A Will allows you to name the individuals, trusts or charitable organizations to receive your assets when you pass away, to nominate an executor to administer your estate in probate, and to nominate a guardian for your minor children.  Having a Will alone will not allow you to avoid probate.  In fact, having a Will alone will assure that your assets pass through probate and your financial affairs and estate made public.


When you have a Trust you will have a Pour-Over Will.  It will determine who will care for your minor children, and if you forget to put anything into the name of your Trust during your life, the Will directs that assets titled in your individual name be transferred to your trust.  As with all Wills, these assets are subject to probate.


Probate is a court supervised process by which the estate of a deceased is settled, distributing assets according to the terms of a Will or by law, and paying debts or taxes owned by the estate.  California probate can be an expensive and time-consuming process, depending upon the size and complexity of the estate.  With careful planning, however, probate can be minimized or avoided altogether.

The living trust is one vehicle for transferring assets which avoids probate, since the assets are already transferred during your lifetime.  Other devices which transfer assets without probate include insurance policies and retirement benefits plans with named surviving beneficiaries.  Jointly-titled property or jointly-held bank accounts can also pass to the co-owner without the need for probate, however there are potential tax and legal liability consequences to placing someone on the title to your assets, therefore you should consult with an experienced estate planning attorney before changing title to your assets.


A revocable trust is a legal document that allows you to direct how you want your assets to be distributed when you die while allowing you to maintain control of those assets during your lifetime.  Assets transferred to the trust during your life avoid probate.  The trust allows the person or institution that you name as successor trustee to settle your estate privately and more quickly, and is more difficult to contest.  The trust also may include specifically designed provisions which accomplish, for example, the following:
reduce or eliminate estate taxes,
allow assets to remain in trust for the benefit of your beneficiaries with successor trustees managing the distribution and investment of the assets,
provide for beneficiaries with special needs or drug or alcohol dependence,
allow the retention of assets to guard against a bad marriage, law suits or the lack of self determination, or
provide for the common use of a particular asset such as a residence or vacation home.

A revocable living trusts works by having you transfer the title of all of your assets from yourself as an individual, to yourself as trustee of your trust.  As the trustee, you manage the assets of the trust during your lifetime which allows you to maintain complete control. As long as the trust is revocable and either the husband or wife serve as the trustee or co-trustee, the trust does not require a separate tax return or tax ID number.  The couple continue to report all taxable income, dividends, capital gains, and interest on the couple’s personal tax return using the husband’s or wife’s Social Security Number, and need not refer to the trust. 

Upon your death, a successor trustee that you appoint takes over the management of the assets for the benefit of the beneficiaries that you named in your trust.  Your assets avoid Probate because they are no longer titled in your name as an individual, but are titled in the name of the trust.  Upon your death, the successor trustee that you named transfers your assets directly to your beneficiaries, or to a trust for their benefit if that is what the revocable trust calls for, without the need for court.  

If your Revocable Trust may contain "sub-trusts," for any number of reasons.  One common reason for establishing a sub-trust after the first death is for a married couple to utilize the esate tax exemption of the first to die.  This is commonly called a Bypass Trust, Family Trust, or AB Trust. 


Your Durable Power of Attorney for Property Management is designed to allow someone, usually the same person who will be the successor trustee of your trust, to sign your name and make financial decisions for you.  A “springing” Durable Power of Attorney only takes effect in the event of your incapacity as determined by your doctor.


You have a Durable Power of Attorney for Healthcare so that someone you choose can make medical decisions for you if you cannot make those decisions for yourself, and if you choose, to furnish guidelines concerning extended medical treatment that should or should not be withheld or provided if you are unable to communicate.


Your medical release form will name individuals that you authorize to receive medical information.  These individuals should include your successor agents under your Durable Power of Attorney for Health Care and Durable Power of Attorney for Property Management as well as your successor trustees.


A married couple in California or another community property state which own appreciated property may be advised to have a written document reflecting that such ownership is as “community property.”  This writing may be in the form of an agreement or deed.  The advantage is that upon the death of one, the entire property obtains a basis adjustment to the fair market value as of the date of death (“step-up” in basis).  If the property declined in value since it was purchased, the result will, unfortunately, be a step-down in basis.  You should consult with an experienced estate planning or tax attorney before changing title to your assets.

“FUNDING” your Revocable Trust.

Title to your assets, including real estate, business interests, bank accounts and investments must be changed and placed in the names of the trustees if they are to be included in the trust.  Failure to include such assets in your trust during your life can subject them to probate upon your death.  Assets should be titled, for example, as “David A. Smith and Anne M. Smith, trustees of the David A. and Anne M. Smith Revocable Trust, dated January 23, 2011.”


The beneficiary of your life insurance policies may be your trust so that the proceeds will be made payable to it.  The advantage of naming your trust is that the trust will provide more flexibility and options than naming an individual.  For example, the trust will identify more complete contingent beneficiaries in the event one or more of your primary beneficiaries pre-decease you.  In addition, the insurance proceeds may be a good asset to fund trusts established at your death for the benefit of a spouse and which escape estate tax upon the death of your spouse. 

Retirement plans, including IRA accounts, and 401k plans, have special income tax features, for this reason the primary beneficiary is typically your spouse.  It is important to remember to add a contingent beneficiary, usually your trust or your children.


Portability of the federal estate tax exemption between married couples means that if the first spouse dies and the value of his or her estate does not require the use of all his or her estate tax exemption, then the amount that was not used may be transferred to the survivor for their use.  This is called the "DSUEA," the Deceased Spouse's Unused Exemption Amount.

In order to obtain the benefit of portability, after the death of the first spouse an estate tax return must be filed in a timely manner.  This is an obligation that may not otherwise be required given the large estate tax exclusion currently available.  After the first death of a couple, the survivor must assess the merits of filing the return.  A limitation on the effective use of a Portability election  is that if the survivor later remarries and his or her new spouse dies before he or she does, the unused exemption from the prior spouse is lost.

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Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, the Law  Firm of Allen T. Ratcliffe, Jr. informs you that any U.S. federal tax advice contained in this Website is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed within.
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