Estate Planning FAQ

What is estate planning?
What is a trust?
What is the benefit of a trust?
What is a will?
What is Probate?
How much does Probate cost?
How long does probate take?
What if there is no will?
What is a Power of Attorney for Financial Purposes?
What is an Advanced Healthcare Directive?
What is a legal incapacity?
What is a Conservatorship?
If I create a trust, are all of my assets automatically transferred to it?
What is the federal estate tax, and how is it calculated?
Does California have it’s own estate tax?
If I inherit assets from my spouse, do I need to pay an estate tax?
Can I make gifts of my assets free from tax?
Is there a maximum amount I can gift during my lifetime?

• What is estate planning?

Estate planning refers to planning an individual, or couple, undertakes to arrange for the transfer of their assets during lifetime and/or at death. A thorough estate plan also addresses the issue of who can make decisions for both financial and healthcare related matters should an individual become incapacitated, as well as establishing guardianships for any minor children. A typical estate plan can involve a trust, will, power of attorney for financial matters, advanced healthcare directive (commonly known as a living will) and asset transfer documents.

• What is a trust?

In the most simple definition, a trust is a legal entity which can hold title to property. The person who creates a trust is commonly known as a grantor, trustor or settlor. All trusts are managed by a single “trustee” or multiple “co-trustees” and exist for certain individuals (or charities) known as “beneficiaries.” Many different types of trust exist ranging from “revocable” which may be changed and/or amended, to irrevocable. Trusts may also exist for specific family and charitable purposes.

• What is the benefit of a trust?

Although a trust can provide many benefits, the most common reasons people create trusts are: 1) to avoid the probate process; 2) allow for the management of their assets should they become incapacitated; and 3) specify who should benefit from their assets upon their death.

• What is a will?

A will is a legal document created by a “testator” which contains specific instructions as to how a court is to distribute assets in the event of a death. In order for a will to be valid certain legal formalities must be followed. Upon death of the testator, a will must go through probate in order for assets to be passed on.

• What is Probate?

The term probate is Latin for ‘to prove’ and involves a court proceeding by which a judge determines the validity of a will, and orders assets to be distributed to beneficiaries. In order to fulfill its duty to protect beneficiaries and creditors, the probate process has many requirements including written and newspaper notices to creditors, waiting periods during which creditors can file claims, and notice to everyone named in the will and everyone who would inherit if the will was found to be invalid.

• How much does Probate cost?

Probate is determined based on a percentage of the estate. The current probate fees in California are:

Estate Value	Statutory Fee
$100,000	$4,000
$200,000	$7,000
$300,000	$9,000
$400,000	$11,000
$500,000	$13,000
$600,000	$15,000
$700,000	$17,000
$800,000	$19,000
$900,000	$21,000
$1,000,000	$23,000
$1,500,000	$28,000
$2,000,000	$33,000
$3,000,000	$43,000
$4,000,000	$53,000
$5,000,000	$63,000
$6,000,000	$73,000
$7,000,000	$83,000
$8,000,000	$93,000
$9,000,000	$103,000
$10,000,000	$113,000
$15,000,000	$138,000
$20,000,000	$163,000

• How long does probate take?

The length of probate proceedings varies considerably depending upon the individual situation, but it is very difficult to complete a probate in less than 8 months. The current California average is approximately 16 months. A probate proceeding may be entirely avoided when assets are transferred to an appropriately drafted trust.

• What if there is no will?

A person who passes away without a will is said to have died “intestate.” When a person dies intestate, their assets are distributed according to the following order as found in the California Probate Code as follows:

• If not married, the estate is distributed:

To children equally.
If there are no children or surviving grandchildren, to parents.
If there are no parents living, then to siblings.
If there are no siblings, then to grandparents.
If there are no grandparents, then to aunts and uncles, or cousins.
If there are no cousins, then to "next of kin.”

• If married, the estate is distributed:

All community property goes to the surviving spouse.
Separate property is distributed as follows:
1. All to spouse if no parent, child, grandchild, niece or nephew survives.
2. ½ to spouse if only one child, or grandchild survives.
3. ½ to spouse if there is no child or grandchild, but a parent, sibling, niece or nephew survives.
4. 1/3 to spouse if more than one child survives.
5. 1/3 to spouse if one child and one grandchild survives.
6. 1/3 to spouse if issue of two or more deceased children survive.

• What is a Power of Attorney for Financial Purposes?

A power of attorney (“POA”) for financial purposes is a document signed by a “principal” that authorizes an “agent” to act on the principal’s behalf should he or she become incapacitated. The principal can elect for the POA to be effective immediately, or upon a future event such as an incapacity. It is important to keep in mind that this type of POA is for financial matter only, and does not give an agent any power over healthcare decisions.

• What is an Advanced Healthcare Directive?

Also referred to as a “living will” and advanced healthcare directive allows for a “principal” to appoint an “agent” for healthcare matters only. In the document, the principal can also leave specific instructions relating to their healthcare, including decisions relating to end-of-life treatment.

• What is a legal incapacity?

Usually determined by a physician, legal incapacity is the inability of an individual to act their own behalf because of a physical or mental condition. Often times can be temporary as a result of a stroke, heart attack or accident, or permanent due to conditions such as Alzheimers or Dementia.

• What is a Conservatorship?

A conservatorship is a legal proceeding whereby a court to grants to a “conservator” the authority to make certain financial and/or health care decisions for the “conservatee,” due to a mental or physical incapacity. A conservatorship proceeding involves testimony before a judge, and can be a time consuming, expensive and embarrassing process that can be avoided with a power of attorney.

• If I create a trust, are all of my assets automatically transferred to it?

No. A trust is only as good as the assets transferred into it. If an asset is owned in an individual’s name, rather than placed in trust, it may be subject to a probate proceeding. All too often people create trusts but never fund them. Therefore, it is imperative for the individual who creates a trust to work closely with their attorney and financial advisor, in order to make sure assets are appropriately re-titled.

• What is the federal estate tax, and how is it calculated?

The federal estate tax is a tax imposed on the estate at the death of an individual. Current federal law effective January 1, 2011, exempts estates worth $5,000,000 or less from tax. Therefore, in an estate valued at more than $5,000,000, the excess amount is taxed at 35%. The $5,000,000 exemption is effective for 2011 and 2012, but is currently set to expire thereafter. Estate tax liability can be greatly reduced, or even eliminated, with careful estate planning by qualified professionals.

• Does California have it’s own estate tax?

No.

• If I inherit assets from my spouse, do I need to pay an estate tax?

No. Transfers between spouses are not subject to estate tax. However, without proper estate planning, a large estate tax liability may be due upon the death of the surviving spouse.

• Can I make gifts of my assets free from tax?

Yes. Each year an individual can give an amount known as the “annual exclusion” free from tax. The annual exclusion for 2011 is $13,000, which may be made per person, per year. Gifts to charities are not subject to the annual exclusion limitations. Annual exclusion gifts can be an essential part of any estate plan to reduce potential tax liability and transfer wealth to the next generation free of tax.

• Is there a maximum amount I can gift during my lifetime?

Yes. The maximum amount an individual can give during their lifetime is known as the “unified credit.” Effective January 1, 2011, the unified credit is $5,000,000 per individual.