Wills and Trusts Q&A – Part 1

What is the difference between a will and a trust?

A will is a legal document in which you give certain instructions to be carried out after your death and depending on the size of your estate, may have to be probated. Your assets remain in your name. In your will you would name your beneficiaries, a guardian for minor children and an executor to collect and manage your estate. Whereas, in a trust you can transfer title to your assets to the trustee of your trust, which is administered for your benefit during your lifetime, and then at your death transferred to your designated beneficiaries. A trust can help avoid the probate of your estate and payment of estate taxes if it is properly drafted and funded and it can be used for your benefit while you are living.

My wife and I recently created a revocable living trust and we were told to put everything in our trust. Does that mean we should designate our trust as the beneficiary of our IRA’s?

Unless there are special circumstances, it is best for spouses to name each other as the primary beneficiary of their IRA’s and their children as the contingent beneficiaries. Special circumstances would include: a beneficiary with special needs, blended family – children from a prior marriage, or a need to control the beneficiary’s access to the money.

My wife and I have all our assets, including our home, in joint tenancy and we don’t have any children. Do we need a will or a trust?

If you and your wife were to die simultaneously intestate (without a will), your estate would have to be probated and your estate would be distributed to your next of kin and your wife’s next of kin. If you have a will and a trust, you designate who your beneficiaries will be and how your estate is to be distributed.

I have a trust and I have transferred title of my assets to my trust. Do I need an Asset Management Power of Attorney?

The trustee of your trust deals only with assets that are in your trust. For other financial matters such as dealing with government agencies, insurance companies, IRA’s, pensions, etc. you would have to appoint an Agent to act on your behalf as these matters are outside your trust.

My wife and I recently learned that the 2015 Federal Estate Tax Exemption is now $5.43 million per estate. Does that include our joint estate?

You are correct, the Federal Estate Tax Exemption in 2015 is $5.43 million, which because of the existing index for inflation will go up. The $5.43 million is per estate, so for you and your wife it would be $10.86 million. This does create a need to review your estate plan because it may be outmoded or unnecessary because new opportunities now exist to protect your estate from unnecessary loss due to taxes.

My husband and I created an A/B Trust in 1994 and since we are both now retired, our income and assets have decreased and we believe our total estate is worth about $2 million. Should we consider doing a new trust?

I assume you created the A/B Trust in order to avoid paying Federal Estate Tax at the death of the first spouse, because in 1994 the Federal Estate Tax Exemption per estate was only $600,000. Now, in 2015 the Federal Estate Tax Exemption is $5.43 million, which will increase yearly due to inflation. Therefore, if your joint estates are valued at $10.86 million or less, there is no further need for the A/B Trust because for most estates, no Federal Estate Tax will be due.

My wife and I did our estate planning several years ago and we are now divorced. Do I need to do a new will and trust?

Yes, you should do a new will and trust. When you signed your trust you more than likely did a joint trust, which is basically an agreement between you and your wife, and you are now no longer married and your circumstances have changed. You should consider doing a Separate Property Trust. Also, the will that you signed was probably a pour-over will, which basically covers any assets outside the trust, so if you change the trust, you will need to do a new will.

My husband recently passed away and we have a trust. Do I need to do anything?

You should consult with your attorney to determine what steps you need to take as each estate is unique. Your attorney would have to review your estate documents, specifically your husband’s will and the trust, in order to advise you. I would recommend you talk to your attorney as soon as possible as in some situations there are things that need to be done within a certain period of time.

I am very fond of my pets. Can I include a provision in my trust to cover their care upon my death?

Yes, you can. Pursuant to California Probate Code Section 15212 (Trusts for the Care of Animals), the trustee could retain a specific percentage of the net distributable estate to care for your pets and/or offspring of said pets for their lifetime, or in the trustee’s discretion, pay said amount to a caring person to act as “Special Trustee” to administer the monies for the benefit of said pets.

A friend of mine mentioned that he and his wife recently did their estate planning and signed a Community Property Agreement. What is a Community Property Agreement?

A Community Property Agreement is a written document in which a husband and wife declare that all property of whatever kind or character owned by both or either one alone on a specific date or acquired at a future date, from whatever source, is their community property. This will provide some favorable income tax advantages when the community terminates on the death of either spouse.

If I put my assets in a trust, will they be protected from creditors?

Not necessarily. There are certain types of trust that do afford protection of assets, such as a Special Needs Trust or MediCal or VA Planning Trust. These trusts are very complicated and have strict requirements. You should discuss your need for asset protection with your attorney so he/she can advise you as to which trust would best suit your needs.

What will happen to my estate if I die without a will?

It depends on the size of your estate and how your assets are held. If the date of death value for your assets is over $150,000 and your assets are held in your sole name without a designated beneficiary, your estate may have to be probated. If it is necessary to probate your estate, the probate court will determine who your heirs are and what they are entitled to receive. You will have nothing to say about it. A will is your written expression of who you want to leave your estate to, how you want it to be distributed, and who will be your personal representative. It would be wise to consult with your attorney.

