Probate/Estate Planning & Trust Administration Q&A's
How Can I Change My Will?
A valid will is effective until it is changed, revoke, destroyed or invalidated by the writing of a new will. Changes or additions to an otherwise valid Will can most easily be accomplished by means of a codicil. A codicil is a document amending the original will. Therefore, a codicil must be executed in compliance with the same formalities required by law for the original will. A will cannot be changed or modified simply by crossing out existing language or by adding new provisions. These changes do not comply with the formal requirements for the signing or execution of a will.
As long as the testator is mentally competent, he or she can revoke an entire existing will without replacing it. A testator can revoke your will by intentionally destroying, obliterating, burning, or tearing the will.
If the testator wants to determine how his property will be distributed upon his or her death, the testator should not simply revoke a will, but should replace it with a new will executed with the formalities required under California law.
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What is a living trust?
A living trust is a trust which is created during the lifetime of the person establishing the trust. The term “living trust” has also come to designated a specific type of trust.
The specific type of trust referred to as a Living Trusts (also called a Revocable Living Trust or Inter-Vivos Trust) is a document that expresses the wishes of the settlor (the person creating the trust) regarding the management and distribution of the assets placed in the trust. The settlor during his or her lifetime can revoke the trust. After the death of the settlor, the living trust becomes irrevocable and the assets are distributed according to the directions given by the settlor in the trust instrument.
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Why Should I Create a Living Trust?
A living trust is a legal arrangement whereby you transfer title to assets to a third-party (the trustee) while you still maintain control and enjoyment of the benefits of the property. A living trust can avoid the cost and time associated with the probate process upon your passing. Also, the trustee of your living trust can manage the trust assets should you become mentally or physically incapacitated. This avoids the necessity of having a conservatorship established by the court to manage your financial matters. For a married couple, a living trust can avoid or minimize the federal estate tax.
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What Are the Advantages of a Living Trust?
A living trust allows the person establishing the trust (known as the settlor, grantor, or trustor) to determine who receives the property, when they receive the property, and what conditions must be met in order to receive the property. A conspicuous advantage of a living trust is the avoidance of the probate process upon the death of the settlor. Because there is no probate, the survivors do not have to reveal the extent of the assets in the living trust by any public filing as required in probate. If the settlor holds real estate in more than one state, a living trust owning that property may allow the survivors to avoid probate in those states. Also, a living trust can help a settlor manage his or her financial affairs because a successor trustee takes over the administration of the trust assets when the settlor (assuming the settlor is the original trustee) no longer wishes to be bothered with the administration of the trust. A person may be particularly concerned about how his or her financial matters will be managed if he or she should fall ill. A living trust may provide peace of mind because the successor trustee will continue to manage the trust assets in the event the settlor becomes mentally or physically incapacitated.
Also, for a married couple a living trust may be structured to avoid or minimize any federal estate tax that may be due upon the passing of either spouse.
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What are the disadvantages of a Living Trust?
The primary disadvantage of a living trust is that the settlor (the person who establishes the trust) loses some flexibility and control over his or her property. This occurs because a living trust becomes effective upon creation rather than upon the death of the settlor, that is, upon the creation of the trust the trustee commences the administration of the assets placed in the trust.
Also, the initial expense of creating a living trust may exceed that of simply creating a will. However, usually the costs in administering and distributing the property in the living trust is less than the cost of probate and more than off-set the initial expenses in setting up the living trust.
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How Does Community Property Affect Estate Planning?
The concept of community property is used to determine the ownership of property for married individuals. Under the community property concept as applied in California, all property acquired by a married individual during the marriage is classified as community property, except for gifts or inheritances received by a spouse. These are classified as separate property. Also, classified as separate property is any property a spouse owned prior to the marriage. The classification of property as community or separate does not depend upon the form of title in which the property is held. Each spouse is considered to own one-half of the community property regardless of his or her contribution to the marital assets. Neither spouse can sell or give away part of the community property during the marriage unless the other spouse agrees. Each spouse can dispose of their own separate property and one half of the community property as they wish. The concept of community property resents no difficulty when both spouses are in agreement upon the plan of distribution for the marital assets.
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How is property distribution when an unmarried person dies without a will?
When a single person dies without a will or trust they are said to die “intestate.” In such a situation the State of California has prepared a plan of distribution for you. This plan is referred to as “intestate secession.”
Under intestate succession the basic plan of distribution is as follows:
- To the children of the decedent in equal shares. If a child is deceased but survived by his or her child (grandchild), then the share of the deceased child is distributed to the grandchildren.
- If there is no surviving descendent or issue (child, grandchild, great-grandchild, etc.) of the decedent, then the estate passes to the parents of the decedent in equal shares;
- If the decedent has no surviving issue or surviving parent, then the estate is distributed to the “issue of the parents.” This means the estate is distributed to the brothers and sisters of the decedent.
- If there is no surviving issue, parent or issue of a parent, then the estate is distributed to any surviving grandparent of the decedent in equal shares.
