California + Nevada Estate Planning attorney, Tiffany Ballenger Floyd, answers some of the most frequently asked questions she receives about trusts and estate planning…
Q: Isn’t Estate Planning Just for Rich People?
A: NO!!! Many people have preconceived notions about estate planning and believe that it’s only necessary for multi-millionaires who wish to leave large trust funds to their children.
However, this is far from the truth – an estate plan can be invaluable tools in the many people’s (not just rich people’s) estate plans, as it provides certainty, efficiency, and protection for you and your loved ones.
Q: What’s Included in a Typical Estate Plan?
A: Important documents within a comprehensive estate plan include:
- A Revocable Living Trust
- Schedule of Assets for your Trust
- Certification of Trust
- Pour-Over Will
- Financial / General Durable Power of Attorney
- Health Care Documents, including an Advance Health Care Directive and HIPAA Release, Living Will, and Health Care doc registrations;
- Nominations for Custodial Guardians for Minor Children
- Certification of Trust
- Personal Property Assignments + Personal Property Memorandum
- Assignment of Business Interests to your Trust
- Deeds + Real Estate Documents transferring your real estate to your Trust (or another entity, as appropriate)
There are other important documents that may be included in your plan, depending on your specific situation.
Q: What is a Trust?
A: Generally, a trust is simply a legal arrangement that creates a separate legal entity (the Trust), which owns + manages assets according to its terms.
One of the foundational components of an estate plan is a Revocable Living Trust (also called a “Family Trust” or “Living Trust”).
- A Revocable Living Trust is a private document created by YOU that dictates what happens if you can no longer make decisions for yourself, or if you pass away.
- In an estate planning context, trusts are created by the person creating the Trust (the Grantor), who authorizes the Trustee to manage the assets for the benefit of the Beneficiary/ies.
- This can be confusing, however, as the Grantor of most Revocable Trusts also serves as the Trustee and Beneficiary during his or her lifetime.
A Revocable Living Trust document is completely separate from a Will, although they often work hand in hand with a Will (sometimes called a “Pour-Over Will”) to carry out the Grantor’s wishes.
Read more about Wills vs. Trusts.
There are many reasons for establishing a trust-based estate plan, including avoiding probate and guardianship court, estate tax minimization, nominating caretakers (Guardians) for your minor children, providing asset protection for your beneficiaries, and planning for your incapacity.
Q: What is Probate, and How Can You Avoid It?
A: Probate is often thought of as messy, costly, and time-consuming. It’s important to know:
If you leave your estate to your loved ones using a only a Will, it’s very likely that everything you own will have to go through the probate process!
What is Probate? Why is it Awful?
Probate is the legal process of transferring assets from a deceased person to their family or other beneficiaries. Probate is often stressful, and it’s open to the public.
- Probate is time-consuming:
- In Nevada, the average timeline for probate is 13+ months – this average includes simple estate administered thru set-asides. According to the a 2023 publication by the State Bar of Nevada, a “routine” Summary or General Probate Administration case (without disputes or complexities) takes a minimum of 10 – 12 months, with a much longer timeline if complications arise or the estate is more complex.
- In California, the average probate takes up to 18 months. According to the Judicial Branch of California, while CA law aims for a one-year timeline, the reality is it can take much longer, especially for complicated estates.
- Probate is also expensive: On average, legal fees/costs for probate are 10 x more expensive than a properly maintained trust-based plan.
- Probate = Lack of Control: The probate court is in control of the process until the estate has been settled and distributed.
- During this process, it is not unusual for the probate courts to freeze assets for weeks or even months while trying to determine the proper disposition of the estate, making it difficult for your family to pay for living expenses.
- If you have any dependents (married / children), you’ll want to make sure your surviving family has immediate access to funds to pay for living expenses while your estate is being settled.
How Do I Avoid the Probate Process?
Assets that are titled “with rights of survivorship“, or assets with proper beneficiary designations may – but don’t always – avoid the probate process. However, the gold standard is to have your assets held in trust. Revocable Living Trusts are often used to avoid probate in states where probate is particularly cumbersome (like in Nevada, California, and Washington).
