Long ago, if you had too much money when you died, the government wanted part of it.  That's called "estate taxes."  Some folks call it "inheritance tax" or "death tax."  Sounds horrible either way.  Imagine if you visited Disneyland and as you left the park, an attendant charged you $50 to leave!  On a federal level, estate taxes are levied against an estate if the estate is worth too much when you die. After all, the government wants your family's money to fund various government programs, fix roads, etc.  However, most people don't have that problem anymore unless you have more than $12.06 million (this is called the "exemption" amount - the amount that is exempt from estate taxes).  Also a married couple can double that.  So that's a lot of money you can leave to your heirs and they won't need to worry about estate taxes.  Therefore, most people don't have enough money in their estate to be affected by estate taxes.  Also, California currently doesn't levy estate taxes unlike some other states which indeed impose an estate tax in addition to the federal estate tax.  

Also, the gift tax laws have changes a bit in 2022.  A married couple can gift any amount to one another without any gift tax implications.  However, there are limits to how much you can gift to a non-spouse.  You may have seen old movies where someone was on their death bed, signing away everything in their estate at the last minute.  Then they would die pennyless and the government would get no revenue from estate taxes.  The government grew wise to this tactic and imposed restrictions on how much a person could gift per year so people could not simply divest themselves of everything moments before dying.  These limits still exist even though estate taxes aren't much of an issue for most Americans.  

So how much can you gift to a non-spouse?  It use to be $15,000 per year per person.  Now it's $16,000 per year per person.  If you gift more than this, you will probably need to file a gift tax return with the IRS. You won't actually have to pay taxes, but the IRS wants to keep track of gifts that exceed the annual gift limit.  Spouses can double up on this as well.  For example, husband can gift his son $16,000 and wife can gift another $16,000 to the same son.  The recipient of the gift doesn't pay taxes either.  You can gift up to $12.06 million over your lifetime - again, not a problem for most folks! 

Remember that these numbers change year to year.  Make sure you talk to your CPA about any tax questions you might have as these laws are subject to change year to year.  

Client sometimes ask how often they should review their estate plan.  I tell clients that checking up on your legal affairs is something they should do.  It's not a vaccination - you don't create an estate plan and then forget about it.  There are some important reasons for this.  First of all, an estate plan is exactly that - a "plan."  Therefore, if circumstances change, you may need to change or alter your plan depending on those circumstances.  So I tell clients they should revisit their estate plan if there is a major life change - a birth of a child, a divorce, a new marriage, a beneficiary who might be facing some challenges like bankruptcy, divorce, litigation, etc.  There are times when you have to revisit the plan and make changes accordingly.  I liken it to going to the doctor - people don't just go to the doctor one time and then never again.  Ideally you should be going to your doctor regularly in case there are any changes that require a new approach, new medication, new diet, etc.  

Also, laws changes as the years go on.  Therefore, you want to make sure your legal documents are current and reflect the current laws.  That doesn't mean you need to make a change every time there is a minor change in the law.  In many cases, minor changes in the law won't really affect your overall plan.  However, just like there are changes in medicine that may affect what a doctor recommends that you do, your lawyer might recommend changes or updates to keep up with current law changes that affect your plan.

Finally, if your documents are too old, some places may be reticent to honor your documents when the time comes.  As a practical matter, your will and/or your living trust probably won't be too affected by that.  It is common for people to use old wills or old living trusts.  However, if you present a durable power of attorney or health care documents that are 10 years or older, some places might say, "Do you have anything newer than this?"  Although your documents may be perfectly legal, some institutions may be reluctant to honor them if they are too "old."  What is too old?  Some places don't like document older than 5 years old.  Some other places worry about documents that are more than 10 years old.  I usually recommend clients update their health care documents and the power of attorney document every 10 years at least.  That way, they always have current documents and are less likely to run into such resistance.  The reason some places are concerned about older documents is because they worry that someone is trying to trick them.  They worry about fraud.  If a document is more than 10 years old, they worry there might be a newer document and someone is trying to use an older document instead.  If the documents presented are fairly recent, the facility is generally more confident the document is legitimate and indeed what the client wants.  

The general rule of thumb I give clients is to revisit their estate planning documents every 7 years.  That's because 5 years is probably too soon and 10 years might be too long.  Plus, people tend to remember the "lucky" number 7.   Of course, they should also review their documents if there is a major life change as indicated above.

