Wills and Trusts
LAST WILL AND TESTAMENT
A Will is a legal instrument to provide for a person's chosen beneficiaries. After the death of the person who created the Will, a probate court Judge examines the Will and determines the validity of it. If it is valid the Judge orders the property to be distributed according to the Will. This is called a Probate proceeding. In California, the legislature ordered mandatory attorney fees for Probate proceedings. An estate with a gross value of $1 Million in the probate estate, will produce a $23,000 fee for the Attorney. There are also court filing fees and appraiser fees. The Probate process takes about 9-12 months and is quite expensive. A Trust is a generally a more efficient estate planning tool.
Despite the efficiency of a Trust, each estate plan includes a Will. A Will nominates an executor who files your last tax return after you pass. If you have minor children, a Will is the document in which you name a Guardian for your children. A Guardian is important if both of the legal parents of a child die before the child reaches age eighteen and a Court must decide who will serve as the legal guardian of the child. The Will is where the parents are able to indicate their preference for who will serve as a Guardian when the Court decides the matter.
REVOCABLE LIVING TRUST
A Revocable Living Trust is a Will-substitute, and just like a Will, a person can change the terms of the Trust at any point during life. It does not become irrevocable until after the person dies. It allows for a person to provide for beneficiaries without having the Probate Court oversee the provision of your assets to the named beneficiaries and there are no statutory Attorney fees. This can save a lot of money, but it must be thoughtfully prepared as the Court does not oversee the process.
An irrevocable trust comes in many shapes and sizes, the primary purpose is to reduce the taxable estate of an individual. The current estate tax is 40% and is levied against all property owned by a decedent that exceeds the federal exemption amount (2024 $13.61 M per person). If an individual owns more, or expects to own more than the federal exemption, then gifting to an irrevocable trust can be a tax efficient method to reduce estate tax. The grantor, the person funding the irrevocable trust, will make a gift to the trust and the growth in value of the asset gifted is no longer in the estate of the grantor. Gifts of stock in companies that have not yet gone public or are expected to grow exponentially in value, can prove very efficient in minimizing taxes for the next generation. The type of irrevocable trust and the property to gift is a decision that is best to discuss with the client's CPA, attorney, and financial advisor. A gift is irrevocable, so it does require considerable thought prior to making the gift. A team approach with a client's advisors is generally the best path to finding a solution for a client.
When a person passes away, the person's revocable living trust becomes irrevocable and a new trustee must step in to manage and distribute the assets according to the terms of the trust. It is best practice for a trustee to hire an accountant to prepare and file final tax returns and to hire an attorney to protect the trustee from breaching his or her fiduciary duty. If there are bank accounts or real estate, the assets must be transferred over to the name of the beneficiary. Our firm can help the successor trustee with the checklist of steps to take to handle the final affairs of the deceased family member and transfer the property to the beneficiaries.