When someone decides to create a trust, whether it be a revocable living trust or a testamentary trust in a will, trust law requires the trust agreement designate a person or organization to fill a few important roles.
The first is the trustor who is the person, or people, creating the trust. They are sometimes referred to as the trustmaker, settlor, or grantor. All of these terms are synonymous with each other and we plan to go into this in a little more detail in a future blog article, so please stay tuned!
The second is the beneficiary. This is the person, group of people, or organization(s) that will ultimately benefit from the living trust’s assets. Initially the trustor is also the beneficiary because with a living trust, you still retain the right to use your assets as you always have.
The beneficiary can be an income beneficiary, a beneficiary of the principle, or a combination of both. This too is a topic we will dive deeper into in another blog article in the very near future. (UPDATE: https://filippilaw.com/what-is-a-beneficiary-of-a-living-trust).
Finally, there is the trustee. This is the person or entity that will manage the living trust. If you were to think of a trust as a corporation, the trustee would fill the role similar to the CEO. The trustee manages the day-to-day operations of the trust, disburses funds, makes decisions on investments, and holds bare legal title to trust assets. The trustee is basically the manager of the trust.
Depending on the size and complexity of the trust, the role of trustee will have varying levels of difficulty. This makes choosing the right person or entity to serve as trustee crucial. They have a lot of power over the trust assets, so having trust in the trustee is important, and obviously inherent in the role’s name.
The trustee will hold bare legal title to trust assets as well. Bare legal title simply means their name will appear on title documents, but they do not have the right to benefit from ownership of the asset. Title documents, whether a deed for a home, or a signature card for a bank account, will be in the name of the trustee as trustee of the trust. They will have the legal authority as trustee to transaction business involving the asset on behalf of the trust.
The concept of bare legal title is important in that the trustee does not have the right to the benefits of ownership. We call those equitable benefits, or equitable title.
Ownership of an asset can take on several forms. Such as the ownership of trust assets, where the trustee simply has the ability to take title for the purpose of managing the asset for the benefit of the trust’s beneficiary, who enjoys the benefits of the asset. This legal separation of equitable and legal title is what makes a trust valid and provides many of the benefits of having a living trust.
People often confuse the trustee role with the beneficiary. The trustee, while entitled to reasonable compensation for their services (depending on the terms of the trust agreement), does not have the right to enjoy the asset for any reason. Except, of course unless the trustee is also a beneficiary. (See our previous blog article on this concept at https://filippilaw.com/can-a-trustee-also-be-a-beneficiary-in-a-california-trust.)
All of the roles of the trust are vital to the existence of the trust. If a trust lacks a beneficiary, the trust will likely fail. However, if the trust lacks a trustee, one can be appointed to serve in this role. Typically, the trust agreement will spell out how the trustee can be appointed if none of the named trustees can serve, or are unwilling to serve. But ultimately, the courts have the legal jurisdiction under the California Probate Code to appoint a trustee. The legislature did this primarily to protect trusts and ensure they will not fail simply because a trustor exhausted their list of trustees.
We hoped this helped clear up the confusions surrounding the trustee role. In a future article we will discuss who is able to serve as the trustee of a trust, so please visit us again soon. If you have any questions about a trustee, or any aspect of a trust, we welcome your questions!
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
If you have been a reader of our newsletters and blog articles for any period of time, you know we offer many solutions to avoiding probate. However, you should be equally concerned with avoiding conservatorship, for many of the same reasons.
If you have ever gone through the conservatorship process for a loved one, you will know why you want to avoid it for yourself. It is just plain nasty. It pushes your medical condition into the public domain where anyone wishing to, can dig into your secret medical information. It can also create arguments and divisions within your family if someone were to dispute the conservatorship, and these often are irreparable. For these reasons, and many more, you will want to do what you can to avoid it altogether.
A court will establish a conservatorship for you to manage both your medical and day-to-day needs. This is a conservatorship of your person. The court can also establish a conservatorship over your financial affairs. This is a conservatorship of your estate. Oftentimes, when a conservatorship is needed, the court will appoint a conservator to manage both your person and your estate.
There are a few things you can do now before the need for a conservatorship arises, because when that happens, it is too late. First, you will want to establish a general durable power of attorney. This is a legal document where you appoint someone you trust to act on your behalf to manage your financial affairs when you are not able to do so yourself. This is similar to having a conservatorship over your estate and thus limits the need to have one appointed.
