Tag Archives: Living Trust

Estate Planning Suggestions

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Estate Planning Suggestions

Estate Planning Suggestions

Estate Planning Tips

This Estate Planning tips and suggestions list will help ensure that you consider important topics when creating your estate plan. Estate planning can be complex and it is wise to do some research before you begin speaking with an estate planning professional so that you know what questions to ask about topics that are important to you. An estate plan is a legal document or group of legal documents such as a will, living trust, advance healthcare directive, or spill-over will, that is used to plan for what happens to your estate upon your passing or for your care in case you become incapacitated. These estate planning tips and suggestions will help educate you on what you can accomplish with estate planning and things to consider.

Have a will drafted:

A will can accomplish a variety of things when it comes to estate planning. For instance a will declares those who will inherit your property after your death. Your assets will be dispersed in accordance with your states intestate succession laws if you pass away without a will, which may not be in accordance with your own wishes. A will can allow you to designate a guardian for non-adult children if that is applicable to your situation. With a will you can also donate specified assets to charity(s) of your choosing. Wills are inexpensive to create and can even be created free of charge using websites such as https://www.freewill.com.

Consider Setting up a Revocable Living Trust

A living trust is a legal tool for estate planning that allows a person (known as the Trustee) to hold another person’s (known as the Settlor or the creator of the trust) property for the benefit of someone else (the Beneficiary). It is an estate planning tool that can help family members and beneficiaries avoid a potentially lengthy probate process. A living trust is a legal document which lays out the terms of the trust and the assets that the grantor has assigned to it.

Create a Financial Power of Attorney

Who will make your financial decisions if you are not able to make them for yourself? That is where a Financial Power of Attorney can help out. With a financial power of attorney you can determine that the power of attorney comes into effect when you are incapacitated and ends when you pass away. You designate a trusted agent to work on your behalf and make important financial decisions for you, when you are unable to do so.

Execute an Advance Health Care Directive

Much like a Financial Power of Attorney, you may want to designate a trusted person to make health care decisions for you if you are unable to do so. An Advance Health Care Directive can help you accomplish that. An Advance Health Care Directive, is a Health Care Power of Attorney that describes what medical procedures you do or do not want to receive and designates a health care agent who will make health care choices on your behalf.

Make a Plan for your Funeral and Related Expenses

Your passing is likely to be a very difficult time for your loved ones. The easier you can make the situation for them, the better. It is advised that you communicate your wishes for your funeral and put money aside to pay for it. Doing so can help take some of the stress off of your loved ones as well ensure that your funeral wishes are carried out as you desire.

Review Your Life Insurance and Designate Beneficiaries

Depending on your financial situation and the needs of your family, Life Insurance can be a valuable estate planning utility. Life insurance is one way you can provide financial support for loved ones after you die. When you open a life insurance policy, you will pay a regular insurance premium in exchange for coverage. As long as your policy is active when you die, the insurance company will pay out a death benefit to your life insurance policy beneficiaries. Term, Whole Life and Universal are the three most common life insurance policies types. The following is a brief overview on each of them:

Term Life Insurance:
A term life policy lasts for a specific period of time, typically up to 30 years. During the term, the policyholder makes fixed premium payments in exchange for a guaranteed death benefit. Under a term life policy, coverage ends at the end of the term. Your insurance provider may offer to extend the coverage to another term or convert it to a permanent policy. Typically Term Life Insurance is the least expensive type of life insurance.

Whole Life Insurance:
With Whole Life Insurance, as long as you pay your life insurance premium, the policy will remain active for the entirety of your life. With most whole life insurance policies, the policy premium and death benefit are fixed. Whole life insurance also has a cash value component, which grows over time. You may be able to withdraw from or borrow against the cash value portion of your policy while you are living.

Universal Life Insurance:
Universal life insurance is similar to Whole Life Insurance but potentially offers additional flexibility. Universal life insurance is a type of permanent life insurance. With a universal life policy, the insured person is covered for the duration of their life as long as they pay premiums and fulfill any other requirements of their policy to maintain coverage. Like many permanent life policies, universal life insurance combines a cash value feature with lifelong protection. When you pass away, the policy’s death benefit is paid out to your beneficiaries. Unlike whole life insurance, universal life insurance typically offers more flexibility. You can typically change your death benefits and premiums to accommodate changing circumstances.

You can learn more about Universal Life Insurance here.

With Life Insurance, it is important to update your beneficiaries on any existing policies. Doing so can help ensure the right person will be able to claim benefits when you pass away and avoid conflicts with your estate planning documents.

Create a List of Accounts, Debts and Liabilities

Before you begin your estate planning, it makes sense to get organized and create a list of all of your assets and debts. Make a list of all of your checking, savings, investment, retirement and pension accounts. Also create a list of any money that is owed to you. Additionally you should create a list of all of your liabilities with any debts you owe. Doing so will greatly help with the creation of your estate planning documents and also help the Executor of your estate once you have passed.

Review and Keep your Estate Planning Documents Current

As your life changes, so should your estate planning documents. It is recommended that you review your estate plan annually and or make updates to it as life events occur. Assets such as retirement funds, investment accounts and life insurance policies often have designated beneficiaries and assets with beneficiaries may pass outside of probate, so it is important to keep this information up to date.