Once you create your living trust, you have to "fund" the trust.  What does that mean?  Many people have a living trust but it's empty...there's nothing in the trust.  Putting things INSIDE your trust is known as "funding" the living trust.  

Assets inside a trust are (1) governed by the trust, (2) avoid the court system and (3) are managed by those you've designated in the trust.  Those people are known as your Successor Trustees.

There are several analogies that I like to use that help clients understand the concept of funding their trust:

First, I draw a circle on a piece of paper.  The circle represents the living trust.  Then I draw a whole bunch of X's inside the circle. The X's represent the client's assets.  I explain that only the assets that are inside the circle are governed by the trust.  You see, the trust only applies to assets that are inside the circle.  

Sometimes I tell people to imagine that their living trust is like a bucket.  First it starts out as an empty bucket.  There's nothing in it.  Then you have to start putting things inside that bucket.  Putting things "inside the bucket" is "funding" the trust. 

Another analogy I use is that of building a brand new home.  Imagine you built a house from the ground up. You chose all the options, designed every room, chose the layout that suits you best. It's a beautiful home, designed by you, exactly the way you want it.  Now imagine if after building this home, you got in your car and drove away and never came back.  You never move into the house. You never furnish it.  It's just a big empty shell.  What was the point of building the house in the first place if you're not going to move into the house and furnish it?  So the living trust is like this new house.  You create a living trust with all the provisions you want.  Now you have to "furnish" that new trust with your assets.

OK one last analogy...I promise!  Imagine your living trust is like having your own airplane.  You design the plane.  On the side of the plane, it says "Johnson Family Trust".  You are in the cockpit, flying the plane, because you are also the initial trustee of your trust (assuming you do things as most people do).  Seated in first class are your successor trustees who will fly the plane if you cannot for any reason (death or incapacity).  The cargo on the plane are your trust assets.  If you are flying a plane without any "cargo" (i.e., assets), the plane is going to be empty when it reaches its destination and a whole bunch of folks are going to be upset their luggage didn't arrive.  

So now that we know that we must put things inside the trust, what does that mean?  That means you have to change the title on the asset.  So instead of your home being owned by you as an individual (or couple as the case may be), it would be owned by your living trust.  That would involve preparing a new deed signed by you, transferring title to your trust.  The same applies for bank accounts, investment accounts, etc.  You have to change the title on the asset.  So instead of your name being on the bank account, your trust would be the new owner.  That takes some effort. You have to visit the various banks and work with them to change title.  Your lawyer should advise you how to do that.  

So as we've said before many times, many people "have" a living trust.  However, many of those same people haven't funded their trust.  It's simply an empty bucket.

Your living trust is not a mysterious legal document that has magical properties.  Some people find living trusts to be very enigmatic creatures.  At the end of the day, a living trust is like any legal document.  It's commonly referred to as a "trust agreement."  It's an "agreement" between the creator of the trust (often termed the "Settlor" of the trust) and the person who manages the trust (commonly known as the "Trustee"). 

In the case of an individual person, it's kind of strange to think of it as an "agreement" but it is nevertheless.  It's easier to understand when thinking of a married couple creating a trust.  However, at the end of the day, whether it's an individual or a married couple, a living trust is an "agreement" created between the Settlor(s) of the trust and the Trustee(s) of the trust.  

Since the living trust is an "agreement", it's basically a contract between the Settlor(s) and the Trustee(s).  As a contract, it can be legally enforced like any other contract.  Therefore if someone is not playing by the "rules" of the trust, that person can be taken to court where the trust can be enforced.  So imagine if a Trustee is using the trust assets in an improper way or is failing to account regularly to the beneficiaries (as required in most trusts), he/she can be taken to court where a judge will inquire and find out why the Trustee isn't following the rules of the trust.  

The trustee is not the only person who has to play by the rules of the trust (the contract).  The beneficiaries also need to follow the rules of the trust.  For example, a beneficiary might have to wait till a certain age before they get their inheritance.  In other circumstances, the beneficiary might not receive they inheritance right away, but perhaps in stages, upon certain milestones, etc.  

