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Many of my clients often ask me how often they should check on their estate plan. I used to recommend every 5 years. Then I realized that, for most people, not much changes every 5 years. Then I used to recommend every 10 years. However, that seemed to be too long. Now I tend to recommend at least every 7 years.
Just like anything in life, circumstances change. Therefore, I tell clients to take a look at their estate plan every 7 years or sooner if there are any major life changes. Also, I definitely recommend revisiting the plan if they wish to make any significant changes such as choosing different trustees, changing their executives, choosing different agents for power of attorney, etc. Most people go to their doctor regularly for a physical exam. Some people go every year and some people go every other year. Of course, some people never go. I tell clients that reviewing their legal documents is very similar to reviewing their physical health. If you have a physical examination and everything checks out, that doesn't mean you should never go for another medical physical examination. Every couple of years or so, you should go to your doctor to check on your overall health. The same goes for your "legal health" - you want to make sure your legal house is in order every few years. One thing I have found is that certain legal documents sometimes get "stale." That is not to say they are not legal. So while a living trust and/or a will can last for many many years without any problem, I have found, as a practical matter, that some places will start to give my clients a hard time if they present a power of attorney or any health care documents that are more than 10 years old. They will often be asked, "Do you have anything newer than this?" As such, at the very least, I think you should renew your durable power of attorney and health care documents every 7 years or so. Those are some general guidelines that I provide to my clients. I hope you found this helpful.  A few years ago, I created the above graphic to help illustrate to clients how their assets will pass once they create a living trust. Basically, I explain that every asset they have will pass through one of the two funnels. Like animals at the zoo, we don't put all of the animals in the same cage.
Some clients make the mistake of believing that all of their assets are controlled by their living trust (simply because they created a living trust). A living trust has no magical properties that control your assets. A living trust only controls assets that are actually titled in the name of the living trust. That being said, not every asset you have will be in the name of the living trust...only certain assets. If you take a look at the above graphic, you will notice that real estate, bank accounts, regular investment accounts, certificates of deposit, credit union accounts, and savings bonds need to be titled in the name of the living trust. There may be other assets as well but these are the big ones. What does it mean to "title" the asset in the name of your trust. That means your asset will no longer simply have your name on it. For example, your bank account or real estate won't simply say "John Smith" on it. It will say "John Smith Living Trust" instead. You will also notice the graphic indicates you must change title to the assets for them to be considered "in your trust." However, the graphic also indicates that certain assets will pass through the "beneficiary" funnel. These are basically retirement type accounts and life insurance policies. This would include individual retirement accounts (IRAs), 401k, 403b, other retirement accounts, pension benefits, annuities, health savings accounts, and life insurance. These type of assets are driven by a contractual relationship with the financial institution. When you open these accounts, you will fill out something called a "beneficiary form" which dictates who gets the account upon your passing. Notice they don't care what your living trust says or whether you even have one! All they care about is who is indicated on the beneficiary form. For these assets, you have to make sure you fill out the proper forms and indicate both primary and secondary beneficiaries. In some cases, you can name your trust as a beneficiary but you should not do so automatically. You should consider the pros and cons. Like any estate plan, there is often no perfect answer - only the best answer given all the circumstances. As a general rule, assets owned "jointly" do not pass through either funnel. Assets owned jointly pass to the surviving owner. Therefore, If Bob and Sally own a bank account together and are listed as joint owners, Sally gets the entire account when Bob passes away. It doesn't matter what the living trust says. This can be especially problematic when people have second marriages. If they put the new spouse on an account or a parcel of real estate, that new spouse gets the entire asset. For example, let's say Bob and Sally are married. When Sally passes away, Bob gets remarried a few years later to Mary. Bob puts Mary as a joint owner on his assets. When Bob dies, Mary gets everything - end of story! It doesn't matter what Bob's living trust says. Joint ownership trumps. There are three general benefits to having your assets titled in the name of your living trust. First, anything in the name of your trust avoids the court system. Second, anything in the name of your trust is managed by your named successor trustees in the order you list them. Finally, any assets in the name of your trust are governed by the rules of your trust. Again you have to change title to the asset. You can't just think about it or list of the asset somewhere in the trust or on a schedule somewhere. That's not the same thing. Again, once you create your living trust, you should understand that your assets will pass through two separate funnels depending on the nature of the asset. It's one thing to have a living trust - it's another thing to understand how it works. Hopefully this will assist you in understanding proper trust funding and proper beneficiary designations. If you need help with your estate plan, please call (661) 414-7100 to see if we can assist you. VIDEO TRANSCRIPT:
