The child’s spouse may be able to reach those funds in event of divorce. What if the non-needy child dies? Who then will provide for the child with special needs, and how will the assets pass from the non-needy child?

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20 Advantages to Having a Trust (Part B: Avoiding Probate When You Die) 


Why should I make a trust?  This is a common question. In this series of posts, here’s twenty great reasons to have a trust!

Part B: Trusts Avoid Probate When You Die.

5. California probate is time consuming and a tremendous hassle.

If you die without a trust, unless your estate is very small, it will have to pass through the probate court. In some states, probate is a minor process. In California, it takes aCourt 1 minimum of about 6 months to finish a probate, and usually closer to a year (sometimes several years!) During that time, your heirs have to wait to receive their inheritance. It is sometimes possible to get an early distribution of up to half of the assets, but the other half remain frozen until the probate is finished.

If you have a trust, your Will does need to be deposited with the court but that is a minor, ministerial act. A probate is not necessary. Your successor trustee takes charge of the trust assets immediately and can pay your debts, provide support to your loved ones, make distributions, and carryout all of your instructions without a long waiting period. The only thing the successor trustee needs is your death certificate.

6. California probate can be a tremendous hassle.

During the California probate process, the executor (usually another loved one) must account for every penny, get court approval or follow special steps before taking any actions, and keep returning to court for status updates, to seek instructions, or when heirs disagree with particular actions. This can be very wearying on your loved ones — fatigue that is only compounded by the grief of your loss. It is possible for the excecutor to be given “independent authority” to take certain actions without need of prior court approval, but those powers are not always given and still require adherence to multiple procedures and court approval after the fact. Being the executor is a lot of work, with little thanks.

7. California probate is very expensive.

The probate court filing fees and court appraiser fees are usually about $2,000 minimum. Attorneys fees and executor fees are set by law according to a formula and the value of the estate. The value used for calculating fees is the gross value, not the net value after deducting liens or expenses. On an estate valued at $1 million, attorney and executor fees are $48,000, split evenly between the attorney and the executor. Fees and expenses can be even higher if contested litigation is involved, such as creditor disputes or lawsuits to recover property.

Throw Money AwayThose expenses can be avoided if you have a trust. Most trusts cost only a few thousand dollars to create. Contrast that with $50,000 for the probate process! And that’s just for a $1 million estate. The expenses are higher as the estate value increases. Even average people can easily exceed a million dollars with the value of their home, cars, a few bank accounts, and life insurance payable to their estate.

8. California probate is a very public process.

Even if you have a trust, your Will still needs to be deposited with the court and is a public document for all to see. But if you have a trust, then your Will is only going to nominate guardians for your minor children, and direct that your assets pass to your trust. Your Will need not itemize those assets, nor give any indication at all as to their value. Anyone nosing around the courthouse is not going to learn anything about you except that you died and you have a trust.

The probate process, on the other hand, is very public. A petition is filed that includes your last known address, the names and addresses of all of your loved ones, and an estimate of the value of your property. Later, an inventory and appraisal is filed that itemizes all of your assets and sets out the value of each item. If property is sold during the probate, that gets reported as well. If the probate is not completed within a year, an itemized accounting will probably be filed, further itemizing every asset down to the last penny.

If you think no one bothers to look at public court filings, think again! There are all manner of predators out there, trawling the court filings in search of heirs to scam, property to “case out” for potential theft, or folks to pursue with unwanted solicitations. If you want to maintain privacy, make a trust. Plain and simple.

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Favorite Estate Planning Quotes: #4


Tombstone 7Quotation No. 4: 

“I would rather make my name than inherit it.”  ~ William Makepeace Thackeray

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20 Advantages to Having a Trust (Part A: Planning for Incapacity) 


Why should I make a trust?  This is a common question. In this series of posts, here’s twenty great reasons to have a trust!

Part A: Planning for Incapacity.
Dementia, Alzheimers, Coma, etc.

Conservatee 1

1. A trust avoids the probate court.

If you become incapacitated without having a trust, you may need to have a conservator appointed by the court, which is basically a legal guardian for an adult. This court appointed conservator will be in charge of your assets, investments, debts, basically all of your financial matters.

With a trust, your own selected trustee will be in charge of your financial matters if you become incapacitated. This person can take over without need of any court process. This saves money, maintains privacy, and is a far less stressful ordeal for the incapacitated person than an expensive, public court proceeding. If you also have a power of attorney for healthcare (such as an “advance healthcare directive”), you won’t need a conservator for your personal care either.

