Establishing an estate plan, with a living trust as its centerpiece, is simply a matter of taking the legal steps to ensure that in the event of a serious illness or accident or in the event of death, that at no time will you or your family be controlled by some stranger in a black robe, sitting in some court room. By establishing an estate plan now, you save you and your family from years of delay, tens of thousands of dollars in needless costs and, for those with larger estates, you can also save your family hundreds of thousands of dollars in taxes. Click on Living Trust, above, for further information OR if you have a lot of questions already, try clicking on Frequently Asked Questions. Strategies and documents may include: revocable living trusts, irrevocable living trusts, life insurance trusts, charitable remainder trusts, charitable lead trusts, family limited partnerships, limited liability companies, incorporations, as well as other documents/strategies.

Estate Planning? Unfortunately, many financial planners misuse the term, "Estate Planning", when they are actually talking about Financial Planning. They are using the word "estate" in place of the word "assets" in describing how they are going to help a person build up the value of their "estate" so they can live comfortably in retirement.

When using the term, "Estate Planning" in a legal sense, the reference is to establishing a plan, using legal documents, to preserve and protect those assets that have been acquired through proper "financial planning". Therefore, you do not have to worry about being offered swamp property in Florida or some "hot" new stock. Estate Planning in its simplest terms is using legal documents to establish a plan for taking care of you and your family in times of severe health issues and/or at death, in the most direct, simplest, least expensive way possible.

Components of a Typical Estate Plan: The documents included in a typical Estate Plan include a Living Trust, an Asset List, a Will, a Durable Power of Attorney for Financial Affairs, and an Advance Health Care Directive. A quick summary of the function of these documents are as follows:

Living Trust - The majority of the assets, including any real property is placed in the name of the Trust. In case of severe health issues and/or death, the successor Trustee takes care of the finances / settlement of the estate, with no assistance/interference by the courts. Distribution at death takes weeks instead of years of Probate. Ongoing trusts may be established for underage or disabled beneficiaries, etc.

Asset List - The list of assets that are held in the name of the Trust.

Will - The Will distributes the personal effects at death (since all the investments, bank accounts, and real property is distributed by the Trust, there is no Probate procedure required). Guardians for minor children may also be named.

Durable Power of Attorney for Financial Affairs - Since all the main assets are held in the name of the Trust and thus managed by the owner of the Trust or his/her named successor Trustees, the main uses of a financial Power of Attorney are to cash or deposit checks that come from outside the Trust.

Advance Health Care Directive - Remember the unfortunate lady in Florida and the fight over whether to keep her alive or not after many years in a coma? This document avoids that problem in that a person names those persons whom they trust to make health care decisions for them, if they cannot do so for themselves.

Other Optional Components of an Estate Plan to Save on Estate Taxes: For those people with estates larger than the then current estate tax exemption amount (the amount is currently $2 million), there are several options to choose from in terms of the type of Trust to use. A few examples are as follows:

A/B Trust - Establishes a plan which basically doubles the then current estate tax exemption amount before any estate taxes are due.

A/B/C or QTIP Trust - Same as an A/B Trust except that it provides additional protection should an estate be more than double the then current estate tax exemption amount.

Irrevocable Life Insurance Trust - A legal "Loophole" in the tax code allows life insurance that is purchased through an irrevocable trust to not be counted as part of a person's estate. The Tax-free life insurance proceeds are often used in conjunction with a Charitable Trust.

Charitable Remainder Trust / Charitable Lead Trust - Two different approaches that can be used to maximize the tax-free return of money to an estate when assets age given to a charity. Taxes can be saved both during life time, as well as at death.

In addition to the above different types of Trusts, in certain circumstances, there are other steps that may be taken including:

Family Limited Partnership (FLP) - Typically used for assets too large to be transferred at death without a huge estate tax hit that are transferred, a "share" at a time, during life, without giving up control of that asset, effectively "disinheriting" the IRS. Typically used to transfer rental property.

LLCs (Limited Liability Companies) / Incorporations - In some situations, using an LLC or a corporation through which to transfer part ownership, a piece at a time, rather than using a FLP, is preferable, especially where the asset is an ongoing, active commercial enterprise, with employees / inventory, etc.

For more information, please contact:
Craig J. Bauman Attorney at Law - Local to San Diego, California
email cjb@californialawpractice.com or call (858) 488-1497