If you think of a living trust like any other enforceable legal document, it becomes less mysterious and easier to understand.  It's basically a contract or agreement that governs the use and distribution of assets in the name of the trust.  That means the asset must be titled in the name of the trust.  Not all assets are governed by a living trust.  Only assets in the name of the trust, or payable to the trust, are ultimately governed by the trust. 

​For an asset to be "in" the trust, it must be titled in the name of the trust.  For example, a parcel of real estate would be owned by "The John Smith Living Trust" instead of being in John Smith's name alone.  The same goes for bank accounts or other investments.  Think of the living trust like a bucket.  Assets "in" the bucket are governed by the trust.  Assets that are not in the bucket, are not governed by it. 

When I conduct the initial consultation with my clients, there is an issue that often pops up that I think we should address in this blog entry.  

Clients often want to grant someone (sometimes a child or significant other) the right to remain in the primary residence after the clients die.  In a recent case, my married clients (who have 3 children) told me they wanted their daughter (who currently resides with them) to be able to remain in their primary residence until she passes away or decides to move out.  At that time, the house will be sold and the money divided among all their surviving children.  Apparently their daughter had fallen on hard times, separated from her husband, and needed to stay with them.  

This raises many interesting questions that should be addressed in the estate plan.  If the named beneficiary gets to stay there until they die (should they so choose), we generally call that a "life estate" in the property.  Here are several things I discuss with my clients when this issue arises:

1) First, I tell them it's important to outline all the provisions clearly in their living trust so we can avoid arguments that may occur after they die.  Perhaps all their children might not be that crazy about giving the daughter the right to live in the property till she passes.  After all, doing so would delay their inheritance with respect to the property.

2) I ask if they've discussed this idea with the other beneficiaries.  How do they all feel about it?  

3) Do they have any sons-in-law or daughters-in-law that may create a problem if they find out about this?  After all, it's not only the children of the couple that can be a problem.  

4) If their daughter gets to stay in the property, will it be for "life" or perhaps for a period of time (like 5 or 10 years).  

5) If their daughter remains in the property, who is going to pay for all the property taxes, upkeep, utilities, and other maintenance of the property?  What if they don't pay for those things?  What happens then?

Those issues should be outlined clearly and addressed in the living trust.  The more specific, the better, as doing so may help prevent arguments later on.   Whether you plan on granting a "life estate" or some other similar solution to a specific beneficiary, you should discuss the pros and cons with an estate planning lawyer who can help you think through the various options.

VIDEO TRANSCRIPT:

Hello everyone. This is Robert Mansour, and I wanted to present a very quick explanation today of the standard estate plan that most of my clients implement. You'll notice that in the background of this graphic, I have a tool box (a graphic of a tool box), and that is the analogy that I like to use -  An estate plan is a legal toolbox and it's full of all different kinds of "legal tools" that can help you and your family.

If something should happen to you, either death or incapacity or car accident (something that happens when people need to assist you). Also this assists in the distribution of property after you pass away. So the four major tools of the estate plan are on the screen. There's the living trust at the top, wills, power of attorney and health care documents.

Now there are other tools, but for our purposes today, we're going to hit on the big four. So a living trust is a legal document up here at the top left that an individual can create, or two people can create like a husband and a wife and three or four people etc. The people who create the living trust are called the "Settlors." You'll see at the very top left the word Settlors. If it's an individual, obviously Settlor, Settlors for plural (when you have more than one individual). The term that you might be familiar with is "Grantor" or "Trustor". They all mean the same thing. The Settlors are the people who create the living trust from the very beginning. So an individual would be that person, a husband and wife, etc.

Now, what I want you to understand also is that a living trust is basically a contract. It's a legally enforceable document. So the contents of the document can be enforced in court. So it's not anything terribly mysterious. For example, my wife and I have a living trust, and it is nothing more than a contract between me and my wife about what happens with our stuff. If we should get sick, something happens to us...who is in charge after we pass away, where does our estate go? Who sees to it that those assets get to the right people? In our case, it's our two children. And we want to make sure that those assets get to our kids in a certain fashion. And all of those rules and regulations are contained in our living trust. Now, the next people involved in a living trust are called the Trustees.