2. A trust can define the existence of incapacity.

Your trust could provide, for example, that you are deemed to be incapacitated if your regular primary physician confirms in writing that you are no longer able to manage your affairs; or you can require more than one doctor’s opinion; or you can leave it to the vote of a committee of your loved ones and medical providers.

If incapacity is properly defined, with a specific means of determining its existence, then no court involvement will be needed. Proving incapacity in a court is expensive, time consuming, and very public. You could be required to undergo exhaustive mental testing and evaluation. Your “laundry” will be aired in public. It’s a very intrusive process. With a properly structured trust, you won’t have to go through any of that.

3. A trust is more flexible than a power of attorney.

Most third parties (banks, brokerages, title companies, etc.) are quite stingy when it comes to honoring a power of attorney. This is primarily out of fear of liability if the Agent fails to carry out his duties or acts in excess of his authority. You can define incapacity in a power of attorney, but many third parties will probably resist and insist upon a judge’s determination before they will honor it. Trusts do not carry the same stigma with third parties and the law is far more developed for trusts. This means third parties are much more comfortable dealing with trusts and your interests are better protected with a trust.

The amount of detail you can include is also much greater with a trust. Your trust can be as long and detailed as you wish, with as many instructions for your trustee as you desire to give, including how and when to provide support for others, what assets to sell and what to keep, where to make charity gifts, etc. The longer a power of attorney is, the more likely it will be rejected by a third party.

4. A trust can be used to manage your assets if you are missing.

A power of attorney ceases to be effective the moment you die. If you are missing, the power of attorney may not be honored because it cannot be known whether you are alive or dead. Your Will does not take effect until you are certainly dead. Without a trust, your loved ones may have to wait seven years before they can petition for probate and a court determination that you are presumed dead. If you have a trust, your successor trustee can immediately step in to manage the trust assets in your absence, pay your bills, use your property to support your loved ones, and so on. A power of attorney isn’t effective if you’re dead; a Will isn’t effective if you’re alive; a trust is effective all of the time.

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Favorite Estate Planning Quotes: #3


Tombstone 7Quotation No. 3: 

“I would as soon leave my son a curse as the almighty dollar.”  ~ Andrew Carnegie

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Favorite Estate Planning Quotes: #2


Tombstone 7Quotation No. 2: 

“Never say you know a man until you have divided an inheritance with him.”  ~ Johann Kaspar Lavater

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Favorite Estate Planning Quotes: #1


Tombstone 7Quotation No. 1: 

I want to leave my children enough that they feel they can do anything, but not so much that they do nothing.” ~ Warren Buffet

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What to Expect When You See a Lawyer About Estate Planning (Part Two)


What Happens in the Estate Planning Process After the Initial Consultation.

Different lawyers conduct estate planning in different ways.  Part One of this post topic explored the initial consultation. This post discusses what happens after that consultation. The basic phases of estate plan creation are: initial consultation; information gathering and planning; drafting; review; and signing. Will 1. Sign

Information Gathering and Planning.

As noted in Part One, some attorneys will combine the initial consultation and a preliminary planning stage, while others prefer separate client meetings. Information the attorney will need may includes such things as a list of your assets and debts; the names, birthdates and addresses of your loved ones; names and addresses of persons you select to act as executor, trustee, agents, etc.; possibly information regarding pre-deceased spouses or divorced spouses; and other information specific to your situation. The attorney will always want a copy of any existing estate planning documents you may have. During the planning stage, the attorney will discuss your intentions, explain your options, and make suggestions for achieving your goals.

Preparing the Estate Plan Documents.

Once planning and information gathering are complete, the attorney will draft documents for the client’s review. Many attorneys mail or email a draft of the documents to the client for review in advance of the next meeting, but some do not. Many will confer by phone or email to resolve quick corrections before the next meeting. Review of the final version may happen at its own meeting or in conjunction with the signing stage. It really depends upon the attorney and the needs of the client. For some clients, the process only requires a few in-person meetings, but other clients may require several meetings and phone calls before they are comfortable with the documents and feel that they understand all they need to know. Most clients falls somewhere in between. (For this reason, many attorneys prefer to use a flat fee arrangement for the initial plan so that clients feel free to ask as many questions as they have, rather than feeling that they are “on the clock.”)

Final Review and Signing Your Estate Plan.

