Frequently Asked Questions

Here are answers to some questions frequently asked regarding trusts and estates matters.

What is an estate plan?
An estate plan is a set of documents which provide written instructions regarding: (1) how your assets are to be managed and distributed during your lifetime and upon your death, (2) how your minor children are to be cared for if you should die or become incapacitated, (3) how you are to be cared for and who should act on your behalf if you ever become mentally incapacitated and (4) how to address end-of-life decisions, such as whether to be kept alive on life support machines, disposition of bodily remains (burial vs. cremation), and organ donation. Typical documents prepared for an estate plan include: a revocable living trust, a Will, a durable power of attorney for asset management, a nomination of conservators, a nomination of guardians for minor children, an advance health care directive and an irrevocable insurance trust. A good, well thought out estate plan will provide you with both financial and personal benefits. It should serve to preserve your assets and their growth both while you are alive and for your loved ones after your death. The estate plan should also include a strategy to minimize tax liabilities at death.

Why do I need an estate plan?
There are many reasons why you may need an estate plan. The following are some typical reasons why people decide to create an estate plan:

  • Tax Planning. Many people are motivated to create an estate plan in order to reduce or minimize the amount of estate taxes that will be due upon their deaths. Through tax planning, all or a portion of the money that would have been paid to the government for taxes may now be paid to family members, loved ones or charities.
  • Avoiding Probate. Avoiding probate is one of the most common reasons for creating an estate plan. Many people have heard horror stories about the expense and the duration of a probate court proceeding and wish to avoid it at all costs. By creating an estate plan, a probate court proceeding during life (i.e., a conservatorship proceeding) and at death may be easily avoided.
  • Protecting Beneficiaries. A properly drafted estate plan may provide for the protection of (1) minor beneficiaries and (2) adult beneficiaries who are vulnerable to bad decisions, outside influences, claims of a divorcing spouse and creditors. You may prevent family hostilities and significant legal expenses by designating a guardian and a trustee for your minor beneficiaries. For an adult beneficiary who is unable to properly manage finances or who has a domineering spouse or partner who you believe will spend the beneficiary’s inheritance or claim it in a divorce proceeding, you can develop an estate plan that will protect the beneficiary from himself or herself and others.
  • Protecting Beneficiaries from Creditors. Asset protection has become an important reason for people to prepare an estate plan. However, once you know or suspect that a lawsuit will be filed against you, it is too late to do any asset protection planning. It is important to consider this type of planning before it is needed. You can provide asset protection for your spouse through the use of AB trusts or ABC trusts and your other beneficiaries through the use of lifetime trusts.
  • Avoiding or Minimizing Family Disputes. Many people decide to prepare an estate plan in order to clearly define their wishes, including: (1) how their assets should be distributed, (2) who should receive their assets, (3) who is in charge of managing their assets, (4) who is in charge of taking care of minor children and (5) who is in charge of making health care decisions for them when they are not able to do so. If these wishes are not properly expressed in a person’s estate plan, a legal dispute could arise among a person’s family members to clarify your unstated wishes. Preparing an estate plan will avoid or minimize family disputes on these issues.
What is the difference between a Will and a revocable living trust?
A Will is a testamentary document that becomes operative upon your death when it is admitted to Court for probate. Once a petition is filed with the Court to probate a Will, it may take approximately two to three months (in the Los Angeles Superior Court) to obtain a hearing date to have the Will admitted to probate and to have a personal representative appointed to administer the estate. In a probate court proceeding, the information contained in the Will and the information about the deceased person’s assets become a matter of public record. The administration of the probate estate is overseen by a Judge. The probate court proceeding can last anywhere from eight months to two years before all of the decedent’s assets are ultimately distributed to the beneficiaries named in the Will.
Unlike a Will, a revocable living trust becomes operative immediately when the “Settlor,” “Trustor,” or “Grantor” (all names for the creator of the trust) and the “Trustee” (the legal title holder of the trust’s assets who manages the assets) sign the trust document. The Settlor and the Trustee may be the same person. The Trustee is in charge of managing the trust’s assets for the Settlor’s benefit during his or her lifetime and for the benefit of the trust beneficiaries after the Settlor’s death. The revocable living trust is a private document, so the names of the beneficiaries listed in the trust, the gifts to those persons listed in the trust and the Settlor’s assets do not become public record and the Settlor’s privacy is maintained. If the Trustee of the trust becomes incapacitated, the successor Trustee named in the trust document may immediately assume the trusteeship so that there is continuity in asset management.