These are the people who are in charge of everything that is in the living trust. So let's say for example, let's say the Smith family creates the Smith Family Trust. Assets that are in the name of the Smith Family Trust are managed by the trustees. In the very beginning, the Trustees are the people who created the trust, whether it's an individual or a married couple. And so you are the initial trustee of your own trust. At some point, you will not be able to be the trustee and the people who will take over are folks called your "Successor Trustees." I use the analogy of the airplane. As you can see at the very top of the graphic - here in the very front of the airplane in the cockpit are the initial Trustees (i.e., the husband and the wife or the individual who created the living trust). The Settlor(s) are typically also the initial Trustees.

And then the first class are the Successor Trustees. They are sitting there having champagne, maybe some shrimp cocktail. As soon as the people in the cockpit can no longer fly that plane, those Successor Trustees step into the cockpit and take control over the living trust. Now they have to follow the "flight plan" (which are the rules of the living trust).  So they can't just do anything. Do you see these stars here in the middle of the graphic? The stars represent the "assets" of the living trust (the cargo on the plane, if you will). So a lot of people create a living trust, but they don't put anything in it. It's basically like building a house and not furnishing it.

So once you create your living trust, you have to put things in your living trust - and you do that by changing title to your assets. So for example, your real estate will no longer be held in your name alone.  It would say "Smith Family Trust" on it, or "Johnson Family Trust".  Your bank accounts, your investment accounts - not all of them - but many of them are going to say Smith Family Trust on them. You have to actually physically go to the bank or call your investment company and change the name on your assets. Once you create your living trust, we call that "funding" the living trust.

The final people involved in the living trust are the "beneficiaries." These are the people who benefit from the living trust. Once again, in the very beginning, it's the Settlors - the people who created the living trust are the beneficiaries of their trust. Eventually, other people will be the beneficiaries such as the children or whoever else you have as the beneficiary of your living trust. Now you'll notice out here, there is a star that is floating out here.  This is an asset that's not in the living trust.  I'll get to that in just a minute. Now, the living trust is a common document among two people or a single document for one person. Then you have the wills. If you're dealing with a married couple, each person is going to have their own will. The person in charge of the will is called the "Executor." People tend to confuse the terms "Executor" and "Trustee" a lot. They tend to use them interchangeably.  In fact, they are not interchangeable terms. They are separate jobs. Now you can choose the same people to do those jobs, but they are nevertheless separate jobs. So the executor is the person in charge of the will and the trustees are the people in charge of the trust.

Now you will notice that I drew a trampoline down here. Here's why I deliberately put the will under the living trust. I want you to get a visual. The will is like a big "safety net" that sits under the trust. If an asset is sitting outside the trust like this one over here, and after you die, we find this asset not in the trust. It falls, bounces off the trampoline, and goes into the trust. So consider the will like a big safety net that sits under your living trust.

Now you're also going to have powers of attorney. The power of attorney is also a very important document. The power of attorney is a managed by somebody known as your "Agent." Your agent is the person who's in charge. Now the agents can be the same people as the trustees, the executor, it can be the same people. It's just a different job. In most cases, with a married couple, the husband is first in line for the wife and the wife is first in line for the husband.

So the agent is the person who gets to act on your behalf. That's what the power of attorney is. You're giving someone the legal authority to act on your behalf in matters that do not directly involve your trust, your will, or healthcare decisions. So for example, let's say I need to call my wife's credit card company or my wife's former employer, because I need information about something. Sometimes you'll run into resistance when you do that - because they'll tell you, "No, we can't give you that information because it's private information." However, if I have power of attorney given to me by my wife to me and I'm her agent, therefore I can act on her behalf. There may be times in life when I need to do that.

Now, keep in mind, this is a power that you have to give somebody. They can't take it from you. I get calls from clients all the time and they say, "Hey, I'm at the hospital. My dad is sick. My mom is sick. I need power of attorney over them." I say, "Well, you can't just take it from them. They have to give you that authority." In many cases, clients are calling me too late. Their father or their mother, or their loved one is in a coma or they are not doing well. They're at the hospital - whatever the case may be. So you want to make sure you get this legal toolbox set up BEFORE something happens. So that's power of attorney, and then you have the health care documents down here. Once again, we use the term agent to be the person in charge of health care decisions.