Hello, everyone, this is Robert Mansour, and today I wanted to make a brief video about The Parent/Child Exclusion. When you inherit real estate from your parents, or even your grandparents, frankly, if you inherit real estate from them and they're paying a certain amount of property taxes every year, you can actually keep the property taxes exactly where they are because you are inheriting from a parent or from a grandparent. That is know as The Parent/Child Exclusion. Pursuant to Proposition 58, which was passed many years ago here in Los Angeles County area and California. What you need to know is that when you inherit, your property taxes don't have to go up, but you have to file the appropriate exclusion forms with the property tax assessor. Now, they might want to see the living trust or other legal instrument that gives you that property, and they want to make sure that this person is indeed a parent and a child relationship. If you don't file that exclusion, your property taxes might go way up. If your parents bought the property in say 1980 and now in present day that property is worth a lot more, your property taxes might skyrocket if you don't file the proper exclusion forms. Be mindful of The Parent/Child Exclusion in cases where you might inherit real estate from your parents. Thank you very much for watching. When it comes to most estate plans, there are four major components. Think of the estate plan like a tool box that has several tools inside it. For example, most tool boxes would have a hammer, a flathead screwdriver, a Phillips screwdriver, a wrench, etc. The legal toolbox (the estate plan) also contains several legal several tools.
The "hammer" of this legal toolbox is the living trust. The living trust is created by someone called the "Settlor" or "Settlors" if there is more than one person You might be more familiar with older terms like "trustor" and "grantor." All these terms refer to the same thing - the person who created the trust. You can die 100 times, but you will always be the creator (Settlor) of your own living trust. The second major player in the living trust is someone called the "trustee." This is the person who handles all of the assets that are in the name of the living trust. When I say "in the name of the living trust," I mean that title to the asset has been changed to reflect the name of the living trust. Your personal property is no longer owned by "John Smith," but by "John Smith's Living Trust" instead. Bank accounts that used to be in the name of John Smith are now in the name of his living trust. I changing title, you are "funding" the living trust with assets. Failure to "fund" a living trust is one of the biggest reasons most living trusts fail. Think of the trust like a bucket. The problem is some people have this bucket, but they don't put anything IN the bucket. An empty trust might be a useless trust. Generally, you will be the initial "Trustee" of your own trust. The final cast member of this living trust is the "beneficiaries." In the very beginning, you will be the initial beneficiary of your living trust. After you pass away, other people will serve as "successor Trustees" of your trust and ultimate beneficiaries of your trust. Those persons might be your children or other people that you might designate. The next component in most estate plans is the the "Will." Unlike traditional wills which simply distribute assets to certain people, this type of will serves as a backup to your living trust. It works in concert with your living trust. In the event some assets are not properly titled or don't have the proper beneficiary, such assets are "caught" by the will and ultimately directed to your living trust. Think of it like a big "safety net" that sits under your living trust and catches stray assets that are not properly titled. If all of your assets are properly titled or have the proper beneficiary (depending on the nature of the asset), the will might be unnecessary upon your death. However, if you need it, it's good to have one in your toolbox. The next legal tool in the toolbox is something called a durable power of attorney. The durable power of attorney allows those named as your agents to act on your behalf in the event you cannot handle your own affairs. Generally speaking, there are many things in our lives that need to be handled which don't directly involve our living trust. For example, let's say John Smith needs to speak with his wife's credit card company. He needs to demonstrate he has the legal authority to act on his wife's behalf. That's where a durable power of attorney comes into play. Make sure you name people that you trust to handle this very powerful legal tool. You can imagine that in the wrong hands, this power can be abused. The final set of documents in the legal toolbox are the health care documents. Generally speaking that includes of the Advance Health Care Directive here in California. In the past, this was known as a durable power of attorney for health care. The more modern term since 2001 has been Advance Health Care Directive. You also want to make sure that your health care documents have all the requisite language regarding the release of medical records to your designated agents. In many cases, it is also helpful to have a separate authorization for the release of your medical records. Some facilities and institutions are insisting on a stand-alone authorization for the release of medical records. While there are many other tools that go into your estate plan, these are the major tools that most people should consider. In some cases, one or more of these tools may be unnecessary. One size doesn't fit all. Please feel free to contact my office if you have any questions or if you'd like to schedule an initial consultation. If you create a living trust, you will usually need to nominate two or three people to serve as your "successor trustees" in the event you can no longer manage your own trust. Think of a successor trustee like a "vice president" and you are the "president." In most cases, you are the initial trustee of your own living trust. If you cannot serve, your successor trustees take over, in the order that you have selected them.