Organize Important Documents and Notify Family Members of the Location

A will does you no good if it cannot be located. It is advised that you store your important estate planning documents such as your will, funeral arrangement plans, insurance policy(s), asset and liability information and trust documents a safe and secure location that trusted members of your family are aware of and will have access to if you pass.

What is trust administration?

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What is Trust Administration?

What is Trust Administration?

Trust Administration

What is trust administration? Trust administration is the process of managing and distributing the assets of a trust. When a person creates a revocable living trust and passes, that trust typically becomes irrevocable and enters a phase requiring trust administration so that the assets held in the trust can be distributed to the beneficiaries of the trust. The creator of the living trust, usually referred to as a trustor, settlor or grantor; transfers ownership of their assets to the trust. Typically while the trustor is alive, they also act as the the trustee (the person managing the trust) but designate a successor trustee (the person or people who will administer the trust when they pass or if they become incapacitated) in the trust documents. The successor trustee is responsible for carrying out the terms of the trust and managing the trust assets according to the instructions set forth in the trust document by the trustor. In the process of trust administration, the trustee has a number of duties. Common trust administration duties include:

  • Paying the expenses and debts of the trust
  • Managing the trust assets in a way that is consistent with the terms of the trust
  • Managing any investments held by the trust
  • Maintaining accurate records of all trust transactions
  • Filing any necessary tax returns on behalf of the trust
  • Distributing the trust assets to the beneficiaries according to the terms of the trust
  • Providing accountings to the beneficiaries as required by law or as specified in the language of the trust document

In some cases the administration of a trust can be complicated as well as time-consuming and a professional such as an attorney or trust administration company may be hired to handle or assist with the trust administration. Factors such as the number of beneficiaries, types of assets held in the trust, quantity of assets or the complexity of the trust accounting and taxes may all be considered when deciding if a professional trust administrator should be utilized.

What is a Successor Trustee?

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What is a Successor Trustee?

What is a Successor Trustee?

What does Successor Trustee mean?

A successor trustee is a person (or group of people) that takes over the management of a living trust (or a trust of any kind) when the original trustee has died, become incapacitated or is unable to act as the trustee. The successor trustee is typically named by the Grantor / Settlor (the person who created the trust) of the trust in the trust documents. The responsibilities of a successor trustee may also be specified in the language of the trust documents. The Settlor may name several successor trustee(s) in case one or more is unable to act as the trustee. In some cases a professional such as an attorney, fiduciary or trust company is named as the successor trustee.

Is a Successor Trustee and Trust Administrator the same thing?

Yes, typically when someone refers to a person as a Trustee or a Trust Administrator, they are referring to the same person. The trustee or successor trustee acts as the administrator of a trust.

Does a Successor Trustee have to be a relative?

No, a successor trustee does not have to be a relative of the Settlor. Commonly the Settlor chooses a relative such as a spouse, son, daughter, brother or sister to be their Successor Trustee, but it is also not uncommon for them to select an attorney, CPA, or licensed fiduciary.

Does a Successor Trustee get paid for their work?

Yes, in some cases a Successor Trustee or Trust Administrator receives payment for the work they do on behalf of the trust and the trust beneficiaries. Usually this occurs when the Successor Trustee is a professional such as a lawyer, licensed fiduciary or accountant. When the person serving as the Successor Trustee is a family member, it is common for them to decline compensation for the work they do on behalf of the trust. Trust Administration or Trustee compensation varies depending on the qualifications of the person, but annual compensation does not typically exceed 2% of the total trust assets.

Trust Loans and Avoiding Property Tax Reassessment

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Loans to Irrevocable Trusts

Trust Loans and Loans to Irrevocable Trusts in California

Property Taxes in California and Proposition 13

Each state in the US has their own individual laws, rules and regulations that govern estate planning, inheritance and taxation. California for instance has several property tax laws that control how much a persons property tax can increase each year and how you can avoid property tax reassessment on an inherited home.

The primary legislation that stabilizes property taxes in California is know as Proposition 13. Proposition 13 provides three functions in property tax assessment.

  • All real estate has an established base year value
  • A homes assessment can not increase by more than 2% a year
  • A homes property tax base can not exceed 1% of the assessed value (plus additional voter-approved taxes)

Additional information on California Proposition 13 can be found on the Santa Clara Assessors Office website located here.

California Proposition 19 and the Exclusion from Reassessment on an Inherited Home

California Proposition 19 went into effect on April 1st, 2021 and replaced the existing legislation that controlled how a person inheriting a home from a parent could avoid property tax reassessment. The previous legislation was known as Proposition 58. With Proposition 19, a few of the rules for obtaining an exclusion from reassessment on an inherited home changed. Previously under California Prop 58, a child inheriting a home from a parent could apply for an exclusion from property tax reassessment with no value limitation, providing that the home they were inheriting was the parents primary residence. Under Proposition 58 you could also transfer the property tax base from a parent to child on an investment property or second home with a 1 million dollar property tax exclusion limit (per parent). Under Proposition 19, there is now a limit of the current taxable value plus $1,000,000 on a home you will use as your primary residence. Prop 19 also eliminated the ability to avoid reassessment on an inherited home that will not be used as your primary residence. You can view addition information on California Proposition 19, on the California Board of Equalization website located here.