There are two important documents in California that go under the healthcare discussion. The first one is something called an Advance Health Care Directive. Sometimes people confuse this with something called "power of attorney for health care." In California, we call this thing an advance health care directive - where you give someone the authority to make health care decisions on your behalf.  It's very similar to power of attorney but this one is specific to health care. This is where you let people know what your wishes are - what kind of measures do you want.  If you're very sick - and this is not just about pulling the plug - that's what people usually think about. It's a lot more than that. This individual is your advocate. They are the ones who can demand answers from doctors and nurses and other professionals. They can move you from one facility to another. They can do a lot of things.

It's not just about end of life decisions. In California, it's becoming increasingly important to have a separate authorization for the release of medical records. So even though you are the agent, some facilities might give you a hard time if you're trying to obtain the medical records of a loved one. There may be times when you need those records for a variety of reasons, including perhaps getting a second opinion about a recommended surgery or something like that. So those are the documents that go into health care decisions.

So this is just a very cursory and quick glance of the four major tools that go into most estate plans. I hope you found that helpful. If you want to learn more about my practice, you can always visit www.MansourLaw.com.  You can also call our office at (661) 414-7100. Thanks so much.

In 1789, statesman Benjamin Franklin wrote to a friend and penned the famous words, “Nothing is certain except death and taxes.”  Some 200 years later, those words are just as true as when Mr. Franklin cited them. Of those two things, unfortunately one is the finality of life.  In thinking about our own mortality, we often wonder, not about ourselves, but those we leave behind. 

You are probably considering estate planning and, like many people, you might have a number of questions. One is likely "Should I even do this?"  The simple answer to that question is a resounding, YES.  Let's expore the reasons why you should arrange to speak to an attorney about an estate plan and why you should do so as soon as possible.

What an Estate Plan can give you now?

Peace of Mind

No one likes to talk about it, but our mortality sometimes keeps us up at night.  According to the Center for Disease Control and Prevention (CDC), more than 2.8 million people died in the United States from a variety of causes in 2018.  That number is very sobering when we consider that some of these deaths were sudden and without warning. 

Creating a comprehensive estate plan will be one of the best ways to ensure that your family will be taken care of and your legacy will be able to carry on.  It's not as scary as it seems if you work with an attorney who can explain it all to you in plain English.

Think of it this way; a captain of a ship is responsible for everyone on board, from the crew to the passengers.  While the captain has that responsibility, he doesn’t stand and steer the ship constantly, he allows others to take his direction and keep to the course until the ship is safely at its destination.  Like that captain, your estate plan will allow you to have others follow your directions to make sure those in your life are safe.

Who Gets My Stuff?

Imagine this.  After months, you decided to clean out your garage.  You set a day, and after hours of working on it, you are done.  Then you look around and see all this “stuff." Maybe you are asking yourself how you ever accumulated all the "stuff."  But in looking around further, you recognize what is important, less important, and quite frankly, what is just junk you should have gotten rid of a long time ago. 

After your pass away, your family will need to sort out all the "stuff" you left behind.  This includes real estate, bank accounts, investments, life insurance, retirement accounts, and other assets.  This is already a difficult time for them.  However, by creating your estate plan, you will be helping your family as you've already sorted everything for them.  They have to follow your instructions, and if your plan is set up correctly, they will be able to settle your estate without too much trouble. 

By creating a Trust and transferring your assets to the Trust during your life takes the guess work out of what do to with your assets.  You will also designate who will be handling the management of your affairs instead of just leaving it to chance.  Think of your estate plan like a flight plan that you hand your family.  All they have to do is follow that flight plan and hopefully they will have a smooth landing.

Perhaps you've heard of probate court.  That is a special branch of the court that often gets involved when distributing family assets.  The probate process is expensive and lengthy. Do you really want your family held hostage for 1 to 2 years after you are gone?  In our next article we will examine how to avoid the time and costs of probate as well as some other items that you may not have even thought of in planning out what to do next.

VIDEO TRANSCRIPT:

​Hello, everybody. It's time for a whiteboard lesson. My name is Robert Mansour, and I'm a lawyer in the Santa Clarita area. And one of my areas of practice is estate planning. So estate planning involves things like wills, living trusts, powers of attorney, healthcare documents, guardianship nominations, a lot of that stuff.