It is certainly acceptable to name more than one trustee. In fact, many people choose to name "co-trustees" in which case the trustees must generally serve together. Generally speaking, I advise clients to select one trustee at a time since too many "chefs in the kitchen" can cause unintended problems. Being a trustee is a difficult job. You have to follow the rules of the living trust and act in the best interests of the beneficiaries. In some cases, the successor trustee may also be a beneficiary. Most people who are acting as the trustee of a trust have never done so before. You have to select people that you know will follow your rules as outlined in your living trust. Remember that a living trust generally has no court supervision. In fact, one of the reasons people create a living trust is to avoid the court system. So while a trustee doesn't have to act with court supervision, that doesn't mean they get to do whatever they want. There are still some general rules and protocols they need to follow. The California probate code outlines some of those rules and guidelines. An estate planning attorney can help a successor trustee after the death of a loved one. How formal the process will be may depend on the family circumstances and other unique issues. Many trustees don't realize they can be personally liable if they breach their fiduciary duty to the beneficiaries. In some cases, if there is enough at stake, some trustees will choose to obtain insurance (yes, they sell insurance for trustees). When we prepare an estate plan for our clients, we provide detailed instructions for the successor trustees to follow. Essentially, we tried to give them a step-by-step manual that assists them in resolving the living trust after the client passes away. At the very least, the trustees will have a checklist of things to review and consider. In some cases, not every action item will be applicable, but it's still nice to have such a checklist. We also ask our clients to bring their successor trustees (or at least their first pick) to their final meeting so we can brief them on the plan and what may be required of them. The successor trustee can also ask questions during that meeting. The most important thing a successor trustee can do is NOT to act impulsively or start distributing all the assets immediately. The best thing to do is to be methodical and careful. A trustee's actions should be deliberate and done after consultation with an attorney. Even if the estate is very simple, we generally think it is a good idea to meet with the attorney to have an informational meeting. The attorney might be able to advise the successor trustee of issues he/she may never have considered. When it comes to resolving in the estate, sometimes a successor trustee might do something that cannot be fixed. As such, it is best to proceed carefully and thoughtfully. There is usually no tremendous rush to resolve the estate and consulting with legal and financial professionals is usually the best course of action. By creating a proper and robust estate plan, you might actually be able to help protect your beneficiaries. In some cases, your beneficiaries may be too young or may not have the wisdom to handle a large inheritance, especially in one lump sum. Do you really trust your 18 year old with $500,000? What about your 30 year old? Your sister? Your brother?
Aside from youth, there may be other reasons to protect your beneficiaries. For example, do some of your beneficiaries have spendthrift tendencies that make it unwise for them to inherit large sums of money? Will they blow through all the money in a matter of weeks? Perhaps a beneficiary might be in the middle of a divorce, a lawsuit, or other situation where inheriting a large sum of cash may not be the best idea. What if one of your beneficiaries has a gambling addiction or a substance abuse problem (such as alcohol or drugs). What if a beneficiary is elderly or disabled? In some cases, a beneficiary of yours might be on some kind of government benefit program in which case inheriting large sums of money would cause said beneficiary to lose those government benefits. Then they would have to burn through their inheritance before they could get those benefits again. You also want to make sure you appoint the proper trustees to handle the distribution of your assets responsibly and make sure that trustee can follow your rules as spelled out in your living trust. In some cases, you may choose to have distributions occur at certain ages or upon certain events. In addition to those benchmarks (age-based or otherwise), you might consider allowing the trustee additional discretionary distribution authority for purposes such as a beneficiary's health, education, or other considerations. Overall, estate planning generally serves two major functions. First is the function that most people think about: "Who gets my stuff after I die?" However, there is a more important reason to engage in estate planning. That is the second question which is: "Who has the legal authority to act on my behalf?" Most people don't think about this second function, but it is perhaps even more important than the first. It is certainly equally as important.