My aunt died several months ago and my cousin, her daughter, told me I was named as a beneficiary in my aunt’s trust. Do I have a right to see my aunt’s trust?

As a named beneficiary in your aunt’s trust, yes, you do have the right to a copy of the trust. You should have received a Notice of Trust Administration indicating the name and contact information for the trustee of your aunt’s trust. You may want to call the trustee and request a copy.

Shortly after my dad’s death my mom was diagnosed with dementia. As I was named as the first successor trustee, I took over the responsibilities as Trustee. Am I required to provide the beneficiaries of the trust with an annual accounting?

You should carefully read the provisions of your parents’ trust to determine what your Trustee responsibilities are. Next, you should talk to the beneficiaries to determine whether or not they want you to provide an annual accounting, as it can be costly. The beneficiaries can actually waive an accounting. However, in my experience, it is a good idea to do the accounting for your protection. It will make the final trust and estate administration easier, and may save time and money.

My husband and I have recently learned that our son is bipolar. We have a trust, but are concerned that our son will not be able to manage his inheritance and may lose any federal or state benefits which he may need. How can we protect our son?

There are steps that you and your husband can take to protect your son and his inheritance. The first step would be to talk to your attorney about your son’s condition and your concerns. You may want to do a “Special Needs Trust” for your son.

My wife and I just moved to California from Illinois. Several years ago, we had our Illinois attorney prepare estate planning documents for us. Are these documents valid in California?

Perhaps, but because your documents were signed “several years” ago and some laws vary from state to state, I would suggest you make an appointment with an estate planning attorney to have him review your documents. Better safe than sorry.

I recently signed a California Advance Health Care Directive. What is “HIPPA”?

It is the Health Insurance Portability and Accountability Act of 1996, 42 U.S.C. 1320d and 45 CFR 160-164, which protects individually identifiable health information and medical records regarding any past, present, or future medical or mental health condition.

What is a “Spendthrift Clause”?

This is a provision that is written into a trust that prevents a future beneficiary from alienating (selling) their interest in a trust, usually for less than it is actually worth. It also keeps a creditor from being able to reach the beneficiary’s interest while it is held in the trust.

My friend has asked me to act as the Trustee of the Special Needs Trust they set up for their daughter. Will I be entitled to a fee for my services?

Usually, if a person is named as the Trustee, they are entitled to a reasonable fee based on the time and effort spent on behalf of the trust. However, being a Trustee (fiduciary) is a big responsibility, so I recommend that before you accept, you thoroughly review the trust provisions so you know exactly what will be expected of you.

I would like to maintain a bank account in my sole name even though I have a trust. Is there a limit as to how much I can keep in the account without risking a probate?

If you complete a beneficiary designation form with your bank for the account, the named beneficiary will inherit the account. If the account is a joint account with right of survivor, the survivor will inherit the account. If you want the account in your sole name and at your death transferred to your trust, pursuant to California Probate Code Section 13101 your Trustee can use an Affidavit for Transfer of Title Without Probate if the gross value of the real and personal property in this state outside your trust does not exceed $150,000.

I recently had a consultation with an estate planning attorney and he asked for my financial information. Is this really necessary?

Yes. Your financial situation has a lot to do with what type of trust you will need. If your estate is valued at less than the current Federal Estate Tax Exemption, you should do a probate avoidance type trust for small estates, and if more than the Exemption, you should do a trust used for larger estates with tax planning.

My husband and I really don’t have much – a small savings account and checking account, and we do own our home. Everything we have is held in joint tenancy. It seems like a waste of money to do a will and a trust.

I am sure you are thinking that if one of you were to die, the other would inherit the assets. But, what would happen if both of you died simultaneously, or the other was or became incapacitated or incompetent? Planning for the future is always worth the monetary investment.

Can I and my domestic partner do a revocable living trust?

Absolutely. You can do a joint trust or separate property trust. If you decide to do a joint trust, make sure you hire an experienced estate planning attorney to draft the trust for you. It would be a good idea to file a Domestic Partnership Registration (California Family Code Section 297).

What is a holistic will?

A will that has been entirely handwritten and signed by the “testator,” and may or may not be witnessed. California does recognize holographic wills made within the State. However, if not properly witnessed, it will have to meet minimal requirements in order to be probated. So, if you are writing a holistic will, be sure it is signed by witnesses attesting to the validity of your signature and intent.

My son who is eighteen years old and a freshman in college has inherited a sizable estate which includes several parcels of real property. Should he do a trust before he actually receives the assets?

First of all, congratulations to your son! I recommend having a trust and pour-over will executed, and account(s) opened in the name of the trust so that when the assets are transferred to your son in his sole name, he can immediately transfer title to his trust. Never too young to start planning for the future.