But today I want to talk about a very common question that I get, which is "Rob, what is the difference between a will and a living trust?" And what's the main differences. So let's talk about that briefly. So let's talk about a will. So what is a will? I tell clients that a will is basically a letter to the judge? It says, "Dear Judge, I'm dead. My name is so and so and I am dead. The following people are to get my stuff. My cousin Louis gets this. My cousin Sally gets that. My brother Tommy gets this and my baseball card collection goes to so-and-so." And that's what a will does now, who is in charge of administering the will, who is in charge of that? Somebody called the executor.

Now you can pick who your executors are. Generally speaking, you want to pick one person. And if that person can't do it, then you pick a successor executor, etc. One of the main differences is that a will only goes into effect (as a general rule) only goes into effect after you die. So while you are alive, this thing is not doing you much good. It springs into action after you die. So after you die, your executor says, "Oh, John died. We need to do something. Let's read the will." So they read the will and it says, "Give this to cousin Louie...give this to so-and-so and Sally, etc." So that's what the will is now. What else can you do in your will? You can also give away certain assets. Like we talked about, this goes to this person, this goes to that person, but you can also name guardians for your children - guardianship nominations.

So if you have any minor children, your will is often the place where you might say, hey, if I can't take care of my kids or if I die or whatever the case may be, and I have minor children, meaning children, at least in California, under the age of 18, you can name the people that you want to take care of those kids. And that's where you would put all of that information. Or you can also do a separate guardianship nomination if you want. But a will only goes into effect after you die as a general rule. It doesn't do you much good while you are still alive. Now what's the difference between that and the living trust. Let's take a look at a living trust here - living trust.

Something an individual makes just one person. My name is John. This is my will. A living trust can also be made by one person, but sometimes it's made by two people like a married couple. And essentially it's very similar in nature to the will. Basically it says, you know who you are, what you own and where you want your stuff to go when you die. And the person in charge of your living trust is called your trustee. Now, initially, you're going to be your own trustee. My wife and I are the trustees of The Mansour Family Trust. After I die, my wife will be the trustee of The Mansour Family Trust. And then we will have these people called "successor trustees." These are the people waiting in the wings who are going to mind the store. If my wife and I can no longer do it, or if it's one person, if that one person can no longer be the trustee.

One of the main differences is that this legal tool is effective the day you sign it. Whereas this legal tool, the will, only goes into effect after you die. So it doesn't do you much good while you're still alive. This is a "living" trust living. It's "living" the day you sign it. And so it's kind of like you create your own little corporation that exists that very day and continues even after your death. So a living trust distributes your assets to certain people, etc. The nice thing is that you don't have to go to court to handle this. Oftentimes you have to go to court to handle a will. A judge has to get involved. Now, if you have a very small estate, you may not need to worry about going to court and you can still handle it outside of the court process.

But much of the time you're going to end up in court. A judge is going to be handling the administration of your will, which can take a lot of time and cost a lot of money. Plus this is a public affair. Now the fact that this is in the court system - everybody can know your business and it's a lot easier to contest a will than it is to contest a living trust. Everything in the name of your trust stays outside the court system - all of the assets that are inside the living trust. When I say "inside" the living trust, I mean that the asset's title is changed. So your bank accounts no longer say "John and Mary Smith," - they say the "Smith Family Trust". As for your real estate, it doesn't say "John and Mary Smith." It says the "Smith Family Trust" on the deed. So everything inside the circle avoids the court system.

Why? Because you want to keep your affairs private. You don't want a court getting involved or a judge. Your trustees will handle the distribution of your assets and the handling of your assets per the rules of your living trust. So those are some of the major differences between a will and a living trust. So hopefully that was helpful to you. There are also many kinds of other things that work with living trust. They work in connection with each other, but that's beyond today's lesson. Hopefully this will help you understand the difference between a will and a living trust. My name is Robert Mansour and thank you for watching this whiteboard lesson.

VIDEO TRANSCRIPT:

Hello everyone, this is Rob Mansour. And I wanted to make a very brief video today about a phone call that I took today that I think is a very illustrative of a mistake that a lot of people make. So here's the scenario. This lady calls me, her name is Linda and she calls me about her father Paul, who passed away three years ago and she is now concerned about the estate and why she didn't receive the inheritance. First mistake - you shouldn't wait three years. You may forfeit any claims that you have if you wait that long. So that's the first issue. The second issue is she told me that her father had a life insurance policy and she thought all four of the kids were supposed to get a portion of the life insurance policy.

