The Law Office of Dorothy A. Peters
Wills, Trusts & Estate Planning

iStock_000003888607XSmall.jpg
frequently asked questions

The following information includes frequently asked estate-planning questions. The answers stated are general in nature and are not intended to apply to every situation. Each case is different and carries its own set of circumstances that must be taken into consideration by competent legal counsel. Contact the Law Office of Dorothy A. Peters at (925) 648-2003 to receive a complementary consultation regarding your specific situation.

Q: What Will Happen If I Die Without An Estate Plan?

A: Even if you have no estate plan, the state has a plan for you. It’s called the law of intestate succession and it’s everyone default estate plan. California law dictates that if you die without a will, your assets will go to your “heirs at law.” Specifically, your separate property (non-community property) will be divided into as many equal shares as there are living members of the nearest generation: (1) children; (2) parents; (3) siblings; (4) grandparents, etc. However, it should be noted that a distribution to one generational level effectively cuts off all levels below. Thus, if you die leaving behind surviving children, the rest of your family will not receive any part of your estate. TOP

Q: How Will My Kids Be Affected If I Die Without An Estate Plan?

A: Upon your death, half of your separate property will be sliced up equally and held in a separate court-supervised trust for each of your children, restricting your surviving spouse’s ability to use that money. Separate trusts may hurt a child with special needs because your spouse may not use the funds from another child’s trust to meet those needs, no matter how serious or urgent. Further, 100% of the separate trust assets will be distributed to your child when he/she reaches the age of 18, regardless of maturity level or financial savvy.

Further, if your child’s other parent does not survive or is not custodial (as after some divorces), the court will choose your child’s guardian. If your family or friends disagree about who should raise your children, the court will have to step in. Your children may even be placed in foster care until the dispute is resolved in favor of a court-appointed guardian. TOP

Q: If I Have A Will, will I Avoid Probate?

A: No. In fact, having a will assures that your estate will be subject to probate administration. TOP

Q: What Is Probate?

A: Probate is a court-supervised process that applies to people who die with or without a will that includes: TOP

  • Appointing a personal representative to be in charge of administering your estate; the executor you name in your will has the right to appointment
  • Evaluating and deciding the validity of your will (if one exists)
  • Gathering all your assets, taking an inventory of those assets and having those assets appraised
  • Notifying your creditors that you have died and giving them a specified timeframe within which they must file a claim to your property
  • Paying your outstanding expenses, debts, and taxes
  • Finally, distributing the remaining assets to the person(s) entitled to them pursuant to the California law or the provisions of your will (if one exists)

Q: What Assets Are Included In My Estate?

A: The term "estate" when used in the estate planning context refers to everything that a person owns including real estate, vehicles, bank accounts, stocks and bonds, mutual funds, stock options, cash, furniture, jewelry, art, and other personal items. An estate also includes a person's business interests, life insurance and annuity contracts, pension benefits, IRAs, 401(k)s; any debts; and any claims against others, such as claims involving a personal injury. These assets may be in the person's name alone, but can also include interests in trusts, partnerships, and jointly owned property. TOP

Q: Who Will Be Privy To My Personal Affairs During the Probate Process?

A: Probate is a public process. There is very little privacy regarding the details of your will, your outstanding debts or the extent of your assets. TOP

Q: Where Does Probate Take Place?

A: Probate administration takes place in the county that was your legal residence at the time of your death. Further, please note that out-of-state real property will be subject to proceedings in that state as well. TOP

Q: Why Should Probate Be Avoided?

A: There are three important reasons that you may want to avoid probate. First, the cost of probate administration can get expensive. Your personal representative and his/her attorney are each entitled to collect a fee for their services pursuant to California statute. For “ordinary” services, the executor and attorney are entitled to compensation based on the total appraised value of the estate (before subtracting debts) as follows:

  • Eight percent (8%) on the first $100,000
  • Six percent (6%) on the next $100,000
  • Four percent (4%) on the next $800,000
  • Two percent (2%) on the next $9,000,000 they must file a claim to your property

NOTE: PROBATE FEES ARE CALCULATED BASED ON THE GROSS VALUE OF THE PROBATE ESTATE, REGARDLESS OF MORTGAGES OR OTHER DEBTS OWED. Further, the court may allow for additional compensation for “extraordinary” services performed by either the attorney or personal representative.

Second, probate administration can tie up your assets for a significant period of time. During the administration, a lack of liquidity (cash flow) can create problems for your heirs, who may need cash on hand in order to pay your mortgage or keep your business running. However, it can be very difficult to sell assets before the probate process is complete. The average timeframe for probate administration is approximately 12-18 months, which can result in severe financial problems for your partner, friends, family or business.

Third, the probate process can be emotionally taxing during an already stressful time. Probate administration requires many visits, letters and phone calls between the executor/personal representative and his/her attorney. The grieving process is difficult enough without the time-consuming and often tedious tasks involved in probate administration. TOP

Q: What Is A Living Trust?

A: A living trust is a contract that allows you to transfer ownership of your property from your individual name to your name as trustee of your trust, so that all of your assets are “owned” by the trust. A revocable living trust is completely amendable, and as the creator and trustee of the trust, you have absolute control of the property in the trust during your life and capacity. Nothing changes except the name on the title to your property.