For example, trusts are commonly needed when:
- If you own any Real Estate (especially important if you have properties in multiple states)
- If you own a Business
- If you’re a Parent (especially if you have minor children or children with special needs)
- If you are part of a Blended Family
- If you have a more complex Estate and/or Tax situation
With proper estate planning, like with a well maintained Trust-based plan, your estate can pass on to your loved ones free from the burden of probate, in a way that’s efficient, less expensive, and private.
Q: How Do I Make Sure My Kids are Taken Care Of?
A: This issue is critical! It’s vital that your estate plan addresses issues relating to your kids’ care and upbringing.
Most importantly, you want to nominate permanent – and temporary– custodial guardians for any minor children.
- You should give careful thought to your choice of guardian, ensuring that he or she shares the values you want instilled in your children.
- The person, or trustee, in charge of the finances need not be the same person as the guardian (or caretaker). In fact, in many situations, you may want to purposely designate different persons to maintain a system of checks and balances.
- You will also want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack child-rearing skills you feel are necessary.
- If you’re married with minor children, you should talk to your estate planning attorney about the possibility of both you and your spouse dying simultaneously, or within a short duration of time.
- A contingency plan should include a list of persons you’d like to manage your assets and name a guardian you’d like to nominate to raise your children in your absence.
If you fail to plan, the decision as to who will manage your finances and raise your children will be left to a court of law- which is not only expensive and cumbersome, but may result in someone being named Guardian of your children who you wouldn’t have chosen.
Some additional topics you may want to think about:
- If your children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations – this is often provided through term life insurance with death benefits paid to a trust.
- You may also want to provide for special counseling and resources for your spouse, if you believe they lack the experience or ability to handle financial and legal matters.
- You’ll want your trustee (or surviving spouse) to know who to contact – our estate planning attorneys help to assemble a team of advisors to counsel you and your family.
Q: What Can I Do To Protect My Kids’ Inheritance?
A: The Estate Planning attorneys at Phillips Ballenger can offer many creative, customized options for this critical issue.
An important issue to consider during the planning process is whether you’d like your beneficiaries to receive your assets directly, or to have the assets placed in trust and distributed subject to conditions and circumstances such as age, need and even incentives based on behavior and education.
We often recommend discretionary distribution trusts to keep the estate within the family, and to provide creditor protection (asset protection) to beneficiaries.
All too often, children receive substantial assets before they are mature enough to handle them in a prudent manner- just think about how you would’ve spent a windfall at the age of 18… (!).
Our Planning Attorneys can recommend trust provisions to provide Asset Protection for your children, surviving spouse, and/or other beneficiaries.
Q: What Happens if I Become Incapacitated?
A: If you become incapacitated, you won’t be able to manage your own financial (or health) decisions. Many are under the mistaken impression that one’s spouse or adult children can automatically take over for them if they become incapacitated. Not true!
In order for others to be able to manage your finances, they must petition a court to declare you legally incompetent- i.e., you and your family end up in Guardianship court. This process can be lengthy, costly and stressful. Even if the court appoints the person you would have chosen, the individual may have to come back to the court every year and show how he or she is spending and investing each and every penny.
Statistically, a person is six times more likely to become incapacitated than to die in any given year.
If you want your someone to be able to immediately take over for you, without court involvement, it’s essential that you work with a knowledgeable Estate Planning attorney to create the proper legal documents to designate a person that you trust so they will have the authority to withdraw money from your accounts to pay bills, take distributions from your IRAs, sell stocks, and refinance your home, if needed, to ensure you and your family are taken care of. This is typically handled through a Financial Durable Power of Attorney (also called a Power of Attorney for Financial Decisions).
Many people mistakenly think that a simple will can effectively protect you in the event that you become incapacitated, but the truth is that a Will does not take effect until you die. As such, without a Financial Durable Power of Attorney, your family may end up in Guardianship court.
Q: How Can I Ensure My Health Care Decisions are Handled?
A: In addition to planning for the financial aspect of your affairs during incapacity, it’s critical that you establish a plan for your medical care. The law allows you to appoint someone you trust – for example, a family member or close friend to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself.
- A HIPAA Release, which authorizes your agent(s) to talk to hospitals/doctors about your care & condition if you become incapacitated; +
- A Living Will, which informs others of your preferred medical treatments such as the use of extraordinary measures should you become permanently unconscious or terminally ill.