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Estate Planning and Trusts
In life, there are obviously some things that we would prefer not to ponder and for most people, the subject we spend the least time considering is our own passing. However, while it is an uncomfortable topic, failing to plan for this inevitable event can result in undesirable consequences for those we love the most.
Regardless of whether you’re young or if you are nearing retirement age, consider for a moment what you envision to be the sum of your life’s work. People toil for many years throughout long careers in order to achieve success and some semblance of financial security. Yet as the old adage states, you cannot take it with you…so, upon your passing, what happens to the assets you’ve worked so hard to attain?
If you’re a resident of San Francisco, Bay Area you will of course be bound to California law and, if you die without a will, your estate is considered “intestate” and your assets are distributed by the probate laws as dictated by the state. In other words, California law will dictate who inherits your estate, and these statutes may not necessarily be in agreement with your personal wishes. Navigating estate law is quite complicated and can cover a variety of scenarios that you may not have previously considered: who can be considered next of kin, stepparents or parents with multiple children with two or more partners, the death of both parents at the same time, etc.
It is therefore important that you have a sufficient estate plan to avoid passing intestate, and reliable legal assistance to help navigate these complicated laws and regulations. Residents of San Francisco, Bay Area who are seeking the services of an estate planning or trust attorney should look no further than AJ Law. Our firm has the experience you need to ensure that your wishes are fulfilled in the unfortunate event of your passing. Let us help provide you and your family with an understanding of how the law dictates asset distribution and offer you peace of mind in knowing that your estate will be managed and distributed according to your wishes. In the meantime, continue reading if you’d like to know more about some of the various characteristics of estate planning.
California has some of the country’s most stringent intestacy laws, and there are thick law volumes dedicated to these minute details that would quickly bore you, so we will just provide a brief overview rather than delve into the finer details. Fundamentally, know that if you were to die without a will, the person that can inherit your estate through state intestacy laws is called the heir at law. Of course, most of us have families that consist of more than one person, so there can be more than one heir at law, however the state determines who receives the estate by how closely related the heir is to the deceased.
Having multiple heirs can complicate intestate asset distribution. Most would prefer their estate go to their spouse or their children, however there are a variety of scenarios that can occur where asset distribution is not so intuitive. For example, if you’re legally separated, the surviving spouse may still be entitled to your assets, regardless of whether or not you’re living together. Similarly, if you’re unmarried, the distribution of your estate follows a sequence that begins with children, then parents, siblings, etc. These scenarios can of course lead to feelings of resentment within the surviving family during what is already a very difficult time. What’s more, California will levy fees against your estate in order to be compensated for the legal costs associated with the probate procedures required for asset distribution. It is therefore important to ensure that you retain an estate planning and trust lawyer.
By now, you’re probably wondering how you can avoid the complications associated with dying in intestacy…the answer: a strong estate plan that includes a will and trust. As you can imagine, this isn’t a task that’s easily undertaken, even for the most accomplished DIYer. The good news is, an estate planning attorney will be able to assist you in creating a solid plan, and if you reside in San Francisco, Bay Area, CA, AJ Law is here to help you.
For now, let us consider the a few of the main subjects that make up estate planning. Namely probate, estate taxes, wills, and trusts.
As discussed earlier, probate is essentially the legal procedure utilized to distribute the assets from an estate to the surviving family members or debtors. The legal costs associated with probate are charged against the estate and the legal proceedings are a matter of public record. Probate generally cannot be avoided entirely, but the value of assets passing through the lengthy and costly probate process can be minimized. For additional details, an estate planning lawyer can assist, but in the meantime, be aware that assets that usually MUST pass through probate are as follows: real estate, personal property, valuables and cash. Also note that there are assets that can subject to probate if a beneficiary isn’t named with transfer on death (TOD) instructions. One way to stipulate TOD instructions is through a valid will.
Estate taxes, or “death tax” is the final government taxation of your assets. When someone passes, the estate can incur taxes from both the Federal Government and the state. Residents of San Francisco, Bay Area would therefore be subject to California’s tax law upon their passing. That said, and while many of us understand that California enforces one of the highest tax rates in the country, this state surprisingly does not have an inheritance tax. However, it’s important to note that other assets such as investments or real estate can be taxed by the state before being inherited by your family. What’s more, Federal estate tax can range from 18% to a whopping 40%. It is therefore of paramount importance to utilize a trust in order to mitigate the tax effects on an estate. We’ll discuss more on trusts in a moment.
Last Will and Testament
A will generally includes at least four basic yet important considerations:
- Stipulates who will act as the legal guardians for any surviving minor children.
- Designates beneficiaries for any assets that aren’t already determined, as in the case of life insurance policies, etc.
- Outlines specific instructions that cover when the beneficiaries will receive the assets and how they are to be distributed.
