A. An estate plan is a plan for preserving and effectively transferring assets. In other words, it is a plan for who inherits assets, when they inherit those assets, and on what conditions the assets are inherited. An estate plan also serves to smoothly transition affairs in the event of physical or mental incapacity and nominates guardians for minor children. A typical estate plan includes a revocable trust, will, durable power of attorney for management of property and personal affairs, and a power of attorney for health care decisions. These documents may serve to avoid future will contests and family disputes. A complete estate plan also includes tax planning. As assets appreciate and grow, so does potential tax liability. Estate taxes can consume one half of an estate before any distributions to beneficiaries are made.
A. A will is a matter of public record submitted to a probate court. Probate is a court-supervised process for distributing an estate. The average probate lasts months and may last years before assets are distributed; probate is a public process and fees are set by California law. In many cases probate costs are 3-8% of the value of an estate. Property transferred into a revocable trust (also called a "living trust") avoids probate, i.e., the distribution of assets is a private matter avoiding the probate process and court control.
A. A trust can eliminate estate taxes on certain assets and defer estate taxes on others. For example, in a "credit shelter" or "bypass" trust, one spouse can leave property to the other in trust for life, and then to children or others. This property passes completely free of tax and can potentially save hundreds of thousands of dollars in estate taxes. Another type of trust is a "Qualified Terminable Interest Property" or "QTIP" trust. In this type of trust, assets are passed in trust from one spouse to the other free of tax. Taxes are deferred until the death of the second spouse.
A. A trust can provide for management of assets in the event of physical or mental disability without court appointment of a guardian or conservator. A trust is also an excellent method of protecting a spouse's or child's inheritance from creditors, divorce risk, or mismanagement. A trust allows the creator to specify how an inheritance is to be used. For example, a parent may specify funds are to be used for a child's college education, to purchase a home, start a business, travel, or as a reward or incentive for worthwhile accomplishments. An estate plan is a complex process which should not be undertaken without professional guidance. The Law Offices of Jennifer M. Honey provides clients with customized estate planning and tax advice to preserve wealth and provide for the future.