Most of the time, people just don't die instantaneously. Sometimes there are one or more periods of disability or incapacity where the individual cannot act on their own behalf. It could be a prolonged sickness or otherwise. Having the legal documents prepared in advance allowing those you've chosen to act on your behalf can be extremely beneficial to you and your family. Most people don't think they will ever become disabled or incapacitated. However, you never know when something might happen. Do you have the proper paperwork in place? Do you have the proper authorizations allowing access to private medical and financial information? Do you have the latest health care documents? How recent are your documents? If your documents are more than 10 years old, your family may find resistance from certain entities that may not be eager to honor a document that is over 10 years old. In many cases, there is nothing legally insufficient about your documents. However, that being said, some institutions and facilities are reluctant to accept documents that are more than 10 years old. Many places are concerned about fraud and honoring older documents makes their legal departments very nervous. Generally, the more recent your documents (especially health care documents and powers of attorney), the more likely they will be honored when the time comes. I tell clients to refresh their documents every 7 years or so (or if there is a major life change). Also, you want to think about long-term care options. If you need long-term care, your family might need to help you qualify for certain government benefits. If you don't have long-term care insurance or don't otherwise have the funds to pay for long-term care, you may need governmental assistance. For that to occur, your documents need to have the requisite language for those acting on your behalf to comply with all the rules surrounding said benefits. You need to make sure your living trust and durable power of attorney allow you to obtain medical or other government benefits. Therefore, It's not just about who gets your stuff after you pass away. That's what most people think is estate planning is all about. However, you need to make sure people have the legal authority to act on your behalf when it comes to financial and health care matters. After signing your living trust, you must take some time to know exactly how to use this legal tool. It's like buying a car - you want to make sure you actually know how to DRIVE the car! Having a car is great - knowing how to drive it is better!
First, you should realize that you are the creator of the trust. This person is most often known as the "Settlor" (also known as trustor or grantor). You are also the initial "Trustee" of your own living trust. The people who take over when you cannot be the trustee anymore are known as your "successor trustees." You are also the initial "beneficiary" of your own Trust. At some point, while you will always be the creator of your living trust, you will not always be the trustee and you certainly will not always be the beneficiary of your own Trust. When you can no longer handle your own affairs, your named successor trustees will take over (in the order that you have designated them). Also, after you pass away, your assets will pass to those designated as beneficiaries of your living trust. During your lifetime, it's business as usual and you are in control of your living trust and all the assets in the name of your living trust. The trust is revocable and amendable during your lifetime. Consider it a "stand by" vehicle that helps you avoid the court system not only while you are living but also upon your death. Whether or not your living trust helps you avoid the probate process depends on whether or not you actually take the time to re-title your assets in the name of your trust. Many people create a living trust but never re-title their assets. Also, while some people do take the time to re-title their assets, they forget to put later acquired assets in the name of the trust. If you refinance your real estate, make sure you re-title the property correctly. Don't depend on the mortgage company or lender to do this for you. At the very least double check! Having a living trust is helpful. Knowing how it works and learning how to use it is a very helpful exercise to undertake. A living trust doesn't have any magical properties. You need to understand how it works and how to best utilize it. People often wonder about probate court. probate court is simply a branch of the court system. You may have heard of Divorce Court, Bankruptcy Court, Criminal Court, Juvenile Court, Etc. These are all "branches" of the court system, and probate court is simply one of those branches.
