Frequently Asked Questions

1. What is the difference between a Will and a Trust?

The primary reason for choosing a Revocable Living Trust over a Will is that a Trust is generally less expensive to administer at death. A Trust can avoid the time and expense of probate whereas a Will guarantees probate.

2. What is a Will?

A Will is a document that is effective only at the death of the person who created the Will (the testator). In its most basic form, a Will allows the testator to:

a. Name the beneficiaries that will receive assets at the testator’s death;

b. Nominate guardian(s) to care for minor children and to manage their financial affairs;

c. Nominate an executor to manage the estate at death and handle the probate proceedings.

3. Does a Will cover everything I own?

No. Generally a Will does not control the distribution of life insurance proceeds, retirement plan assets, certain jointly owned assets, “transfer on death” or “pay on death” accounts and the assets of Revocable Living Trusts.

4. What is a Revocable Living Trust?

A Revocable Living Trust is a written agreement between the person who creates the trust (the settlor) and the person who manages the trust property (the trustee). A Revocable Living Trust provides for the management of the assets held by the trust while the settlor is living, including during any time that the settlor is incapacitated and unable to serve as the trustee of his or her own Trust. Upon the settlor’s death, the Trust provides for the disposition of the assets to selected beneficiaries.

5. What are the advantages and disadvantages of a Will?

Estate planning goals and personal circumstances determine whether the following are considered advantages or disadvantages of having a Will but no Trust:

a. After death, the decedent’s Will is filed with the court in the county where the decedent last resided. This commences the probate, a process where the Will and all its contents become a matter of public record. All of the decedent’s assets are inventoried and valued, and the inventory also becomes a matter of public record.

b. Probate is a court supervised process which requires the executor to file numerous documents with the court and to get court approval for various actions. As a result, probate proceedings can often be time consuming and involve significant delays.

c. The executor and the executor’s attorney are entitled to compensation for services rendered. The fees are set by statute, and they are based on the fair market value of the decedent’s probate estate. For instance, in California, the probate fees on a $1 million probate estate are $46,000. The executor and the executor’s attorney are each entitled to payment of $23,000. In Florida, the executor and the executor’s attorney would each be entitled to $30,000 on a $1 million probate estate, for a total of $60,000 in fees.

d. Additional probate costs include: court filing fees, publication fees, certified copy fees, probate referee fees, and bond premiums (when the Court requires a bond).

6. What are the advantages and disadvantages of a Revocable Living Trust?

a. Unless court intervention is requested, a Revocable Living Trust is designed to operate without court involvement. Therefore, a Trust that is properly funded and administered can completely avoid probate expenses and delays.

b. A Revocable Living Trust offers more privacy than a Will. However, after the settlor’s death, the Trust becomes irrevocable, and the trustee is required to give a complete copy of the irrevocable portion of the trust to all beneficiaries and to any heir who requests it. As a result, beneficiaries may gain knowledge about the gifts given to other beneficiaries. In most circumstances, though, neither the trust terms nor the trust assets are made a matter of public record.

c. A Revocable Living Trust requires ongoing management of the decedent’s estate until the trust is terminated. Trustees are entitled to reasonable compensation. Most trustees charge an annual rate of 1% (or less) of the fair market value of the trust’s assets.

7. What is a Living Will?

The term Living Will is used in many states to describe a legal document that states an individual does not want life-sustaining treatment if he or she becomes terminally ill or permanently unconscious. It should not be confused with a Will or a Revocable Living Trust, which serve different purposes.

In 2000, the Advance Health Care Directive became California’s legally recognized format for a Living Will. It is more flexible than the traditional Living Will. It allows an individual to give various health care instructions in advance and to appoint someone who will make his or her health care decisions if necessary.

The Advance Health Care Directive also replaced the Durable Power of Attorney for Health Care. If you already executed such a power of attorney and it has not expired, it would still be valid. California’s old format for a Living Will, a Natural Death Act Declaration, would also be valid. You do not need to replace it with the newer, more comprehensive Advance Health Care Directive unless you choose to do so.

Florida’s health care documents include the Designation of Health Care Surrogate, Living Will, and Uniform Donor Card.

8. Will my beneficiaries’ inheritance be taxed?

It depends on the circumstances. Property left to your U.S. citizen spouse or a charity will not be subject to estate tax. The portion of the estate that is left to anyone else -including your children or non-U.S. citizen spouse – will be taxed if your assets exceed the estate tax exemption ($5 million plus inflation for deaths in or after 2010; i.e., the 2017 exemption is $5.49 million).

Under federal law, you can also give away as much as $14,000 per year per recipient without incurring gift tax. In addition, you could pay for a person’s college tuition or medical bills free of gift tax, but only if payments are made directly to the educational institution or medical provider.

Finally, your beneficiary may be subject to income tax on various income producing and tax-deferred assets. These include installment payments on a promissory note, rental income, and most retirement accounts.

9. Can I be barred from handling my own affairs for any reason?

Yes. To consent to medical treatmnet or make a legal contract, you must be able to understand the nature and consequences of your actions. The law refers to this as having sufficient capacity. If you lose such capacity, the agent named in your Durable Power of Attorney or Advance Health Care Directive may step in on your behalf to make your financial or medical decisions. If you haven’t made such arrangements, the court may appoint a conservator.

10. What is a conservator?

A conservator is someone authorized by the court to manage your affairs. A conservator may be appointed if you become unable to make sound decisions, feed or dress yourself, handle your own finances or resist undue influence.

Conservators may be family members, friends or, in some cases, the county public guardian. Unlike an agent with a Durable Power of Attorney, a conservator will receive court supervision in the handling of your affairs. You should be aware that a conservatorship can be expensive.

11. I lost a loved one. What should I do?

You may be overwhelmed with grief right now. You may want to leave the administrative matters for a later day. But there are notifications and legal steps that should not be postponed.

a. Make funeral and burial arrangements.

b. Obtain several copies of the death certificate.

c. Gather relevant documents, such as the Will, Trusts, insurance policies, and stock, bank account and annuity statements.

d. If the decedent was eligible for social security: Contact the Social Security Administration.

e. If the decedent was a Medi-Cal recipient: Send a notification and death certificate to the director of health services within 90 days after the death.

f. Notify any life insurance companies of the death.

g. Contact the trustee of any Trust, executor of the Will, and the attorney who prepared these documents.

h. Call the administrator of the decedent’s pension plans.

i. Notify the decedent’s banks and financial institutions.

j. Contact credit card companies.

k. Make sure that insurance or Medicare claims have been processed before paying any medical bills.