Do I need a Will if I have a revocable living trust?
It is a good idea to have a Will even if you have a revocable living trust. If all of the Settlor’s assets are held in the revocable living trust upon the Settlor’s death, no probate will be required for those assets. However, if the Settlor owned assets in his or her individual name at the time of his or her death (rather than in the name of the trust), there may be a probate court proceeding with respect to those assets to the extent that they are collectively worth more than $150,000. For this reason, when preparing an estate plan using a revocable living trust, a Will is also prepared in order to address the administration of the assets that have not transferred to you trust at the time of your death.

Does a revocable living trust protect my assets from creditors?
A revocable living trust does not protect your assets from creditors. However, trusts created for your beneficiaries under the revocable living trust document may be drafted in a manner to protect your beneficiaries from their creditors.

What is probate?
Probate is a court proceeding where the deceased person’s (the "decedent") Will is proved to be valid. Once the decedent’s Will is admitted to probate, the Court appoints a personal representative (usually the person named in the Will) to administer the decedent’s assets, collectively called the "estate." The estate administration process includes collecting and valuing the estate, locating the decedent’s creditors, paying all valid debts, and filing all appropriate tax returns for the deceased person and his or her estate. Upon completion of the administration process, the Judge will issue an order transferring all of the decedent’s assets to the beneficiaries named in the Will and discharge the personal representative from service.
A probate court proceeding may last anywhere from eight months to two years, depending on the size of the estate. There are many fees associated with a probate court proceeding, which include: court filing fees, probate referee appraisal fees, publication fees, bond fees, attorney’s fees and personal representative’s fees. The personal representative’s attorney and the personal representative of the estate are each entitled statutory fees for ordinary services based on the gross value of the estate. The statutory fee for ordinary services for both the personal representative’s attorney and the personal representative is determined based on the gross value of the estate’s assets as following:

  • 4% on the first $100,000
  • 3% on the next $100,000
  • 2% on the next $800,000
  • 1% on the next $9,000,000
  • 0.5% on the next $15,000,000
  • Reasonable amount for assets over $25,000,000

The personal representative’s attorney and the personal representative may also be entitled to "extraordinary fees" for services that are beyond ordinary services such as: litigation, tax work and real estate sales.
A probate is a public proceeding, so the decedent’s assets, income and expenses become a matter of public record.

If I plan my estate to avoid probate, do I also avoid the requirement to pay estate taxes?
Planning your estate to avoid probate does not avoid the requirement to pay estate taxes. Many people confuse the concept of probating an estate with the requirement to pay estate taxes. If your estate exceeds a certain value as of your date of death (reduced by lifetime taxable gifts), estate taxes will be due to the extent that there are no exemptions sheltering the estate from estate taxes.

What is a conservatorship?
When an adult is not able to care for themselves personally and/or financially and there is no other method for delegating these responsibilities to someone else through a revocable living trust, durable power of attorney or advance health care directive, a Court may appoint a person, called a conservator, to take responsibility for the person’s welfare and finances. This Court proceeding is known as a conservatorship. The person subject to the conservatorship is known as the conservatee. The conservatorship restricts the conservatee’s rights over financial and personal care decisions.

What are the disadvantages of a conservatorship?
There are several disadvantages to establishing a conservatorship. Costs associated with establishing a conservatorship are substantial and include: court filing fees, legal fees, investigator’s fees and conservator’s fees. In addition, because a conservatorship is a public proceeding, the conservatee’s assets, income and expenses become a matter of public record. The conservatorship can be a burdensome method of managing the conservatee’s financial affairs. The conservator must petition the court for approval of certain transactions, such as the sale of real property, borrowing money, setting up a trust, etc. In addition, the conservator must file an accounting petition and a report of administration with the court on a regular basis for approval. These formal court hearings require additional attorney’s fees and can create delays in completing these transactions.

What are the advantages of a conservatorship?
Although a court supervised conservatorship matter is more expensive and time consuming than other methods of managing the conservatee’s personal and financial affairs, it does provide a much greater amount of protection to the conservatee than any other method. The court-appointed conservator must file a document with the Court called an inventory which lists all the property owned by the conservatee and must file regular accountings and reports of administration with the Court that reflect all transactions involving the conservatee’s assets. A conservatorship allows for the management of an incapacitated person’s affairs when he or she does not have an alternative mechanism in place to do so. Another advantage to a conservatorship proceeding is that it provides a way to help an incapacitated individual who is unwilling to accept this needed assistance.