The probate court not only handles post death matters dealing with the distribution of assets, but probate court also handles post death disputes between families, beneficiaries, etc. People could be fighting about something as simple as who was supposed to get Grandma's vase! Sometimes, people are arguing about more important matters - like why they were written out of the estate plan or why they got a lesser percentage than they thought they should get. The probate court judge essentially serves as a referee, making decisions about many post-death matters. Depending on the size of your estate, and whether or not you have any estate planning documents (such as a living trust), the probate court may have to get involved in your affairs. After all, your assets may not "magically" transfer to your beneficiaries. In some cases, some assets will simply pass by way of a designated "beneficiary." Typical examples of such assets include life insurance policies and retirement accounts. The only thing required on such assets is an appropriate beneficiary designation. This is accomplished by designating one or more beneficiaries on a form that is provided to you by the retirement account company or the life insurance company. Usually there will be a "primary" beneficiary and then a "secondary" or "contingent" beneficiary. They don't care what your will or living trust says. All they care about is who is on the beneficiary form. Speaking of beneficiaries, you can also name beneficiaries on certain bank accounts. If all your assets simply pass by beneficiary designations, the probate court doesn't have to get involved at all. While beneficiary designations are convenient, they don't go as far as a living trust might go and certainly don't provide as much guidance and protection for your beneficiaries. However, in some cases, naming a beneficiary is the most efficient path to take. Avoiding Probate Court may involve a combination of tools - such as a living trust and appropriate beneficiary designations. All you have to do is examine each asset that you have and make sure that it passes to your heirs one way or the other - there is no perfect solution - that's why it's called an "estate plan" and NOT an "estate fool-proof plan." In many cases, a living trust would be a better solution. In other cases, naming beneficiaries is best. Finally, in many cases, a simple will might be all your need. What the best method/s might be in your particular situation is part of the planning process. It is usually a combination of methods that will help achieve the best result. Sit down with an estate planning attorney and focus on which methods would be best in your situation. Avoiding probate is great, but it's better if you really know what you are doing and the pros/cons of each approach. The first step towards creating an estate plan to protect you and your family is to actually make that initial appointment. The idea of meeting with a lawyer and discussing heavy estate planning matters can be daunting and overwhelming. We walk our clients through the process. While it isn't a walk in the park, we do our best to make it easy and methodical. As noted earlier, the first step is calling our office and setting up the initial appointment. If you are married, it is important for both spouses to be at the initial appointment. Spouses are a team, and having both spouses involved is important and necessary. There are many occasions when one spouse is more interested in estate planning than the other spouse. That being said, it's still important for both spouses to be involved in the process. Furthermore, in most cases we are dealing with "community property" and one spouse cannot unilaterally dispose of such property.
Once an appointment is set, we ask our clients to fill out an estate planning questionnaire. We have two versions of this questionnaire - one for couples and one for single people. There is an online version and a PDF version of each. Both are available from the "Get Started" page of our website. The information provided on the questionnaire helps provide us with more information so we can offer you guidance and advice particular to your situation. The more information we have in advance, the more productive your initial consultation will be. Otherwise, the first meeting will only provide you with "general" advice, and that might not be the best use of your time. During the initial meeting, we will discuss general principals and answer questions. We will also review your particular situation and offer guidance and advice. If you choose to proceed, we will ask that you sign a "retainer agreement" with our office. A retainer agreement is basically the contract between the attorney and the client. Half the total fee is then due. The other half is technically due when we deliver your drafts to you, but as a practical matter, we collect the balance at the second meeting when we sign and finalize your estate planning documents. After you decide to retain our firm to assist you with your estate plan, we will get to work on your plan. About 30 days later, we send you drafts of your documents for your review. The drafts are usually accompanied by a summary to assist you with your review. In most cases, we also highlight certain sections of the documents where you should pay particular attention. When we send the drafts to you for your review, we usually contact you to set up a signing meeting for your estate plan. During that signing meeting, we will review your entire estate plan with you. Not only will we review the documents prepared, but we will also teach you HOW to use your estate plan. It's one thing to "have" a plan, but it's another thing to actually know how to use it. Once all documents have been signed, notarized, witnessed, and otherwise finalized, we will scan your entire estate plan to our computer system so we have a complete digital copy in our office. You will also be provided with the same scanned copy and all the original documents. As the days, weeks, and months pass, you are always welcome to contact our office with any quick follow up questions. We are here for you and want to make sure you not only HAVE an estate plan, but that you actually understand how to use it. |
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