Articles Posted in Estate Planning

The wrong kind of deed can have expensive and unintended consequences. Once the horse is out of the barn you can get back!

What is a deed?

image of California property deedReal estate property ownership is legally changed by a document commonly known as a deed which is signed by the person making the ownership transfer. The deed is then recorded with the County recorder in the county where the property is located.

Danger of property tax increase

Deeding Property Dangers – Under California law, the recording of a deed is considered a change of ownership by the County tax assessor which allows the property to be reassessed to current market value. Thus, supposing you have a property that you paid $200,000 for which is now worth $1 million and you record a deed transferring that property to another person. The first impression at the County level will be to say that the property taxes are going to be assessed based upon the $1 million valuation.  There are exceptions to the change of ownership rules which exempt certain types of transfers to certain types of persons. One such exemption is the parent-child exclusion which allows these same property tax bases to carry over in the situation where a personal residence occupied by the transferring party is transferred to a child or grandchild. However, certain papers have to be filed with the county assessor within the time deadlines to take advantage of the exclusion. There are other exclusions which Crockett law firm can advise on and plan to try to keep the property tax increase from happening.

A living trust is one of the key ingredients in most estate plans.  The living trust is widely used because of its flexibility.  When people but their money and property into a living trust  probate can be avoided and estate taxes saved.

Revocable Living Trusts – Creation and definition:

 
Revocable Living Trusts – For Single PersonsA revocable intervivos trust is a trust created during the Trustor’s lifetime (as opposed to a trust created as part of one’s will).  A Revocable Living Trusts is often called  a “Living Trust.”  The Trustor is the person who establishes the trust.  Assets transferred into the trust by the Trustor can be removed from the trust and given back to the Trustor whenever the Trustor decides.  Typically, the trust  is  set up so the Trustor is also the beneficiary during his or her lifetime and thus receives all the trust income during his or her lifetime and has a right to  withdraw trust principal  when desired.  The person who has legal title and control of the trust assets is known as the Trustee.  Typically the Trustor is also the Trustee of a Living Trust during his lifetime and whomever he appoints is the Trustee following the Trustor’s death.

The usual way for a single person to establish a living trust is to be the Trustor, the Trustee, and Beneficiary during his or her lifetime.  Provision is also made for a successor Trustee to take over during the Trustor’s lifetime if the Trustor wants to resign from being a trustee or if the Trustor becomes incapacitated.  The net effect is that the Trustor retains entire control and privacy over his or her financial affairs during lifetime since any successor Trustee is legally bound to follow the instructions of the Trust as to how to spend the Trust’s money.

Estate Planning requires careful documentation which is custom prepared

Purposes of Estate Planning

Estate Planning requires careful documentation which is custom prepared.People engage in estate planning to establish a comprehensive plan to cover what happens to their money and property in the event of disability or death.  There are many variations to an estate plan and each one is custom tailored to your personal situation. 

A typical estate plan will (i) be changeable (revocable); (ii) will keep your estate out of the probate court system; (iii) will keep your affairs private; (iv) will have a definite plan as to who receives your money and property on your passing; (v) will provide for your surviving spouse; (vi) will be set up to save estate and gift taxes; (vi) will minimize property tax increases on your passing and (vii) consider income tax implications of transfers of money and property. Crockett Law Corporation advises on all phases of estate planning and custom prepares all necessary documentation.

Avoid Probate Court

A well thought out estate plan can avoid having to go through Probate Court, protect your family from many of the uncertainties of life and make things a lot easier for you and for them in the future.

Typical Estate Planning Documents

  
Here is a list of the typical Estate Planning documents commonly used in estate planning.  Most of these documents are custom prepared to suit your individual family situation.

TYPE OF DOCUMENT PURPOSE/WHAT IT DOES
Basic estate plan  
♦ Will Final instructions as to who gets what upon death.
♦ Revocable (living) Trust A legal entity with instructions on how to handle everything before and after death.  Because it is revocable it can be changed at any time.
♦ Durable Power of Attorney Allows somebody else to legally sign for you even if you are incapacitated.
♦ Health Care Directive Authorizes others to make health care decisions for you if you are unable to do so.
♦ Property transfer documents Once a trust is established, deeds and other transfer documents are required to actually put your property and money into the trust.
♦ Bank and brokerage account Changes that will be needed Since a trust is a legal entity, it needs bank accounts in the trust name and whomever establishes the trust will need to go to the bank or brokerage company to sign new signature cards.
♦ Pension & life insurance changes Revised beneficiary designation forms will need to be signed for the trust to control what happens to the proceeds of these items.
   
Optional additional items  
♦ Life insurance trust A permanent trust to hold life insurance policies to keep it out of your estate for tax purposes so your heirs will get 100% of the benefit.
♦ Special needs trust This is used where there are children with disabilities to insure that there are special instructions for their care.
♦ Family limited partnership A separate entity to hold property or business interests and provide a mechanism to transfer percentages to the next generation in increments to escape estate and gift taxes.  Also used for asset protection.
♦ Limited liability company A separate entity typically set up to hold real property or business interests to protect your personal estate from liabilities of the property or business.

A living trust is one of the key ingredients in most estate plans.  The living trust is widely used because of its flexibility.  When people put their money and property into a living trust  probate can be avoided and estate taxes saved.