And she said that the reason she thinks that is because her father's will said that all four kids should inherit equally. I explained to her that a life insurance policy doesn't work with the will. The beneficiaries are whoever is listed on the beneficiary form and it turns out her father only wrote her sister Michelle. So Michelle got the life insurance policy and Michelle used that money for whatever she used that money for. I told her that Michelle has no legal obligation to share the insurance proceeds if she was the only beneficiary on the policy, no matter what the will said. The only other thing that her father had when he passed away was a fully paid for house with about $500,000 in equity.  Before he died (several years before) he put his daughter Michelle on title with him. Now what that means is that his daughter and Michelle is a joint owner on the property.

So Linda says to me, I thought I was going to get part of the house because the will says that we are all to share equally. And I had to explain again, the joint ownership trumps whatever the will says. I told her the will doesn't matter if Michelle was on the property with her father Paul, and then Paul passes away. Michelle owns the entire property. And that's what happened in this case.

So the mistake that some people make is waiting too long, first of all. And the other mistake that some people make is they think that the will controls everything. The will does not control anything when it comes to beneficiary designations on a life insurance policy and joint ownership. The last person standing and gets the entire asset, a will only controls assets that are in your name alone that do not pass by any other means. And in this particular case, the life insurance policy passed by way of beneficiary and the house passed by way of joint ownership.

So I hope this brief lesson is helpful once again, a will does not trump beneficiary designations and does not trump joint ownership. Thank you very much for watching. I hope you found this video helpful.

VIDEO TRANSCRIPT:

Hello everyone. This is Robert Mansour and today we are going to do an estate planning pop quiz. All my contact information is on the screen right there for you. First, an estate plan is not a living trust or a will. A lot of clients think that their living trust is their estate plan. An estate plan includes several legal tools, including wills, powers of attorney, healthcare documents, living trusts, beneficiaries, and a lot more. All of these things are tools in your legal tool box. So what you should know is that an estate plan is the toolbox and a living trust or a will is just one component of that. So let's have our pop quiz:

In California, what do we call the document people use to designate a person to make healthcare decisions for them? The answer an "advance health care directive." A lot of people think it's a living will - many states still use that term. In California, we call it an advance health care directive. And there is no "D" at the end of the word advance.

Number 2 - Jimmy and Sue own a home. They have no estate plan. They passed away in a car accident. Their home has to go through the probate court. The lawyer says the process could take a year or more. Does the mortgage payment on their home need to be paid during the probate process? The answer is "Yes, it does." Just because you died doesn't mean the mortgage company doesn't want their monthly payment. If your family is stuck in court for two years, that's not going to be a lot of fun for them. So the mortgage payment is still due after you pass away on a monthly basis.

Number 3 - Charlie has five siblings. Charlie's mom has $500,000 and put him as a joint owner on all of her accounts so he can help her pay the bills. She also wrote a will that states, "All my children shall share my estate equally." She even videotaped herself saying the same thing.  When Charlie's mom dies, how much does each child get? Well, let's see...there are five siblings, so let's do the math. The answer is "Charlie gets all the money." Why? Because Charlie is a joint owner on all of the accounts. So Charlie gets the money. It doesn't matter what the will says or the videotape.

Number 4 - A will is generally effective upon your death. True or false? The answer is "True." A lot of clients have a will and they think they're all set. What a lot of people don't know is that a will generally goes into effect after you die. It doesn't do you much good while you are still alive. Keep in mind a will is simply a "letter" to the judge telling the judge where you want all of your assets to go.

Number 5 - Mary is in a troubled marriage and is contemplating divorce from her husband Todd. Mary's parents died and left her $750,000. Mary decides to file for divorce five years later. Will Todd get any of the $750,000? Well it depends what Mary does with the money when she inherits it. When you inherit stuff from your family, that's your "separate property," unless you choose to treat it as community property. So if Mary takes the money and deposits it into a joint account or a trust account with her and Todd on it, that's going to be a problem for Mary when she gets a divorce five years later because Todd is probably going to want a piece of that.

Bob and Sally have two kids. They own their home as "joint tenants." Mary dies and Bob remarries years later, Bob puts his new wife Susan on title with him as a joint tenant to the house. Bob dies a few years later. Who gets the house? Well, you would hope that Bob's kids get the house, but the answer is "Susan" - the new wife is going to get that house because Bob put her on as a joint owner with him on the property. The kids get zero. Now, Susan might choose to give the kids the property, but that's a whole other discussion.

