Trusts

Estate Planning for Minors

March 7, 2016 by Verleana D. Green Leave a Comment

Estate Planning for Minors is more important than some think. When clients are preparing their estate plans, many have children below the age of 18, and desire to have their children take most, if not all, of their assets upon their transition. Children are often left as the beneficiaries of life insurance policies, retirement accounts and even as real property joint tenants. In this article I will share why leaving your children as beneficiaries of your insurance, retirement accounts and as joint tenants on real property is not the best option, and why executing a Trust and other estate plan documents may provide your child with the best planning for their future.

An individual under the age of 18 years old is considered to not have sufficient “capacity” to accept transfers of assets. If a parent dies and leaves his or her assets, including, but not limited to, life insurance policies, retirement accounts and real property to their child who is a minor, the child would need a guardianship of the estate established on their behalf. A guardianship of the estate requires a petition to the court, an initial hearing and further hearings, depending on the case. Notice is given to the child’s brothers and sisters, paternal and maternal grandparents and any living parent. A filing fee to file a guardianship petition is required, and most of the time, individuals hire attorney. Thus, the process can get expensive. Even if the child has a living parent, that parent is still required to establish a guardianship of the estate to receive any assets left to their child by the deceased parent. There are two basic problems with a guardianship of the estate. First, the funds are generally ordered for placement in a blocked bank account, and none of the funds can be spent for any purpose without filing a petition to the court to allow some of the money to be released. Second, the funds are distributed to the minor when the minor turns 18. A better way to leave assets to your child is through a Uniform Transfer to Minors Act transfer, and a better way is through the vehicle of a trust.

The most simple method of making gifts to minors is the California Uniform Transfers to Minors Act (CUTMA). Under CUTMA, a Custodian is named (typically in a Will) to hold, invest, and spend assets for the minor child when the parent transitions. The Custodianship may last until the minor reaches age 21 if the parent specifies, and if no age is specified, the minor becomes the outright owner of the gift when the minor reaches age 18. The drawback to such an account is that the minor automatically receives the assets left in the CUTMA account at 18 or 21, and is free to do what they like with the asset! This could mean spending money on a new car, vs. college tuition, selling home, vs. retaining the home as an asset, and even traveling the world and coming back home flat broke! A better method is to establish a formal Trust for minors.

A Trust allows assets to be held for the child, even after he has reached age 21. A Trustee is appointed to spend, invest and hold assets for the child until the parent deems the child is ready to manage the assets, which may be never! This protects against the child foolishly spending money without the consent of the Trustee. Typically, the Trustee uses the Trust assets for the health, education, and support of the child. When the child reaches whatever age is specified in the Trust document, the child gets the assets without any further supervision. In some trusts, the child can get lump sum payments when they reach certain ages. In other trusts, the Trustee manages the Trust until the Trust assets are fully exhausted. A parent has broad authority and creativity to distribute assets to their child as they see fit through a Trust. That is the beauty of it. If you have a child with a drug or alcohol addiction, the Trustee can distribute funds to make sure that the child’s basic needs are met without providing a lump sum of funds that could further contribute to the addiction. A child who is a “spendthrift” would also be protected from over spending and shield creditors from reaching those funds. Trusts establish a way of transferring assets to your child upon your transition without the need of a court petition, and without the worry that your child may not spend your hard earned assets frivolously.

Establishing a Trust and guidelines for your minor children to receive your assets upon your transition should be considered a high priority. Their future depends on it!

***The information in this article is provided for informational purposes only and does not constitute legal advice. Transmission of this information or the receipt of this information does not constitute an attorney-client relationship between the sender and receiver of this newsletter. You should not act or rely on any information contained in this newsletter without first seeking the advice of an attorney.This article is the sole property of the Law Offices of Verleana D. Green. Please do not use without our permission. Thank you!

Why Should I Execute A Living Trust?

October 7, 2015 by Verleana D. Green 1 Comment

Living trusts have been a hot topic in estate planning in recent years- and for good reason. Living trusts make the transition of death for family members a much easier process than without one. The primary advantage of a living trust is that property in a trust is not subject to probate. Another advantage of executing a living trust is conservatorship avoidance- also a court supervised proceeding.

In California, probate proceedings can be extremely costly due to court fees, publication fees, probate referee fees, and of course, attorney’s fees. Attorney’s fees in probate proceedings are calculated based on the assets in the deceased individuals total estate. These fees are based on statute, and are generally awarded to the attorney representing the executor or administrator in a probate proceeding. And, if property is involved, attorney’s can request what are known as “extraordinary fees” in probate proceedings. This fee is in addition to the normal statutory fee attorney’s are paid. Attorney’s fees can add up pretty quickly in probate proceedings. In addition to the cost savings, a living trust that has been properly funded can be administered within a few months.