Second, you will want to establish your advanced healthcare directive and HIPAA authorization. These legal documents will grant someone the ability to make medical decisions on your behalf when you are unable to do so, and will be based on your advanced instructions. This also limits the need for a conservatorship of your person.
There are many considerations, and we can help you establish this part of your estate plan. You’ll be happy you did, and just as important, your family will be thankful you as well!
Do You Have Adult Children?
We bet you are accustomed to making medical and financial decisions for your children. However, if they are 18 or older, you no longer have that authority. If something happens to them, you will either need a court order (conservatorship), or they will have had to plan beforehand. If they are “new adults” they likely don’t realize this on their own, so this is where you need to step in even though they are “all grown up”.
Those documents we just discussed above, will be needed for them as well. That 18-year-old high school senior still living in your home will be in a tough place if you need to race to court to get a conservatorship granted.
A little planning will go a long way, and we can help. Give us a call so we can help your kids make the right decisions to protect their future.
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
A very important part of establishing your comprehensive estate plan is addressing Medicaid benefits. Medicaid is the federal government program that provides medical care for those who do not have the means to do so. Here in California, the program is administered by the State under the Medical program. If you don’t plan for these government benefits, you or a loved one may encounter grave, unintended consequences.
Part of the qualifying process for becoming eligible for Medicaid benefits is an analysis of the amount of assets you have in your estate. If you possess an amount above the maximum allowed, you will not be eligible for benefits until your assets drop below this amount. (The qualifications for Medicaid benefits are outside the scope of this article.)
There are some significant issues you should be aware. First, if you, or a loved one, are currently receiving these benefits, you could become ineligible at any time in the future. There is no “grandfathering” which occurs when you continue to receive something even though you no longer qualify. This ultimately means you are always at risk of losing your benefits, so you need to be hyper aware of what you “allow” into your estate.
If you have these benefits already, you are likely very aware of what you need to do to maintain the eligibility for them. However, your loved ones may not. This is why it is important for you to ensure they are aware of what your limitations are when it comes to your eligibility for benefits, making estate planning even more crucial.
This brings us back to the reason for this article. How can your estate plan deal with these types of asset-based government benefits? The main vehicle that estate planning attorneys use is the special needs trust (sometimes referred to as a supplemental needs trust). This is a separate, irrevocable trust that names a spouse or loved one as the beneficiary who will receive the benefit of the trust’s assets but won’t have any control of them. The law looks at the trust assets as separate from their estate because they have zero control over what happens with them. However, it allows the assets to be used to enhance the care above the basics that Medicaid provides. The benefits are obvious if you have ever seen the type of care provided to Medicaid patients.
The special needs trust can either be contained in your main trust agreement, which springs to life upon your death, or it can be its own stand-alone trust. The way the special needs trust is set up really depends on your needs and your estate planning attorney should customize it to fit what you need.
The benefit of having it spring from your existing trust is it will not require you to manage the trust during your lifetime. This is because it doesn’t come to life until you die, and a portion of your assets are sent to it.
However, if you need the trust to be a standalone special needs trust created immediately, there are some management tasks that must be done to maintain the trust. An irrevocable trust is its own taxable entity, which means you will need to file federal (and state, if applicable) tax returns for the trust every year. In order to do this properly, you will need to maintain the books for the trust during the year, which means a whole lot of added work.
Nevertheless, there are a few things you can do to lessen the work required. The complexity of the bookkeeping and tax filings will depend on the assets placed in the trust. To lessen the impact of the amount of work required for the management of the trust, it is suggested that the trust only receive the minimum amount of assets required to achieve the trust’s goals. The fewer the assets, the lesser the income it will generate, and the amount of work required to track the asset movements will be reduced.
Assets can always be added to the trust as needed, and ultimately, the trust itself can be a beneficiary of an already existing trust that manages your main estate, or even a beneficiary of your will.
Another issue arises when you are married and you have a significant amount of separate property assets, or at least enough which will make your spouse ineligible for Medicaid benefits. This will make you to want to consider a creative option in handling your assets.
You can put instructions in your main trust to send the assets to your last will where there are instructions for your executor to create a testamentary special needs trust. This is similar to the springing special needs trust already discuss in which it springs from your main trust, except with a testamentary trust, it springs from your will instead. This method keeps those assets separate from the joint trust with your spouse, and places them in a special needs trust to keep them out of your spouse’s estate for eligibility purposes for Medicaid.
