Since at least the 1980’s the revocable living trust has been the preferred choice as the most efficient and flexible vehicle for passing on one’s estate in the most orderly and seamless fashion as possible. Many people make the mistake of believing that having a will alone will avoid probate. A revocable living trust is by its terms revocable – it can be changed at any time and the creators of the trust retain full control and management of their assets to the same degree they could exercise before the trust was established. A revocable living trust can be created by a married couple, or a single person, a widow or widower, and even an unmarried couple can create a unified living trust. A living trust will set forth the creator’s personal and background information and include provisions regarding the distribution of assets and the designation of successor trustees, which are those persons nominated to handle the affairs of the estate after the creator(s) of the trust have passed. The revocable living trust is an extremely comprehensive document that envisions any number of potential scenarios and crafts provisions to deal with them. Once the revocable living trust is established, then certain steps are taken to fund the trust, for instance, by the transfer by deed of your home to the living trust. Unlike a will that is subject to probate, a revocable living trust is a private document and shielded from public view, and it is not filed with the court.
Probate is a boon for the pockets of lawyers and a long, arduous, expensive, uncertain, and confusing process for the parties and potential heirs involved. Thousands upon thousands of dollars will be lost by the estate to attorneys, personal representatives, probate referees, and many other costs. The estate will now be public record and fair game to hawkers of the information who track probate filings and attempt to use this information for profit. The estate has become exposed and loses rights of privacy, as anyone can view the court file and read the decedent’s will and other personal information such as the identification and location of assets and the names and addresses of beneficiaries. If the decedent has died without a will, the information in the court file to which the public has complete access is no less revealing and will disclose the nature and value of assets of the estate and the names and addresses of potential heirs and beneficiaries.
When a person dies in California without a will or living trust in place, the property of the decedent’s estate will pass by way of the laws of intestate succession. If the decedent died with a living spouse, the decedent’s community property will pass to the surviving spouse, and their separate property will be distributed amongst their spouse and children. If the decedent was not married, their estate will pass to their living children in equal shares. Not all property, however, is subject to these rules – for instance, if a property is held in joint tenancy then it will pass to the surviving joint tenant. Another example is a bank account that reflects on the account that it is to be paid upon the death of the decedent to a specific person.
The California Small Estates Law can be used in some instances to transfer an estate by affidavit without the necessity of filing documents with the Superior Court, but there are a number of prerequisites and limitations. This is a summary procedure to transfer the assets of the deceased after at least 40 days have passed from the time of their death. The gross value of the decedent’s real and personal property in California cannot exceed the sum of $150,000. Real property cannot be transferred using the California Small Estates Law. You must qualify to inherit the property sought to be transferred, either as a beneficiary under a will or an heir if the person died intestate, which means the person died without a will. In calculating the value of the estate, real property must be included, as well as the value of any life insurance or retirement benefits payable to the estate rather than some other person or entity. In addition to property designated to pass upon one’s death to select beneficiaries, certain other property is also excluded from the calculation, such as:
The California Small Estates Law is fraught with pitfalls and drawbacks, and should not be used or relied upon as an estate planning device. It is merely a potential safety net that possibly can be invoked subsequent to one’s death as a mechanism to transfer certain assets that otherwise would be subject to a long, costly probate proceeding.
This is yet another area of law that demonstrates how critical it is to have a comprehensive and precise estate plan in place. There is actually a legislative presumption in California that a deceased person has mistakenly failed to provide for a spouse or child unless the criteria for an exception exists. Different variations of the rule apply depending on whether the person omitted from a will is a child or spouse. Therefore, both scenarios are addressed separately below. With regard to an omitted child, California Probate Code Section 21622 provides that: “If, at the time of the execution of all of the decedent’s testamentary instruments effective at the time of decedent’s death, the decedent failed to provide for a living child solely because the decedent believed the child to be dead or was unaware of the birth of the child, the child shall receive a share in the estate equal in value to that which the child would have received if the decedent had died without having executed any testamentary instruments.” There are three possible grounds for overcoming this presumption: (1) The decedent’s intent in failing to provide for the children in question appears on the face of the decedent’s will or living trust; or (2) the decedent has provided for the children in question by the transfer of certain assets to the outside of the decedent’s will or living trust – and further, the decedent’s intention that such a transfer is in place of inheriting under a will or living trust is shown by satisfactory evidence; or (3) the decedent has one or more children and the decedent by device, gift or otherwise has given substantially all of the estates to the other parent of the omitted children in question. With regard to an omitted spouse, California Probate Code Section 21610 provides that: “If a decedent fails to provide in a testamentary instrument for the decedent’s surviving spouse who married the decedent after the execution of all of the decedent’s testamentary instruments, the omitted spouse shall receive a share in the decedent’s estate…” There are three possible grounds for overcoming this presumption: (1) The decedent’s failure to provide for the spouse was intentional and that intention appears from the face of the testamentary instruments; or (2) the decedent provided for the spouse by transfer outside of the decedent’s will or living trust – and further, the decedent’s intent must be shown by satisfactory evidence that the transfer is in lieu of any provision in the decedent’s will or living trust; or (3) the spouse made a valid agreement waiving the right to share in the decedent’s estate (for example, in a prenuptial agreement). The moral of all this legal talk is that the potential legal fiasco can be easily avoided by thorough and proper estate planning.
A living trust can contain provisions with respect to protecting the inheritance of a disabled child or beneficiary with a physical or psychological disability. These situations require great attention and the attorney must take care to incorporate into the trust special needs trust provisions. A California special needs trust is essential to protect the interests and rights of the beneficiary, and the result can be catastrophic if a special needs trust is not in place. The primary purpose of a California special needs trust is to preserve the beneficiaries’ entitlement to public assistance and access to government programs and to strike a delicate balance where the drafting attorney must strive to draft special needs trust provisions that supplement benefits rather than supplant them. The special needs trust is designed to avoid shifting the burden of the beneficiary’s care from government assistance programs to the trust.
For whatever reason, there is a lot of confusion in the banking industry that a living trust must have a tax identification (ID) number. A revocable living trust, while the creators of the trust are still living, will not require a tax ID number, and the trust is not required to file a tax return – if an institution such as a bank requests a tax ID number, the creator(s) of the trust only need to provide their own personal social security number(s). After the death of the creators of the trust, a tax ID number is still not required if the estate will simply be liquidated and distributions made to the beneficiaries, and no tax return in the name of the trust is required as long as the trust did not earn over $600 in income in any one year after the creator(s) death. However, if the trust is to continue after the creator(s) death, a tax ID number will be required.
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