The final review and signing meeting may be a bit more formal, depending upon the attorney. This is done in person and, if you are married and your spouse is also making a plan, you must come together. There will also be a notary public present, and at least two witnesses (or the notary and one additional witness). You will spend some time having general conversation with the witnesses so that they can attest that you appear to be of sound mind. The attorney may question you about the documents so that you can demonstrate to the witnesses that you understand what they are. You will also be asked to confirm to the witnesses that you would like them to witness your Will and the other plan documents. It is not necessary to read the documents out loud.

Funding and Other Steps After the Estate Plan is Signed.

Once the documents are all signed, the attorney will give you a copy of your documents and many attorneys will also give you the originals. Most attorneys provide you with a binder or folder in which to keep the documents organized. Some documents, such as transfer deeds, may require additional processing. If this is your first estate plan or your first trust, you may also need to “fund” the trust by re-titling various assets to yourselves as trustees. Some attorneys collect information from you and do all of the funding themselves, but most will handle real estate transfers and then give you instructions for changing your financial accounts, which is usually less expensive to do yourself (and the broker or bank can assist).

Ongoing Maintenance and Estate Plan Review

Once these steps are completed, you will probably not need continued attorney assistance for day to day matters. You should, however, have your plan reviewed on a periodic basis to ensure that it continues to reflect your intentions. Intentions and circumstances both change over time. Reviews are especially important when significant changes occur, such as births, deaths, divorce, children becoming adults or developing special needs, changes in the law, or changes in your desires and intentions.

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What to Expect When You See a Lawyer About Estate Planning (Part One)


What Happens When You See a Lawyer About Estate Planning?

The basic phases of estate plan creation are: initial consultation; information gathering and planning; drafting; review; and signing. Afterward, there are funding steps and there should be ongoing review and attention to the plan to ensure that it continues to meet your needs. This is Part One of a two part post.

Initial Consultation with a Qualified Estate Planning Attorney.

Different lawyers conduct their first client meeting in different ways. In California, many attorneys offer a free initial consultation for estate planning. For some attorneys, this means fifteen minutes for you to meet the attorney and get a general feel for things. (Choosing a lawyer is like choosing a doctor — you have to be comfortable.) Other attorneys offer longer initial consultations, sometimes free or sometimes for a reduced fee. Be sure you know which type of consultation you can expect when you make the appointment.

What Should You Bring to the Initial Estate Planning Meeting with the Lawyer?

What to bring with you to the initial consultation also varies, but most attorneys would like you to bring copies of your current estate plan, if you have one. You might also bring a list of your current assets, and the names, birthdates, and addresses of your loved ones and of anyone you want named as executor, trustee, agent, etc. But that’s all information that can be gathered later as well. Many attorneys prefer to send a client questionnaire in advance of the meeting so that consultation time need not be used up taking down basic information.

What Happens During the Initial Estate Planning Consultation?

During an initial consultation, the attorney usually spends some time just chatting and getting to know you better. This allows you to decide if you are comfortable with this attorney, and allows the attorney to assess your mental capacity and independence of thinking. The attorney needs to feel comfortable that you are not suffering from diminished capacity or being unduly influenced by another. For this reason, the attorney will want to meet with you alone (or with you and your spouse, for a joint plan). Children, siblings, parents, caregivers, significant others, etc., will generally need to wait in the lobby. In fact, it’s better that they not come to the office at all for this initial meeting.

The attorney will also ask you about your general goals and intentions and whether you have specific questions or concerns. The attorney should spend some time educating you about estate planning basics. If you decide you would like to hire the attorney and complete a plan, some attorneys will continue with a longer meeting at that time, but most will schedule a time for you to return for a “planning session,” and will give you a list of information you will need to bring to the next meeting. Unless your matter is a very simple and limited task, the attorney will also give you an engagement agreement for your review and signature. California law requires attorneys to have written agreements if the fee will exceed $1,000.

The attorney will also discuss fees and probable costs at the initial meeting. “Fees” means the expense for the attorney’s services. “Costs” are out of pocket expenses paid to third parties, such as recording fees to the county recorder. Some attorneys charge an hourly fee for estate planning, from beginning to end. Others charge a flat fee for the initial plan, then an hourly fee for amendments and changes in the future. If you and your spouse are creating a joint estate plan, the attorney will probably also ask you to review and sign a conflict of interest disclosure and waiver. This is to explain limitations and consequences of joint representation.

Some attorneys will combine the initial consultation and a preliminary planning stage, while others prefer separate client meetings.

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