Estate Planning Practice Blog

Word of the Day: Cy Pres Doctrine.

Nicole Black, Esq. of Sui Generis, a New York law blog, has a great approach to blogging. She writes about legal matters as they occur in New York and has fun educational features to engage her readers.

One of her educational features that caught my eye was her "Define that Term" posts.

Last week she identified a legal term that related to Wills and Trusts.  Her term was Cy pres doctrine.

Can you identify what it means?

And then a few days later, she explained what it meant. Of course, no dictionaries or googling were allowed.

Any legal terms out there relating to Wills and Trusts that you want to learn more about? Post a comment.

What is the Difference Between Wills Versus Trusts?

It is a common question: what is the difference between a Will versus a Trust?

To answer the question, we will make some assumptions -- you live in California and you are talking about revocable Living Trust.

A Will and a Living Trust are very similar in that you name executors and successor trustees to manage your estate when you die. You also name your wishes with regards who will get what.

The major difference is a Will must go through a probate proceeding.  A Living Trust avoids probate when it is properly funded with your assets.

In California, a proper estate plan includes both a Will and a Living Trust. You create a backup or pour-over Will to transfer your assets to your Living Trust if you die with assets not already in your Living Trust. You create a Living Trust to hold your real estate and other major assets to avoid probate.

Now, on to the laundry list of general differences:

1. A Will must be probated when the estate is worth $100,000 or more.
2. If you don't have a Will or a Living Trust, your estate must be probated if worth more than $100,000.
3. If the bulk of your estate is in your Living Trust, it will avoid probate.
4. A Will is the only document where you can nominate guardians for your minor children. And this is a good reason to have a Will along with your Living Trust when there are minor children.
5. If you own real property in California and most other states, the only way to avoid probate on those properties without a joint tenancy ownership is to place that property into a Living Trust or other type of Trust.
6. A Living Trust can also avoid conservatorship (or guardian of the adult) if you become unable to manage your affairs.
7. You can specify how assets in your Trust will be distributed upon your death.
8. You can create some estate tax saving vehicles in a Living Trust if your estate is worth more than the applicable federal estate tax exemption amount.
9. When there's probate, attorney fees are set by statute and very expensive.
10. The cost of a Living Trust in a proper estate plan is usually a fraction of the probate attorneys fees.

Of course these are generalities and please note that many estate planning attorneys offer a no charge or low cost consultation. During this consultation your attorney will explain the differences between a Will and Living Trust as it affects your estate and answer all of your questions.

Have Life Insurance Policies?

One of the benefits of a Living Trust is when you have life insurance policies and minor children, which surprisingly many insurance agents do not realize themselves, is that you can control how life insurance policy proceeds will be paid out and managed.

You almost never want to name minor children to receive a life insurance policy death benefit directly. First, if they are still minors they cannot receive the death benefit unless a guardian of the estate (i.e., the money) is established according to the requirement of many policies. Second, if they receive the money and they are still a tender young age (i.e., 19, 20, 21, and so on) they could blow the money faster than you can blink.

If you name the beneficiary of your life insurance policies to be your Living Trust then it will avoid many issues if you were to pass away. Some of the issues you will avoid:

1. Avoid having the other parent petition the court for guardian of the estate to receive and manage the proceeds of the life insurance policy.

2. Avoid having your children receive the proceeds directly if they are already age 18 and you want it to be held in trust a while longer.

3. Avoid having to change the beneficiary on the policies when your wishes change or you have more kids. You can simply amend the trust rather than updating the beneficiary designations for each policy.

By naming the Living Trust as the beneficiary of your life insurance policies, you effectively control how the life insurance policy proceeds should be managed if you die before your kids are adults.

Cost of Probate: Exorbitant.

Probate is not inexpensive. It is also not necessary if you plan properly. This planning is called "estate planning" when it really should be called "probate avoidance."

Terminology notwithstanding, two case studies this week on probate and how it affects your loved ones in terms of pure dollars:

1.    An individual did not own property, but had a rather large 401k plan worth over $500,000.00. There was no beneficiary named on this 401k asset. There was no surviving spouse or children. Probate had to be opened to determine how title of the account should pass to the next of kin. Cost: $13,000.00 for attorney fees alone in probate.

2. A middle aged man died suddenly leaving his kids in a lurch. He owned over 3 properties across the state in nice locations like Monterey, Seal Beach and a cabin in Lake Arrowhead. The retainer to be paid up front just to take the probate case: $1,500.00 and that's small change toward court costs, publication costs, appraisal costs and attorney fees.

Contrast the above two costs with the cost of proper estate planning: $1,500.00 for most individuals and married couples with a real property asset and a few bank/retirement accounts. The cost savings is more than just money. It also saves time, anguish and emotional toil when you take care of your estate when you are alive and well. I know this all too well when I had to probate my own father's estate before I became an attorney. It's not a good thing.

Having a trust is often the best recommendation for estate planning for most individuals. Get yours done today.

How to Handle Decedent Accounts

Here is a brief synopsis on how to handle accounts of a decedent, whether they be in trust or not:

1. When is Probate and Letters Testamentary required for a decedent's account?

Whenever assets belonging to the decedent exceed $100,000.

2. When may an account in the decedent’s name be released to family members?

If the total sum of accounts are under $100,000 the account can be released 40 days after death of account holder upon presentation of an affidavit signed by family member that they are the successor in interest. Affidavit must be under penalty of perjury and notarized.  See Probate Code Section 13100

3. How do you handle accounts in a member’s Trust?

This requires a Certification of Trust signed by the member identifying name of trust, who is the successor Trustee, and powers of the Trustee. Certification of Trust must be notarized. Full copy of the Trust is not required.

4. Can an individual use a Power of Attorney for an account in Trust?

Only if the settlor is still living and the Trust and Power of Attorney grant the individual the right to use a power of attorney for assets in the Trust. If not, only the Trustee or Successor Trustee if Trustee is deceased, resigned, or incapacitated may access the accounts in the Trust.