Estate planning is the process of putting an individual’s personal and financial affairs in order. The goals of estate planning are: (1) to maximize enjoyment of an individual’s estate during his or her lifetime; and (2) to maximize beneficiaries’ enjoyment of the estate after the individual’s death.
"Probate" refers to the entire court process of administration of a deceased person’s estate. This process involves “proving” a deceased person’s will, naming a personal representative, collecting and distributing assets, notifying and dealing with creditors, and handling any expenses and taxes. Probate is required if the value of a deceased person’s assets, which pass to someone other than their spouse, exceed $150,000 (although certain exceptions do apply). Individuals often wish to avoid probate because it is a slow and expensive process. In fact, the minimum period for a probate is 6 months! As opposed to other states, California sets probate fees for the attorney and executor according to a percentage of the gross estate. Therefore, these fees can be very high, particularly if the probate estate consists of real estate. Another benefit of avoiding probate is to maintain privacy. Because probate proceedings are a public record, details of a deceased person’s debts, finances, and gifts to heirs are discoverable by the public.
No. A will has no impact on whether a probate proceeding is required.
A revocable living trust is a legal relationship whereby a “settlor” directs a “trustee” to manage and distribute property for a named “beneficiary.” While the trust is still revocable, the same person often occupies all three roles. After a person’s death, these roles may change. For example, John could transfer his home to himself as trustee, to be managed by himself for his benefit during his lifetime. At his death, the role of trustee transfers to his son, who then follows the instructions in the trust instrument for management and distribution if the home. The trust instrument is often referred to as a “declaration” or “agreement.” Revocable trusts can be useful for avoiding probate, incapacity planning, and providing for a coordinated approach to the management and distribution of an individual’s estate.
Proper estate planning requires an initial investment in lawyers’ fees, in addition to the time needed to collect information and meet with your lawyer. The return on this “investment” may be substantial. We recently calculated that the savings (from probate fees alone) for preparing the estate plan of a $1 million gross estate resulted in at least a 920% return. At this rate of return, making an “investment” in proper estate planning should be a no-brainer!
Estate and gift taxes may be assessed on the transfer of certain assets at death or during one's lifetime. Most people are not affected by estate and gift taxes. However, laws regarding estate and gift taxes frequently change. As such, we recommend discussing your particular situation with an estate planning, trust, and probate law specialist.
We don’t recommend it, because the cost of improper planning is often higher than not planning at all. A few inadvertent errors we have come across include: accidental re-assessment of real estate, resulting in higher property taxes; failure to integrate non-probate assets with the estate plan; unfunded trusts, resulting in unnecessary probate proceedings; and outdated or inappropriate estate tax planning techniques. Because the risks of “do-it-yourself” forms and kits are so high, we cannot recommend this approach.
Like a revocable trust, an irrevocable trust involves transfer of property to a trustee, who is directed to administer and ultimately distribute the property to a beneficiary named in the trust instrument. Unlike a revocable trust, transfers to an irrevocable trust have immediate consequences regarding the ownership of the property, as well as income and transfer tax. Individuals execute irrevocable trusts for a variety of reasons. These reasons include: reducing the size of an individual’s estate; removing appreciation from the estate; leveraging the annual gift tax exclusion and generation-skipping transfer tax exemption; making taxable gifts; asset protection; and deferring gifts until a future date.
Yes. Transfer tax laws are different for non-US Citizens and individuals who are not domiciled in the United States. In addition, these individuals often have property, family, and friends in multiple jurisdictions. As a result, different strategies are used to minimize transfer taxes, plan for guardianship of children, and keep assets in the family.
Family business entities are usually the best means to hold and operate a family enterprise. The benefits of using a business entity include: limited liability; asset protection; and coordinated management. Moreover, operating through family business entities may have certain estate planning advantages.
A corporation is taxed under IRC subchapter C unless it elects to be taxed as an S corporation. C corporations are taxed at both the entity and the shareholder level, while S corporations are taxed only at the shareholder level (for federal income tax purposes). There are several other important differences: for instance, an S corporation may only have 100 shareholders, including only individuals who are US Citizens or residents. Moreover, only qualified trusts may be shareholders of an S corporation. Sometimes, an S corporation can inadvertently lose its S corporation status, resulting in unanticipated costs.
An LLC is the newest form of business entity available in California. It is essentially a hybrid of a corporation and a partnership, allowing business owners to enjoy pass through taxation, limited liability, and a high degree of structural flexibility. An LLC can be structured to operate like a sole proprietorship, partnership, corporation, or some combination of all of these.
A buy-sell agreement is a legal arrangement that provides for the transition of an interest in a business upon the occurrence of a pre-determined event, such as death, retirement, disability, divorce, or bankruptcy. Buy-sell agreements can help ensure continuity in a family-owned business, and provide liquidity upon a buy-out o an owner’s interest.
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