Revocable Living Trusts - Married PersonsCreation and definition:  A revocable intervivos trust (Revocable Living Trusts) is a trust created during the Trustor’s lifetime (as opposed to a trust created as part of one’s will).  It is often called  a “Living Trust.”  Assets transferred into the trust by the Trustor can be removed from the trust and given back to the Trustor whenever the Trustor decides.  Typically, the trust is set up so the Trustor is also the beneficiary during his or her lifetime and thus receives all the trust income during his or her lifetime and has a right to  withdraw trust principal  when desired.  The person who has legal title and control of the trust assets is known as the Trustee.  Typically the Trustor is also the Trustee of a Living Trust during his lifetime and whomever he appoints is the Trustee following the Trustor’s death.

Married Persons

Trusts for Married PersonsThe usual way for a married couple to establish a living trust is for both of them to be the Trustees and Beneficiaries during their lifetimes.  Following the death of the first spouse, the surviving spouse usually continues to serve as the Trustee.  The net effect is that the married couple retains entire control and privacy over their financial affairs during their lifetime but because of the trust setup if one or the other becomes unable to handle their affairs the successor Trustee can step in to handle things.

Purposes of Estate Planning

Many Variations to an Estate Plan

Estate Planning requires careful documentation which is custom prepared.People engage in estate planning to establish a comprehensive plan to cover what happens to their money and property in the event of disability or death. There are many variations to an estate plan and each one is custom tailored to your personal situation.  A typical estate plan will (i) be changeable (revocable); (ii) will keep your estate out of the probate court system; (iii) will keep your affairs private; (iv) will have a definite plan as to who receives your money and property on your passing; (v) will provide for your surviving spouse; (vi) will be set up to save estate and gift taxes; (vi) will minimize property tax increases on your passing and (vii) consider income tax implications of transfers of money and property.

A well thought out estate plan can protect your family from many of the uncertainties of life and make things a lot easier for you and for them in the future.

Typical Estate Planning Documentation

Here is a list of the various documents commonly used in estate planning.  Most of these documents are custom prepared to suit your individual family situation.

TYPE OF DOCUMENT PURPOSE/WHAT IT DOES
Basic estate plan
♦ Will Final instructions as to who gets what upon death.
♦ Revocable (living) Trust A legal entity with instructions on how to handle everything before and after death.  Because it is revocable it can be changed at any time.
♦ Durable Power of Attorney Allows somebody else to legally sign for you even if you are incapacitated.
♦ Health Care Directive Authorizes others to make health care decisions for you if youare unable to do so.
♦ Property transfer documents Once a trust is established, deeds and other transfer documents are required to actually put your property and money into the trust.
♦ Bank and brokerage account Changes that will be needed Since a trust is a legal entity, it needs bank accounts in the trust name and whomever establishes the trust will need to go to the bank orbrokerage company to sign new signature cards.
♦ Pension & life insurance changes Revised beneficiary designation forms will need to be signed for the trust to control what happens to the proceeds of these items.
Optional additional items
♦ Life insurance trust A permanent trust to hold life insurance policies to keep it out of your estate for tax purposes so your heirs will get 100% of the benefit.
♦ Special needs trust This is used where there are children with disabilities to insure that there are special instructions for their care
♦ Family limited partnership A separate entity to hold property or business interests and provide a mechanism to transfer percentages to the next generation in increments to escape estate and gift taxes.  Also used for asset protection.
♦ Limited liability company A separate entity typically set up to hold real property or business interests to protect your personal estate from liabilities of the property or business.

Taxation issues

The tax issues involving estate planning and trusts that must be determined in each  situation involved are:

  1. Will the money & property in the trust be subject to federal estate taxes on the death of the Trustors?
  2. Will the income generated by the trust (ordinary income, portfolio income, or capital gains) be taxed on the Trustor’s personal income tax returns, or will the trust pay the tax, or will the beneficiaries pay the tax?
  3. Will there be gift taxes on the transfers into the trust?
  4. Will there be an increase in the property taxes for property placed into a trust?
  5. What will happen to the income tax basis of properties and assets if transferred into a trust as compared to giving them directly to heirs before death?
  6. Who will be paying income taxes on income generated by a trust or estate?

Control issues

If there is a living trust, the trust document establishing the trust names the persons  who control the trust monies and properties and gives detailed instructions on how much, when, and under what circumstances money is paid out of the trust to the beneficiaries.  The Trustee of the trust administers these instructions.  However, if the trust is revocable, the Trustor can make changes in these instructions and/or revoke the trust altogether to prevent the instructions from being carried out if the Trustor changes his mind.  On the other hand, if a trust is irrevocable, by definition it cannot be changed and the Trustor cannot make changes, with some minor exceptions.  For example, the Trustor may retain the right to replace the Trustee if he doesn’t like what the Trustee is doing.  However, when the Trustor retains rights, some of the income or estate tax benefits of a trust might be lost or diminished.

CALL  (949) 229-7034  to speak with Lawyer  David L. Crockett

Probate avoidance

To avoid probate the your assets would need to be placed into a living trust.  Money and property placed into a trust before your death generally will not be subject to probate court proceedings.  Probate court proceedings have mandatory attorney fees which for example on  a $500,000 estate would be $11,150 and on a $1,000,000 estate would be $18,000.   This is one reason for the  popularity of  living trusts.   A living  trust enables  you  to  set  and organize  the  scheme  of distribution of your property before death and to see how well the trust and Trustee work.

Conveniently located in Newport Beach near the John Wayne Airport

We are located near the Orange County California John Wayne Airport. My office is catty-corner from Fletcher-Jones Motorcars; —right behind the rear entrance of Newport Lexus on Dove Street. Here is a picture of my office building and a Google Map to get your bearings.

Attorney, Certified Public Accountant & Real Estate Broker

  

  

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