- If there is no surviving grandparent, the estate is goes to the surviving issue of the grandparents. These are the decedent’s aunts and uncles, or if there are no aunts and uncles, then the decedent’ s cousins receive the estate.
- The issue (descendants) of a deceased spouse may receive the distribution of the estate if there is no surviving issue, parent or issue of a parent, grandparent or issue of a grandparent.
- The next of kin (usually distant cousins) may receive the estate if none of the above survive the decedent.
- If there are no surviving next of kin and no surviving issue of a predeceased spouse, but there is a surviving parent or parents of a predeceased spouse or issue of those parents, then the estate is distributed to those parents or the issue of those parents.
- Finally, if none of the above survive the decedent, the estate goes (escheats) to the State of California.
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How is property distributed when a married person dies without a will?
The distribution of the estate of a married person who dies without a will or trust depends upon whether the property is classified as community property or assets separate property.
- The decedent’s community property passes to the surviving spouse.
- The separate property of the decedent is distribute it as follows:
a. All of the separate property goes to the surviving spouse if the decedent did not leave any surviving issue, parent, brother, sister or issue of the deceased brother or sister;
b. The surviving spouse receives one half of the decedent’s separate property if the decedent leaves:
- A child or the issue of a deceased child;
-A parent or the issue of a parent (brother or sister).
c. The surviving spouse receives one third of the separate property when:
-The decedent leaves more than one child;
-The decedent leaves one child and the issue of one or more deceased children;
-The decedent leaves the issue of two or more deceased children.
d. The balance of the separate property of a decedent is distributed as provided for an unmarried person.
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What should I consider when choosing a trustee?
The choice of a trustee is extremely important. The trustee owes to the beneficiaries a fiduciary duty to act in their best interest and usually receives compensation for trust management activities. You may want to choose a family member or close friend due to your personal confidence in that individual or you may prefer a professional trustee institution because of the expertise of the staff. You should consider the burden imposed by the administration of the trust, the compensation required by the trustee, and the particular needs of your trust. If a trustee is not specified in your trust document, then a court will appoint one.
A trustee can be any person or institution, possessing trust powers, capable of taking legal title to property.
It is not necessary to notify the trustee prior to naming them in a trust, but a trustee may decline his or her appointment. Therefore, you should choose someone who is willing to take on the required responsibilities. It is advisable to choose an alternative trustee in event your original choice is unable or unwilling to accept the trust obligations. An alternative trustee is also a good idea in case a trustee resigns or is removed by court action.
You may choose multiple or co-trustees for the management of your trust. Co-trustees must act unanimously unless the trust expressly provides otherwise. The appointment of co-trustees can make the management of a trust more challenging and expensive.
You should avoid any possible conflicts of interest when choosing a trustee. The trustee’s fiduciary responsibilities prohibit actions not in the best interests of the beneficiary or beneficiaries under the terms of the trust.
In a living trust you may name yourself as trustee during your lifetime. Also, you may name one of the beneficiaries of the trust as a trustee. However, the same person cannot be named as sole trustee and sole beneficiary. This arrangement merges the legal ownership of the property with the benefits or the property as in the ordinary outright ownership of property.
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What are the fiduciary responsibilities of a trustee?
The trustee has several major duties:
Loyalty: The greatest duty is for the trustee to be loyal to the beneficiaries. The trustee must administer the trust solely for the benefit of the beneficiaries, and provide full disclosure of his or her dealings. The trustee must deal fairly with the beneficiaries, and not manage the trust to profit his or her own financial interests (i.e., by buying stock in a company the trustee owns).
Administration: The trustee has a positive obligation to do what is necessary for the good of the trust.
Productivity: If the purpose of the trust is to maximize assets over time, the trustee owes a duty to make productive investments.
Earmark: The trustee must keep trust assets separate from all other assets, including those of the trustee, and must clearly identify those assets belonging to the trust in all dealings.
Account: The trustee must provide financial statements regarding the state of the trust.
Nondelegation: Because the trustee holds legal title, only the trustee may manage the trust.
Diversification: If the trust becomes involves investment of assets, the trustee must diversify the trust’s holdings is a prudent investor would do with his or her own money.
Impartiality: The trustee must act for the benefit of the trust as a whole, and not favor the interests of one beneficiary of what those of another beneficiary.
Liability: If a trustee breaches his or her duties under the trust, the beneficiaries may sue him or her for any damages to their interests.
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What are some other estate planning techniques?
Some other estate planning techniques are:
- Qualified Terminal Interest Property Trust (QTIP)
- Annuity Trusts
- Irrevocable Life Insurance Trust
- Special Needs Trust
- Section 529 Plans
- Conservation Easement
- Family Limited Partnership
- Limited Liability Corporation
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Disclaimer
This publication and the information included in it are not intended to serve as a substitute for consultation with an attorney. Specific legal issues, concerns and conditions always require the advice of appropriate legal professionals.
Ready to learn more?
Please contact The Law Offices of James L. Evertts in San Jose, California to schedule your confidential, no-cost consultation. We will analyze your needs and goals, then outline, design and implement a plan to cost-effectively meet those goals with minimal paperwork and bureaucracy. |
