Q: What is “Estate Planning”?

A: Estate planning in the process of deciding what would happen if you should become incapacitated or pass away. The principal goal of estate planning is to minimize the burden on your family and friends if something should happen to you, and to maximize the benefit to your loved ones of the property you leave to them. In order to accomplish these objectives, you and your estate planner will determine together your specific goals, with consideration given to your unique circumstances and your values. Common estate planning goals include:

• providing income for spouses and other family members;
• distributing estate assets to children in a planned and controlled manner throughout their young adulthood and beyond;
• protecting estate assets from the creditors/ex-spouses of young adult children;
• providing for children of a previous marriage;
• providing for individuals with special needs;
• nominating guardians for minor children;
• avoiding probate (see “What is Probate?”, below) of the estate;
• minimizing estate, gift, and related income tax liability;
• succession planning for business interests;
• appointing agents to manage estate assets, and to manage the individual’s finances and personal affairs in the even of incapacity;
• making charitable bequests in a tax-efficient manner.

Some people assume that because their assets are little in value or few in number they don’t need to plan. The fact is that no matter how small your “estate” (the property you own at the time of your death) is, decisions will need to be made if something should happen to you. Everyone has responsibilities that will need to pass to someone else if they can no longer manage them, including the responsibility for their own care, both physically and financially. By determining now how those responsibilities would be taken care of, you can save your family and friends a significant amount of time, effort, and worry later and can pass more of your property to them (instead of having your legacy consumed by legal fees, court fees, and taxes).

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Q: I don’t have many assets. Don’t I just need a simple will?

A: Maybe. Through a simple will you can set forth your wishes as to whom you want your property to pass, and can nominate a guardian for your minor children. However, a simple will does not:
• avoid probate (see “What is Probate?”, below);
• manage estate tax liability;
• protect assets left to children from creditors and ex-spouses;
• hold funds for the benefit of your children past age 25;
• provide for on-going management of funds left to children.

These goals may be met through the use of an inter vivos revocable trust (see below). And don’t forget, good planning always includes planning for incapacity through the use of a durable power of attorney for asset management and an advance health care directive.

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Q: What is the difference between a will and a trust? What is a “revocable trust”?

A trust is an agreement between two people whereby one person agrees to hold property for the benefit of a third person. For example, if you give your babysitter $5 and ask her if she would give it to your child when your child comes home from school, and she agrees, you have formed a trust. In this example, you are called the “settlor” of the trust. Your babysitter is the “trustee,” and your child is the “beneficiary”. The settlor asks the trustee to hold property for the benefit of the beneficiary.

In estate planning, we commonly use trusts to hold property after the trustmaker cannot, or does not wish to, manage the property any longer. For instance, we can use a trust to:

• distribute funds to children or grandchildren over a period of time, or upon the occurrence of a certain event, such as graduation from college;
• distribute funds to satisfy needs of the beneficiary as they arise, as it can be difficult to anticipate the changing needs of a beneficiary over time;
• give discretion to a trustee to use his or her judgment in determining appropriate use of trust funds;
• protect trust funds from the poor judgment of immature beneficiaries;
• appoint a successor trustee to manage trust assets in the event of the incapacity of the trustmaker, without court involvement;
• minimize estate tax exposure.

In contrast, a will is a document directing the distribution of the willmaker’s property upon his or her death. A will does not contain any mechanism for supervising the use of the willmaker’s property over time. Once the funds are distributed through the probate process (see “What is Probate?”, below), the will’s job is done. A will can direct that funds left to a child be held by a custodian (such as the child’s parent or guardian) on the child’s behalf, but a custodian cannot hold funds past age 25.

However, a will can direct that a trust be established to hold funds on behalf of a beneficiary of the will. A trust created upon the trustmaker’s death is called testamentary trust. Because the trustmaker has died, a testamentary trust is irrevocable.

An inter vivos revocable trust is created during the life of the trustmaker (“inter vivos”), and can be revoked or amended by the trustmaker at any time. Estate planners use revocable trusts to allow the trustmaker’s property to pass to beneficiaries after the trustmaker’s death without probate. Once the trustmaker’s property is transferred to the trust, it is no longer a part of the trustmaker’s probate estate. When the trustmaker dies, he or she owns no property subject to probate. Instead, the settlor’s property is distributed without the involvement of the probate court, in an informal, private, and usually expeditious manner.

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Q: What is “probate”?

A: “Probate” in the process by which a deceased individual’s assets are inventoried, valued, and distributed to the deceased’s heirs. It is commonly thought of as something to be avoided because:
• Lack of Privacy: because the probate court supervises the probate process, the information submitted to the submitted to the court, such as the identity of beneficiaries and estate assets, are a matter of public record;
• Delay: The length of the probate process is partially dictated by the case load of the probate court in question. Because court resources are typically strained, distribution of estate assets can take up to a year or more;
• Costs: on top of filing fees required by the probate court, the deceased’s personal representative and the representative’s attorney are entitled to fees calculated as a percentage of the value of the assets of the probate estate, and may or may not have any relation to the amount of work involved. In addition, the personal representative’s lawyer is entitled to extraordinary fees if the work involved in probating the estate is atypical.

However, there are circumstances in which probate may be useful. A person anticipating that their estate plan will be challenged, or that there will be battling beneficiaries, may want the distribution of their assets supervised by a judge. Further, probate is not necessarily costly and time consuming, depending on the size and nature of the probate estate, how easily the estate assets are located and valued, whether the beneficiaries are readily located, the case load of the probate court involved, etc. Unfortunately, it is usually difficult to predict whether or not an estate will be quickly and efficiently probated.

The good news is that there are several ways in which a formal probate can be avoided:

• Assets passing by way of a contract, such as life insurance, retirement accounts, and “pay-on-death” accounts, are not a part of the probate estate; • Assets held in joint tenancy will pass by operation of law to the other joint tenant, without probate;
• Estates not exceeding $100,000 in value may pass through a summary administration procedure, and need not be formally probated;
• Estates passing in their entirety to the deceased’s spouse need not be formally probated;
• Property held in a revocable trust will pass by way of the trust terms, and need not be probated. Instead, the trust will be “administered”, usually by a lawyer retained by the trustee of the trust. Trust administration is a private process, and is usually less expensive and time-consuming than a formal probate.

In sum, although there are sometimes good reasons to probate an estate, many, if not most, people decide that the cost and delay associated with probate would be a burden to their heirs. Instead, through estate planning they can arrange to hold their property in ways that will avoid probate altogether.

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Q: What do your services cost?

A: I charge my clients a flat fee for estate planning services. I charge a flat fee because I want my clients to be comfortable contacting me with questions at any time during the estate planning process, without worrying about incurring additional fees. However, because every estate plan is unique to the individual or individual family, I cannot quote a fee without knowing what the estate plan will entail. Please contact me if you would like to discuss my fees further, or to schedule a meeting during which I could quote you a fee appropriate for your estate planning needs. For trust administration services, I charge for my services by the hour. Probate fees are set by statute and awarded by the probate court, unless extraordinary legal services are required. Please contact me for further information.

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Q: How Long Does It Take to Create An Integrated Estate Plan?

A: My goal is to complete your estate plan in one month’s time. However, because I collaborate with my clients in formulating their estate plan, the pace of the estate planning process is determined by each client.

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Q: How Do I Start the Estate Planning Process?

A: Please contact me at 415-891-8202, or by email at Nadine@AarsheimLaw.com to arrange an appointment for a free initial consultation. Thank you for visiting my website and I look forward to meeting you!

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