There are many issues to address when planning for Medicaid benefits as well as for the special needs of you and your loved ones. This is why working with a licensed estate planning attorney is critical to making sure you protect yourself and your family. We always stand ready to help you achieve those goals.
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
After arranging your revocable trust and other estate planning documents with an attorney, it is easy to assume that you have checked estate planning off of your list forever. The reality is not so simple. Not only do tax laws frequently change, but so does your life. The smallest change could have a big impact on your estate planning. You therefore need to revisit your estate plan each year to ensure your plan still accurately reflects your values, needs, and hopes for your legacy.
To make sure you retain control of your accounts and property if you are unable to manage your own affairs and after you have passed away, plan an annual checkup of your estate plan with our firm. Even if you have already created a plan you feel confident about, circumstances surrounding your decisions may change. Marriages end, children grow up, and serious illnesses occur. When laws change, some estate planning techniques can become outdated. Pick a date, be it your birthday, the beginning of the year, or tax season, to review your estate plan with your attorney annually. For those that have established their revocable living trust or last will with our firm, we reach out automatically every year on the anniversary of you signing your estate plan documents.
A look into how your accounts and property are titled can reveal the need for potential changes. Joint ownership, for example, can become messy in the wake of a divorce. Births or deaths of loved ones may lead you to change your beneficiaries. The person you named as one of your trusted decision-makers (e.g., successor trustee, personal representative or executor, agent under a durable power of attorney, or agent under an advanced health care directive) may no longer be the best option due to relationship changes or physical relocation. Such changes can occur at any moment, so it is worth a yearly checkup to ensure your wishes are reflected in your estate plans.
Significant financial change can also be a good reason for a checkup. If you have paid off debt, taken on a new job, bought a house, or made new investments, you will want your estate plans to reflect these changes. If you have a revocable living trust, the only way to ensure your accounts and property are kept out of probate is to have all of your accounts and property appropriately funded into the trust. Funding the trust involves changing the owner of an account or piece of property from you as an individual to you as the trustee of the trust. In some cases, we may have discussed designating your trust as the beneficiary of an account instead of changing the owner. If you have any questions about what should be funded into your trust, please give us a call.
Also, in light of the SECURE Act and the elimination of the lifetime stretch for non-spouse beneficiaries, it is important that we discuss any retirement accounts you may own prior to changing the beneficiary designation.
Life is ever changing. What may seem like a small change can impact your estate plan greatly. If you or your family have undergone any changes since your estate planning documents were originally created, now is the perfect time to reach out to us for an estate plan review. If you have not yet set up your estate plan, now is the time to do so.
In the words of Benjamin Franklin, “Failing to plan is planning to fail.” Do not fail your loved ones or yourself—contact us today. We are available for in-person, phone, and virtual appointments.
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
Estate planning is an incredibly important tool, not just for the uber wealthy or those thinking about retirement. On the contrary, estate planning is something every adult should do. Estate planning can help you accomplish any number of goals, including appointing guardians for minor children, choosing healthcare agents to make decisions for you should you become ill, minimizing taxes so you can pass more wealth onto your family members, and stating how and to whom you would like to pass your estate on to when you pass away.
While it should be at the top of everyone’s to-do list, it can be an overwhelming topic to dive into. My own mother told me yesterday that no one likes to think of their own death so that is why they don’t take the necessary steps to establish an estate plan. However, ignoring a problem is never a solution either. (She also taught me that time honored saying as well!)
To help you get situated, below are some important terms you should know as you think about your own estate plan.
Assets
Generally, anything a person owns, including a home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, art, clothing, and collectibles. Even that ugly t-shirt your significant other hates!
Beneficiary
A person or entity (such as a charity) that receives a beneficial interest in something, such as an estate, trust, account, or insurance policy. “Beneficial” can equate to money, the right to use something, or anything else that derives a benefit upon you in some way.
Distribution
A payment in cash or asset(s) to the beneficiary, individual, or entity who is entitled to receive it.
Estate
All assets and debts left by an individual at death.
Fiduciary
A person with a legal obligation (duty) to act primarily for another person’s benefit, e.g., a trustee or agent under a power of attorney. “Fiduciary” implies great confidence and trust, and a high degree of good faith.