Executing a living trust allows the trustee to act more quickly than an executor or administrator could to administer and distribute an estate. The reason is that a trustee can act independently and without court supervision. The initial petition to administer the estate, a petition to confirm sales of property, petitions for instructions, and a petition for final distribution all have required notice periods that contribute to the time delays of a typical probate. Except for the filing of the estate tax return, a typical trust often can be administered in a few months, whereas a typical California probate estate lasts a minimum of a year to 18 months (California Estate Practice (Cal CEB).

In addition to the benefits of ease of estate administration at death, a funded trust can also prevent the costs and inconvenience of formal conservatorship proceedings in the event of incapacity. The costs of implementation and management of a conservatorship estate can be devastating to a family. Executing a living trust can prevent this from happening. If someone who has executed a living trust becomes incompetent or incapacitated, the terms of a living trust can provide a method for determining incapacity or incompetency relating to trust estate management. A smooth transition of administration can occur because the trust estate will be managed by a successor trustee selected by the person who initially executed the living trust. The trust also can assure that the incapacitated person is properly provided for in accordance with a standard of care designated in the trust.

Similar to probate at death, conservatorship proceedings are managed by the probate court, and similar cost and time issues are involved. A petition is required, assets are appraised by a probate referee, an investigation by the court is done- all of which cost. In addition, attorney’s fees and conservator fees can add up to thousands in the first year alone. Notices similar to those in probate proceedings at death are required in conservatorship proceedings, and information relating to ones incapacitated condition is made public through court documents. If a trust is properly executed and funded, information relating to ones incapacity remains private and court involvement is not required. A successor trustee can assume their duties without the delays of court supervised conservatorship proceeding.

Many individuals still have not executed living trusts, and the full probate court calendar is a testament to this fact. VDG Law provides comprehensive estate plans for individuals and families to ensure that the transition of your incapacity or death is seamless. Contact VDG Law for a consultation, and plan ahead so that you can save a lot of time and money in the future.

Benefits of Executing Trusts

March 29, 2013 by Verleana D. Green Leave a Comment

Trusts are popular estate planning tools that are extremely useful in the transfer of property upon death. Trusts can also be useful for property management during the lifetime of the settlor ( the person creating the trust). This article will discuss what revocable trusts are (irrevocable trusts are not the subject of this article), the formalities of executing a revocable trust and the benefits of executing a trust.

What is a Revocable Trust

A trust is a property interest held by one person (trustee) at the request of another (settlor) for the benefit of a third party (beneficiary) (Black’s Law Dictionary 723 (2^nd Pocket ed. 2001). In the typical revocable trust situation, the settlor (the person who owns the trust property or corpus) manages and maintains the trust property for the rest of their lives. Upon the death of the settlor, a successor trustee is usually appointed to manage the trust property, and to then distribute the trust property to the beneficiaries under the terms of the trust.

Formalities of Executing a Revocable Trust

A revocable trust is created by a settlor or by married settlors who manifest an intent to create a trust. A trust must be funded with assets and have beneficiaries to be valid. (Cal. Probate Code §15200-15205). In most instances, the settlors’ assets are renamed, including real property and bank accounts, to reflect the name of the trust. A trust does not have to be notarized to be valid, but it is good practice to do so. It is advised that you seek the services of an attorney when executing a trust agreement.

Benefits of Executing a Trust

The primary reason most individuals execute trust agreements is to avoid probate. Persons executing simple wills to transfer their property upon death are subject to probate proceedings. This means that the executor named in the will is responsible, with the assistance of an attorney, for filing the will with the court in the county where the deceased passed, initiating probate proceedings to distribute the deceased assets ( which includes filing notice for creditors’ claims), and obtaining court approval for final distribution of the deceased estate assets to beneficiaries. Most documents filed in probate proceedings are public information.

By contrast, assets transferred to the revocable trust before the settlor’s death are not part of the settlor’s probate property and are not subject to probate proceedings (CEB, California Estate Planning, §6.3) This means that statutory and extraordinary attorneys’ fees, court costs and potential creditor claims can be avoided if a valid revocable trust is executed . Moreover, probate proceedings are public and can create tension between family members who do not take under the will. By contrast, most trust distributions are private and involve the trustee dispersing trust assets to beneficiaries.

In addition to the cost benefit of executing a revocable trust, time can also be saved by executing a trust versus a simple will upon the decedent’s death. Typically, the probate of a will can take a minimum of 7 months to several years. In the case of a trust, distribution can take 1 or two months, depending on whether the trustee and beneficiaries are in agreement with the distribution and there are no extraordinary issues relating to the management of the trust.

Another benefit of executing a revocable trust is that a revocable trust can serve as an alternative to a durable power of attorney . Most trusts include clauses that appoint a durable power of attorney for the management of trust assets if the settlor becomes incompetent. This person is usually the successor trustee.

There are numerous benefits to executing trust agreements, particularly for individuals with real property and high net worth’s. For more information regarding executing a trust agreement, please contact the Law Offices of Verleana D. Green.

Trusts

Estate Planning for Minors

Why Should I Execute A Living Trust?

Benefits of Executing Trusts

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