In addition to the Proposition 19 and Proposition 58 property tax transfer rules listed above, there are additional requirements when it comes to receiving an exclusion from reassessment on an inherited home in California. For instance, the California Board of Equalization requires that all trust beneficiaries receive an equal share of assets, if language requiring an equal distribution exists in the trust, which it often does. If an equal distribution is required, a loan cannot be made to the trust by any of the beneficiaries who intend on keeping the home. Doing so would be considered a sibling to sibling buyout by the Board of Equalization and result in a disqualification from a full exclusion from reassessment. They view this as a transfer between beneficiaries rather than a transfer from parent to child.

The following is a simplified example of how an equal distribution of trust assets works when a trust loan is involved. Lets assume the only asset in the trust is a home worth $300,000. One of three child beneficiaries wants to keep the home, and the other two would like to receive cash. A loan would need to be made to the trust for $200,000. In this situation the two beneficiaries who did not want the home would each receive their $100,000 as cash and the other child receives the home with $100,000 equity in it. Since each child received a distribution of $100,000 in trust assets, an equal distribution was made. Detailed information on the California Board of Equalizations requirements for equal distributions and other parent to transfer requirements can be found here on the BOE Website.

Trust Loans and Lending to an Irrevocable Trust

Trust Loans and Loans to Irrevocable Trusts

Trust Loans and Loans to Irrevocable Trusts

A trust loan in a loan to an irrevocable trust that provides enough so that an equal distribution of assets can be made to all beneficiaries. When an irrevocable trust contains insufficient cash assets for an equal distribution to be made, a person will often require the assistance of a specialized lender known as a Trust & Estate Lender. Trust and Estate lenders specialize in making loans to irrevocable trusts and estates that are involved in probate. As documented by the California Board of Equalization, the acquiring beneficiary may not utilize their own funds or make a personal guarantee on the loan. Doing so would create a sibling to sibling buyout, disqualifying them for the full parent to child transfer exclusion. The loan will need to be made directly to the trust (which is usually an irrevocable trust), without first removing the property from the trust or requiring a personal guarantee from the acquiring beneficiary. A conventional lender will almost never lend to an irrevocable trust, and will instead first require that the home is removed from the trust before they will lend to it. Conventional lenders also typically require a personal guarantee from the person taking the loan. An experienced Trust and Estate lender will make a loan directly to the trust, providing enough cash for the equalized distribution to be made with no personal guarantee from the acquiring beneficiary.

A Trust & Estate Lender often works directly with your attorney. A trust loan is typically a short term loan with a term of 6-24 months and does not typically carry a pre-payment penalty. Trust loans usually have higher interest rates than conventional mortgages. Once the inherited home has been transferred from the trust to beneficiary, the loan can be paid off or refinanced into a conventional mortgage. You will want to review all aspects of the transfer with a qualified Trust & Estate Attorney to verify you are doing so in accordance with the California Board of Equalization requirements and that you will be eligible to receive a full exclusion from property tax reassessment on your inherited home. You can learn more about trusts, living trusts and irrevocable trusts here.

Proposition 19 Benefit Calculator for Inherited Properties

You can also use our online Proposition 19 Benefit Calculator to estimate how much you might be able to save by taking advantage of a Proposition 19 Parent-Child Transfer. You can access the Prop 19 Benefit Calculator here.

Free Estate Planning Guide

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Free Estate Planning Guide

Free Estate Planning Guide

Free Estate Planning Guide Now Available Online

EstatePlanningGuide.org is pleased to announce that we have launched our free, downloadable and printable estate planning guide. This new estate planning guide will help educate you on some of the different estate planning options available to you. The complimentary guide on estate planning helps explain a variety of estate planning topics in a simple and easy to understand manner. This free estate planning guide is now available for download here.

What does the estate planning guide cover?

The estate planning guide covers topics such as wills, living trusts, probate, advance healthcare directives and power of attorney documents. The guide delves into what a will can accomplish and in what situation a living trust may be a better option for you. It provides you with a 10-part step by step guide on how to prepare your own estate plan. The estate planning guide also includes a comprehensive estate planning glossary to help ensure that your understand of all of the information included in the estate planning guide.

Who is the estate planning guide intended for?

If you are or have been considering creating a will, trust or estate plan, this is the guide for you. It begins by explaining what estate planning is and what can be accomplished with it. The guide also covers issues like probate, how long it can take and how it can potentially be avoided. The free estate planning guide even provides you with information on creating an inventory of your assets in preparation for drafting a will or creating a living trust. The estate planning guide also includes a section on how to find an experienced and capable estate planning professional in your area to assist you with your estate planning needs.

If you are ready to being you estate planning process, please visit the estate planning how to guide on our website located here. It is a condensed version of our free estate planning guide and will help you get started with your estate planning.