Trusts and Estate Planning
Trusts are the preferred estate planning tool. They offer many advantages over traditional Wills, including tax savings, avoiding the delays and expenses of probate proceedings, flexibility in providing for spouses and children, and meeting special needs. Trusts can be used with limited partnerships and limited liability companies for even greater tax savings in business and personal estate planning organizations.
Revocable (aka “Living”) Trust
Revocable trusts are very widely used in estate planning. A revocable trust is a trust created during your life. It can be modified or revoked in its entirety. A trust instructs the trustee (the one authorized to manage trust assets) what to do with the trust assets during your life and after your death. Revocable trusts are very flexible and can be used to accomplish many different goals, including minimizing taxes and controlling assets after your death.
Trust Administration
When the person who creates a trust (the “Settlor”) dies, the person charged with managing the trust assets (the “Trustee”) is responsible for following the instructions in the trust. This process is called Trust Administration. Trust Administration is an opportunity to organize assets and make decisions that will benefit future generations who will receive your assets. This process normally takes a few months.
Power of Attorney and Durable Power of Attorney (DPA)
A power of attorney is a document that gives another the legal authority to do something (sign a document, access an account, make medical decisions, etc.). A durable power of attorney is still valid even if the maker becomes incapacitated. In California, powers of attorney are not durable unless they contain specific language.
Will
The will is the most widely used of all the estate planning tools. It is an instrument by which a person (called a ''testator'') undertakes to dispose of his or her property after his or her death. In addition, a will can also express your desires regarding guardians for your minor children and the disposition of your remains.
Probate
Probate is the system of organizing your assets after your death, paying creditors and distributing the remaining assets to your beneficiaries. Probate is supervised by the Superior Court and is generally slow and expensive. However, probate has some advantages. For example, liabilities that do not arise during probate are unenforceable.
Gift Tax
Taxes are imposed by the federal government on gifts made during your life. Gifts of small value (currently, this “annual exclusion” amount is $12,000) are excluded. This means that you can make gifts of up to $12,000 to as many persons as you want and no gift tax will be imposed. You are also allowed to give away $1 million before any taxes will be due.
Estate Tax
Estate Taxes (sometimes referred to as inheritance taxes) can be very complex. However, the current tax code allows you to transfer property, up to a certain value (aka the “exemption amount”) to anyone without having to pay estate taxes. In 2009, the exemption amount is $3.5 million.
The current estate tax law is due to expire January 1, 2010. For deaths occurring after 2009, the estate and generation skipping taxes are repealed in their entirety. If no changes are made by Congress, the previous system of estate taxation will be restated for persons dying after December 31, 2010. Under that system, the exemption amount will again be $1 million.
Generation Skipping Tax
This is a tax that is levied against transfers from you to your grandchildren, great grandchildren etc. It is supposed to prevent you from paying fewer taxes by “skipping” the generation of your children.
Intestate Succession
When a person dies, and he does NOT have a valid will, he dies “intestate.” In this event, the California Probate Code contains rules that determine who your assets go to.