A trust allows your family to privately administer and distribute your assets upon your death in the most economic and efficient manner. A trust can also be crafted to serve a particular purpose and provide certain benefits depending on your unique situation, assets and goals. For example, a trust is capable of but not limited to:

  1. Providing for the care of a handicapped child (Special Needs Trust);
  2. Preventing taxation of life insurance proceeds in your estate (Irrevocable Life Insurance Trust);
  3. Allowing married couples to take full advantage of their lifetime exemptions to minimize or eliminate estate tax (QTIP Trust);
  4. Providing a fund for the maintenance of a young or financially irresponsible child, specifically providing that only a certain portion of the total amount is to be given to the child at any one time in order to prevent depletion of trust funds (Spendthrift Trust);
  5. Promoting a charitable cause (Charitable Trust);
  6. Avoid a Medi-Cal/Medicaid reimbursement claim (Irrevocable Trust).

A qualified estate-planning attorney can help you plan and select the appropriate options according to your estate planning needs. TOP

Q: What Does It Mean To “Fund” A Trust?

A: Funding your trust is the process of transferring assets from your own name to the name of your trust. So, you will execute a new deed for your real property, change the title on your bank and brokerage accounts, and change the beneficiary designations on your life insurance policies. Generally, the assets that you want to put into your trust include all real property, bank accounts, securities investments, business interests and notes payable to you.

If an asset is not properly titled, it may have to be probated by your heirs, thereby defeating the very reason for creating a trust. But not all of your assets should be in the trust -- certain beneficiary-designated assets should not be placed in trust for tax and other reasons. Click here to learn more about designating a trust as beneficiary of individual retirement account benefits. TOP

Q: Why Do I Need A Power Of Attorney?

A: A durable power of attorney for property allows you to choose someone you trust to manage your affairs without judicial intervention if you are ever incapacitated. Without such a document, the court would be required to intervene and appoint a conservator to manage your affairs. Most courts require a conservator to purchase a “surety bond” to protect the conservatorship estate. The costs and expenses of a conservatorship, as well as any attorney’s fees, are paid out of the disabled person’s estate. TOP

Q: Why Do I Need An Advanced Healthcare Directive?

A: An Advance Health Care Directive allows you to appoint someone with the authority to make health care decisions on your behalf if you are unconscious, mentally incompetent, or otherwise unable to make such decisions. In many states, an Advance Health Care Directive also allows you to express your wishes regarding whether you desire to receive life-sustaining procedures if you become permanently comatose or terminally ill. Even with an Advance Health Care Directive, you should discuss your preferences with your attorney-in-fact. TOP

Q: What is a will contest?

A: A will contest is a legal proceeding which challenges the validity of a will. A will’s validity can be attacked on the following grounds: (1) the will was not executed with the required formalities; (2) the testator lacked the requisite mental capacity at the time the will was executed; (3) the will was obtained through undue influence. If you are successful in proving one of the three grounds above, the will is denied admission into probate. In other words, the court will treat the challenged will as if it never existed, distributing the estate according to the terms of the testator’s previously executed will or the laws of intestate succession. TOP

Q: What typically sparks a will contest?

A: A disappointed heir who discovers that he is not getting something he expected, felt entitled to or was promised. TOP

Q: What can my estate-planning attorney do to ensure that my wishes are carried out after death?

A: One option is to create a living trust. In that case, the property is transferred during the testator’s lifetime, which clearly demonstrates the testator’s intent, making later challenges more difficult and therefore less likely. A testator who prefers to maintain ownership and control until the moment of death should use a will that details every possible contingency. Another option is to include a “no-contest” clause in your will—a provision meant to scare off legal challenges by heirs who feel that they have been wrongfully excluded from your will.

Alternatively, your estate-planning attorney can insert a simple statement of acknowledgement in the will. For instance, a testator can eliminate any concerns of accidental omission by including the following statement, “I am aware that I have another son, Diego, who is not inheriting property under my will.” California law only provides remedies for mistakenly omitted heirs and a statement that the testator is aware of the omission ordinarily eliminates these remedies.

Giving a reason for a reduced gift or disinheritance in the will itself is generally discouraged, mainly because the accuracy of the statement may be challenged after the testator’s death. Moreover, deliberately negative statements about any person may expose the estate to claims of testamentary libel. Ultimately, your best bet is to communicate with your heirs close enough to have a reasonable expectation of inheritance. A testator who is realistic about the effects of unequal distribution of wealth among family members, and who is honest with those family members about his intentions, is more likely to leave behind a positive emotional and financial legacy. TOP

Q: What is a no-contest clause?

A: Essentially, a no-contest clause forces an heir who brings and loses a will contest to forfeit his inheritance under the challenged will. Consequently, only heirs who stand to inherit more money if there were no will are likely to contest the will. Therefore, effective use of a no-contest clause generally requires mathematics, psychology and measured generosity. In other words, a no-contest clause will be most effective if you give the heir you are seeking to disinherit a large enough share of your estate that contesting the will is not worth the risk. TOP

Q: Who Should I Name As The Beneficiary Of My IRA?

A: You have the option of appointing your spouse, children, a trust, a charity, or some other individual as beneficiary of your IRA. If you appoint your spouse or child they will have the benefit of choosing whether or not to "roll over" the IRA to their own tax-deferred account or IRA, further delaying income taxes until he/she is required to take minimum distributions. However, you should know that your spouse or child will have full control of this money after you die and is under no obligation to follow your wishes for naming a contingent beneficiary of the IRA when they pass away.

Naming a trust as beneficiary will give you maximum control over who receives the money after you die. When you pass away, the required distributions can be paid to the trust over the life expectancy of the oldest beneficiary of the trust. However, you should talk to your attorney or financial advisor about the implications of naming a trust as a beneficiary of an IRA because many trusts pay income taxes at a higher rate than most individuals, but this only applies to income that stays in the trust. TOP