Number 7 - John and Mary owned their home as "tenants in common." Mary has an old will that gives everything she owns to her former boyfriend, Jimmy. When Mary dies, who owns the home? Well, when Mary dies, John is going to be owning the property with Jimmy. Why? Because Mary's will gives her share of the property to Jimmy. Notice that it's "tenants in common" - not joint tenants. So that's the trick. The verbiage on the deed is critical.

Laurie has two minor children. One is 10 years old, and one is 16. She also has a life insurance policy for $500,000. She listed her living trust as the beneficiary of her life insurance policy. Why would she do that? The reason it is is because Laurie smart - she doesn't want that money going to a 10 year old and a 16 year old because once they turn 18, they're going to have full access to that money and they're probably going to blow it. So she has it payable to her living trust, and her trustee that she's chosen will be in charge of that money and distribute it to the children in a responsible manner.

Number 9 - Kenneth added his son Mark to his home to make sure Mark inherited the home after Kenneth passed away. Neither Kenneth or Mark have any estate planning documents. Mark got into a car accident and became incapacitated. Kenneth now needs to sell the house in order to pay health care bills. Can he do so? The answer is "It's gotta be tough." Why? Because his son Mark is now incapacitated and is on that deed. Mark can't sign anything. So if he can't sign anything, Kenneth cannot sell the house because the title company is going to be looking for two signatures. That's going to be a problem.

Number 10 - Bob's sister Ann got into a car accident and was unable to handle her affairs. Bob went to Ann's bank with Ann's durable power of attorney so he can withdraw some money for her medical expenses. They said they could not honor the power of attorney because it was "springing." What does this mean? That means that the power of attorney that Ann has probably requires her to be declared incompetent first before Bob can do anything. Sometimes I see documents requiring two or even three physicians to declare the principal individual incompetent before the persons named can do anything. So Bob now has to cart Ann all around town, trying to find doctors to declare her incompetent.

Number 11 - Mary was the named beneficiary on her boyfriend John's life insurance policy. John and Mary broke up a year ago. Last month, John wrote a will giving all his assets to his siblings in equal shares. When John passes away, who gets his life insurance money? The answer is "Mary does." Why? Because he listed her as the beneficiary of his life insurance policy. It doesn't matter what the will says.

Number 12 - John and Mary die leaving minor children and no estate plan. The children will inherit $500,000. Mary's estranged brother has taken any sudden interest in the kids, and he petitions the guard for "guardianship" of the children and control over their inheritance. Can her brother do that? The answer is "Yes he can." Anybody can petition the court for a guardianship of the children. What matters is if John and Mary took the time to nominate guardians for their children. If they didn't do that, then generally speaking, the first person to the courthouse who impresses the judge might end up with those kids and also might end up controlling the money.

Number 13 - Sharon is 65 years old. She decided to add her son Brian to her house as a joint owner so he can get her home when she dies. Brian later got sued for causing a bad car accident. Can they get to Sharon's home? The answer is "Yes they can." Why? It's because Brian's name is on the house. Anytime you put somebody on property with you or on a bank account or anytime you add a name, you've added a massive "bulls-eye" to that asset. So any trouble that Brian gets into is now Sharon's problem. That's another reason to think two or three times about adding your kids or anybody to your property or to your assets.

One more question: James and Cheryl got a divorce because James was verbally abusive and financially irresponsible. They have minor children, and Cheryl took out a $1 million life insurance policy to make sure her children would have enough money when she died.  If she dies, who will likely end up with the kids and have control over their money? The answer is James.  The reason for that is because James is the natural father. Now, he probably would petition the court for guardianship over the children or get automatic guardianship depending on the divorce. However, Cheryl may not want James to control anything, in which case Cheryl should have created a living trust - perhaps naming somebody else to be responsible for that $1 million of life insurance. So just be very careful when it comes to a divorce and things of that nature.

So once again, this was an estate planning pop quiz and less than 10 minutes. Thank you very much for watching. I really appreciate your patience. My name is Robert Mansour. My website and my phone number are on the screen. Take care. I hope you enjoyed the pop quiz.