Who needs estate planning?
Everyone. Whatever the size of your assets, everyone needs to designate a friend or family member who will take over the management of your assets and your personal care if you become incapacitated, including the task of making health care and end-of-life decisions on your behalf. In the absence of an estate plan, California law takes over the task of appointing and supervising someone of the court’s choosing to manage your personal care and assets. The State will also decide for you how your assets will be distributed after your death, if you have not prepared an estate plan of your own.
Working with an attorney to prepare your estate plan and put your affairs in order is the only way to obtain the peace of mind that comes with knowing your hard-earned assets will be smoothly and efficiently handled according to your wishes for the protection of your family.
For more information, please see “Do I Need Estate Planning?”, a useful pamphlet published by the State Bar of California.
Can my heirs avoid the costs of Probate Court if I use a living trust instead of a regular will?
Yes. Passing your assets to your beneficiaries through a living trust rather than under a regular will can result in substantial savings. For example, just to leave a $400,000 home (even with a large mortgage) to your beneficiaries, the Probate and Executor fees set by California law would be over $22,000. A living trust allows you to protect your assets from both the hassle and cost of going through the Probate Court.
I’ve heard that life insurance proceeds and other assets that pass on death to beneficiaries are “tax free”. Is this true?
That is partly true, but not the whole story. Most assets pass to your beneficiaries without incurring income tax (except for pre-tax retirement accounts), but all assets passing on death are subject to another tax system: the Estate Tax (also called the “death tax”). In essence, the Estate Tax is a tax on the “privilege” of leaving your hard-earned wealth to your family or other beneficiaries. Although the Estate Tax law allows a certain amount to pass to your heirs without paying death taxes, in the absence of an estate plan the rest of your assets can be subject to death taxes at a very high rate – currently 46%. And, starting in 2011, estate assets may be taxed at rates as high as 60%!
Can Estate Taxes be avoided?
Careful estate planning can postpone, reduce, and in many cases totally eliminate federal Estate Taxes. Working with an attorney, your estate plan documents can take full advantage of a variety of tax-planning strategies to protect both your family and your hard-earned assets. For example, under the Estate Tax rates applicable in 2007 and 2008, a married couple with a good estate plan can significantly reduce their Estate Tax liability, saving their family up to $920,000 in death taxes!
Why do I need a Durable Power of Attorney?
If you become injured, ill or otherwise unable to handle your affairs, but you are still alive, someone will have to handle your tax returns, Social Security and other benefits, retirement plans… and many other financial affairs for you. Without an estate plan, burdensome and costly court proceedings are needed to appoint and supervise a conservator for you. With a Durable Power of Attorney, you decide in advance who will have the authority to act on your behalf, eliminating the need for a conservator and court proceedings.
What is an Advance Health Care Directive?
An Advance Health Care Directive is a type of power of attorney that pertains to your medical decisions. By putting your medical, end-of-life and other wishes into writing, you can save your family from the conflict and uncertainty that comes with these difficult choices. In your Directive, you designate one or more persons who will have the authority to carry out your instructions on your behalf if you become seriously ill or injured and cannot communicate for yourself.
What happens to my young children if I pass away without an estate plan?
Without an estate plan, the courts can take legal custody of your minor children upon your death. Legal fights may ensue between your family members over who will raise the children. Or, your kids can end up in a foster home until a judge appoints a guardian for them. With an estate plan, you designate the person(s) of your choice to continue raising your children. You can also decide that, while one person may be best suited to raise your children in your absence, another person is better suited to manage the financial affairs of your estate and provide for the children’s expenses, such as health care and education.
How much does an attorney-prepared estate plan cost?
A good estate plan is never one-size-fits-all. Because each client’s situation is unique, the time and expense of preparing a proper estate plan depends on the simplicity or complexity of the client’s wishes, family relationships, types of assets, and many other factors.
After the initial consultation, the attorney can estimate how much time will be needed to prepare the estate plan documents, billed at an hourly rate. For clients who prefer a fixed-price approach, in many cases the attorney can offer the client a “flat rate” to cover the entire project.
I see living trusts advertised at cheap rates, or even “free” if I attend a seminar. Is it too good to be true?
Yes. Dishonest sales agents are known to offer cut-rate – or even free – living trust seminars to lure in consumers so they can attempt to sell questionable and unnecessary insurance, annuities, and other financial products. The elderly are increasingly at risk of falling prey to these “trust scams.” The Federal Trade Commission offers a brochure containing helpful tips on how to avoid trust scams, "Living Trust Offers: How To Make Sure They're Trust-Worthy".
According to the California Attorney General: “Living trust scams, or living trust mills, are a growing area of senior financial abuse. Con artists make millions of dollars every year selling unnecessary trusts and annuities to seniors. Often, seniors pay substantial sums of money to sales agents for living trust mills. Through fraud and deceit, the sales agents damage seniors’ estate plans and the security of their investments and life savings. Often these scam operators visit assisted living centers, churches and other places where seniors gather, hooking seniors through free seminars and other sales presentations.”
“To avoid becoming a victim of a living trust scam, remember that living trust mill sales agents are not attorneys and are not experts in estate planning. Watch out for companies that sell trusts and also try to sell annuities or other investments at the same time. An attorney qualified in estate planning can help you decide if you need a living trust or other estate planning documents, or help review an existing trust or will. Planning an estate and choosing investments involve important legal, financial and personal decisions. Consult with people you know and trust, such as your financial or tax advisor, your attorney, and trusted family members.”
-- From: “The Financial Abuse of Seniors: Face It. It’s a Crime!”, California Attorney General’s Office, Pp. 25-26.
See also: Attorney General Lockyer Warns Seniors about "Living Trust Mills" and Annuity Scams
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