Funding
The process of transferring (re-titling) assets to a living trust. A living trust will only avoid probate at your death if it is fully funded, meaning it contains all of your estate assets.
Incapacitated/Incompetent
Unable to manage one’s own affairs, either temporarily or permanently; often involves a lack of mental capacity.
Inheritance
The assets received from someone who has died.
Living probate
The court-supervised process of managing an incapacitated person’s care and the assets of their estate. Conservatorship is another term used for this process.
Marital deduction
A deduction on the federal estate tax return, it lets the first spouse to die leave an unlimited amount of assets to the surviving spouse free of estate taxes. However, if no other tax planning is used and the surviving spouse’s estate is more than the amount of the federal estate tax exemption in effect at the time of the surviving spouse’s death, estate taxes will be due at that time.
Settle an estate
The process of winding down the final affairs (valuation of assets, payment of debts and taxes, distribution of assets to beneficiaries) after someone dies.
Trust
A fiduciary relationship in which one party, known as the grantor or settlor, gives another party, known as the trustee, the right to hold property or assets for the benefit of another party, the beneficiary. The trust should be memorialized by a written trust agreement, outlining how the trust assets will be distributed to the beneficiary.
Will
A written document with instructions for disposing of assets after death. A will can only be enforced through a probate court. A will can also contain the nomination of guardian for minor children.
Don’t wait until it is too late to begin your estate plan. If you have any additional questions about estate planning, or would like to consult an estate planning attorney, please contact our office. We can make sure you have a comprehensive plan that is tailored to your unique needs and goals. We hope to see you soon!
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
When someone dies, they often leave behind assets that must be disbursed and debts that must be paid. The process by which this happens is probate. It is a court-supervised process by which these tasks are handled in accordance with the law, with the ultimate goal of achieving fairness in the distribution.
The process occurs when a person dies without a will (intestate) or when they die with a will (testate). The probate code will dictate how one’s assets and debts are paid at death unless you have a valid will in place, which provides your own instructions rather than those contained in the probate code. As long as your will doesn’t violate the probate code or judicial precedent, it will control how your estate is disbursed.
A properly funded trust in place at the time of your death is the simplest way you can avoid probate. The only other time probate is avoided is if you die with no assets, or with assets which are valued for less than the then current cap for qualifying for small estate distributions (California Probate Code §13100) (see https://filippilaw.com/what-is-a-small-estate-affidavit).
The probate process includes the marshaling of the assets to determine what is contained in the decedent’s estate at their death and the collection of bills and creditor claims to ensure the debts are properly paid. Once debts are paid, the remaining assets are then disbursed according to the probate code if there was no will or according to the will if there was a valid, enforceable will.
The sale of assets or the disbursement of any funds must be approved by the court, unless the executor was granted full authority under the Independent Administration of Estates Act (IAEA) (California Probate Code Section 10400). The IAEA limits the required judicial oversight of the probate process and ultimately speeds up the overall time required to complete the entire probate process. We will cover the IAEA in more depth in a future article.
The probate process, which we will discuss in more detail in our next article, typically takes 8–12 months. There are a lot of factors that go into determining the time period it will take, but what does not change is the four-month period required for the submission of creditor claims.
In addition, probate involves a lot of moving parts and makes it very easy to miss something, which can cause additional delays. But what is always present is court involvement, which is typically the largest source of delay. This is so even during normal times, but when you add in a global pandemic, the delays are compounded.
As mentioned, there are ways to avoid probate, but after one has already passed on, it is too late. Avoiding probate requires advanced action, which we call estate planning. It is there that you are able to make the decisions and take the actions needed to keep your estate out of probate court.
Getting through the probate process is a long and arduous process for anyone. Going through it without an attorney will compound that. But either way, understanding what probate is helps to make the process a little easier to navigate. We hope you return for our next article, which details the probate process from beginning to end.
Filippi Law Firm, P.C., provides legal services in estate planning, probate, trust administration, trust litigation, and personal bankruptcy in the greater Sacramento area, with a focus in Rocklin, Roseville, Lincoln, and Granite Bay. Give us a call at (916) 333-7910 or fill out the contact form to get in touch with our office. Consultations are free, and they can be done over the phone, via Zoom, or in person at our office in Rocklin. Prepare for your future and work with the best estate planning attorneys today.