- Names an executor of the estate, which is the person who is legally permitted to carry out the tenets of the will.
Naming the beneficiary for an asset will not only ensure that it goes to the person(s) you desire, but as stated previously, it can also help the asset avoid probate court and the associated costs. For example, brokerage accounts and IRA’s allow for the naming of a beneficiary, so be sure that you have this information in place. Of course, if there are any questions regarding this are of your estate plan, contact us at AJ Law and we’re happy to help.
Another vehicle for preserving an estate and ensuring that your assets are passed to the appropriate individual(s) is a trust. Trusts essentially allow a trustee, or third party, to hold and manage the assets of your estate. One of the greatest benefits of a trust is that it usually avoids probate, which means your beneficiaries can be granted access to your estate much faster and potentially avoid the fees that would otherwise be incurred. Trusts can also help minimize estate taxes.
Trusts are complicated and there are many types to consider, so an estate planning or trust attorney is important in selecting the appropriate trust for your needs. Yet in the simplest terms, there are two basic kinds of trusts: revocable and irrevocable.
- Revocable Trust – A revocable (or living) trust allows you to control your assets during your lifetime while retaining the benefit of avoiding probate. The grantor (you in this case) would typically name themselves as the trustee, but also take the opportunity to name a successor that can manage the assets upon your passing. This flexibility does come at a cost, however, as the assets can be subject to estate taxes. Nonetheless, the revocable trust can help most of your assets avoid probate. Note that this type of trust typically becomes irrevocable upon your passing.
- Irrevocable Trust – An irrevocable trust has some of the same features and benefits of a revocable trust in that it helps protect your assets from probate. The key differences are that the grantor (again, you or the person who’s assets the trust encompasses) forfeits control of the assets, the terms of the trust cannot be changed, and once implemented, the trust cannot be dissolved. While this may sound like a disadvantage, the irrevocable trust is more effective at mitigating estate taxes and the general tax liability of income-generating assets.
For residents of San Francisco, Bay Area, here are the key reasons you may wish to seek the assistance of a trust lawyer at AJ Law to help you set up a trust:
If you have a loved one with special needs, you can assist them prior to your passing with a special needs trust that can provide financial assistance following your death. It’s a great way to see to the needs of a family member that requires exclusive and unique care.
If you were to suffer an accident or health condition that left you incapacitated, a trust can offer special instructions as to how to manage your affairs. It’s important to mention that this feature only applies to assets transferred to a revocable trust during your lifetime.
Any assets your heirs inherit can be subject to garnishment by the heirs’ creditors, however a trust can help protect your assets from this scenario. What’s more, trusts can apply stipulations that protect your estate from being managed irresponsibly, as in the case of an heir that is a minor, for example.
The finances inherited via a life insurance death benefit are usually considered part of the estate when determining estate taxes. A way to avoid this is to generate an irrevocable life insurance trust. There are certain limitations with this strategy, however a trust attorney in San Francisco, Bay Area, CA such as AJ Law can educate you on the particulars.
New tax laws dictate that stretch IRA’s are no longer allowed. As a result, an IRA must be distributed within ten years. If your IRA is large enough, this may pose a problem. For example, the sum of cash distributed within this timeframe may be so large that your heirs find it difficult to manage. Therefore, you may wish to leave these assets in a trust.
Control of Assets
As stated previously, a trust offers control over distributions. This applies not only to who receives the distributions, but also when the distributions occur. This feature is especially critical in cases where there are multiple surviving spouses or children.
Estate or Inheritance Tax
Generally, residents of California are not subject to state inheritance tax, however they can be subject to Federal Estate tax. Relying on a trust attorney in conjunction with the services of a qualified CPA can help mitigate these taxes and pass along a greater portion of your estate to your heirs.
Some grantors may choose to donate a portion of their estate to a charity. An effective way to do this is through a charitable trust.
Some assets will have to pass through probate upon your passing, but you can minimize this lengthy and expensive process with a trust. What’s more, because probate proceedings are a matter of public record, a trust can maintain the privacy of your estate, and in turn, your heirs’ inheritance.
You can Count on us for Your Estate Planning needs in San Francisco, Bay Area
As you can see, estate laws can be extremely complicated and difficult to navigate. It is therefore recommended that you establish a strong estate plan and utilize the skills of a trust attorney. For residents of San Francisco, Bay Area the team at AJ Law is well-equipped to assist you with providing the necessary advice and drafting a plan looks after the best interests of you and your family.
We hope that you’ve found this information beneficial. Remember, the future is unknown, so don’t delay in creating a plan that takes care of the ones you love the most and gives you peace of mind. Contact us today to set up a brief consultation to see how we can assist you with your estate planning and trust needs in San Francisco, Bay Area.