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San Fernando Valley Probate & Estate Administration Law Blog

Designating estate beneficiaries in California

Anyone holding a policy with a payout upon the death of the policy holder must designate beneficiaries to inherit the funds. In addition to naming beneficiaries for life insurance policies, retirement plans, annuities and IRAs, California residents should carefully consider how they select their heirs. To preserve a legacy, careful estate planning is essential.

An annual review of beneficiaries helps to ensure that documentation is up-to-date. The recent loss of a loved one may necessitate changing the heirs in a life insurance policy or another asset. Other major events, such as the birth of a child or grandchild, buying or selling of a home, divorce or marriage, should spark a review of beneficiaries. If any of the heirs have special health care needs, the estate holder may wish to create a special needs trust that will be managed by a trustee appointed by the creator of the trust.

What is A-B trust planning?

Some California couples who are planning their estates may have assets above the estate tax threshold. In order to entirely avoid or reduce estate taxes on amounts beyond the level of exclusion, many people choose A-B trust planning, a type of irrevocable trust than can be created either by will or as part of an ongoing living trust that will be implemented upon a person's death.

According to the IRS, the basic exclusion for estates left by people who die will be $5,340,000. For amounts that exceed the exclusion, an A-B trust can provide protection to heirs from estate taxes that would otherwise be imposed.

Keys to estate planning for California residents

After an individual passes away, it may be necessary to go through probate to settle that person's estate. However, it may be possible in some cases to bypass the court process, which is known as probate. The purpose of probate is to determine if a will is valid, to take care of any final financial issues and to transfer property to heirs.

An individual may have appointed an executor to handle the execution of the estate, or the court may appoint one. This person is responsible for inventorying assets, paying debts and distributing what is left to beneficiaries according to the terms of the will. Most probate cases can take anywhere from nine months to as long as a year and a half to complete. Therefore, it may be beneficial to be able to use the simplified process.

How to avoid common estate planning errors

California residents who are making estate planning decisions can learn from the recent mistakes of celebrities. The importance of keeping documents updated is one thing that is illustrated in these high-profile cases.

While a will may be sufficient estate planning for individuals who do not have complex estates, a trust provides privacy and saves money in cases where individuals may have a high public profile or extensive assets. Actor Philip Seymour Hoffman did not want to spoil his children with a trust fund, but as a result, his estate entered an expensive and public probate process. This has been made even more costly by the fact that he was not married to his longtime partner, and as a result, she cannot take advantage of the marital deduction for estate tax purposes.

Named beneficiaries override will

Many California readers are familiar with the main documents used in estate planning. They are the will, the living will, the financial power of attorney and the health care power of attorney. Even if a person has what they believe is a legal, indisputable will, his or her heirs may not get assets intended for them. That is because the beneficiaries named in numerous financial documents have precedence over what is stated in the will.

Some people probably do not remember when they set up a checking, savings or brokerage account that they named beneficiaries of those funds. Even if they remember the process, they probably do not remember whom they named. Those people may no longer be alive or part of the owner's life. Periodic review of named beneficiaries and all estate planning documents could be imperative for ensuring that the wishes of the owner are fulfilled at death.

Reasons to include trusts in an estate plan

California residents may want to include trusts in their estate plans whether they are wealthy or not. Trusts allow an estate to be settled without going through the costly and time-consuming probate process. Trusts can also be used to shield an owner's assets from creditors.

The trust does not necessarily have to reside in California but can be domiciled in another state. Nevada and Alaska rank high in order of states that provide the best asset protection. Nevada laws are favorable due to the lack of a state income tax. California's state income tax rate, which also applies to capital gains, ranges up to 13.3 percent. Nevada's laws also provide advantages in transferring funds for asset protection because of the short statute of limitations on fraudulent transfers.

Decisions about good and bad assets in estate planning

A California resident may be surprised to discover that some assets are not worth keeping, even if there are sufficient funds saved for living expenses during retirement years. Other assets are so valuable that they should be held as long as possible. The determination of an asset's value in an estate is primarily connected to tax implications at one's death. An asset that appreciates without that appreciated value being taxed is one of the best options to keep. Those assets that will create a tax burden for an individual or their heirs are more suited for liquidation during the owner's lifetime.

If there isn't enough money saved for living expenses during retirement, it may be necessary to sell some assets during one's life. Cash and bonds gain little value, making them helpful to use for these needs. Depreciated securities should be liquidated regardless of need for cash as the value to be passed on to an heir is likely to be less than the benefits gained by selling. A loss can be a help on an income tax return, offsetting capital gains.

The importance of leaving behind a written will

While dealing with the loss of a loved one is never easy, California residents know that the process can be a bit easier when the deceased family member leaves behind a will. According to a recent report, many individuals today do not have a written will prepared in the event of their death. In fact, the report noted, only about 30 percent of individuals below the age of 34 actually have a written will.

Without a valid will in place, the decedent's property will be distributed in accordance with state laws of intestacy, and the court will appoint an administrator who will manage the decedent's assets. Besides being a lengthy process, there are fees that must be paid to the court and to the lawyers. These fees are deducted from the estate property.

Learn the details of Robin Williams' estate plan

Fans of late actor Robin Williams may be interested to learn the fate of his two California homes and other assets. Although Williams was reported to be worth $130 million in 2012, that number may have changed significantly as a result of his two divorce settlements. In an interview, Williams reportedly said that he was close to bankruptcy and had made a return to TV in order to "pay the bills." Williams' publicist, however, has said that those comments were not serious and he was in no financial trouble.

According to reports, Williams used some sophisticated estate planning techniques that may help simplify his estate administration and may have ensured that his assets and loved ones are well taken care of, if early indications are accurate. A waterfront home in Tiburon and a Napa Valley mansion Williams owned were both placed in a holding trust in order to minimize estate taxes. A separate trust Williams created in 2009 after his second divorce transferred three equal portions of funds to his three children when they reached the ages of 21, 25 and 30, respectively.

Involvement of various parties in a living trust

Because the probate process in California can be drawn out and difficult, many residents may consider living trusts as an alternative to a will. However, it is important to understand the difference between a revocable and an irrevocable trust due to the long-term implications of each. For example, some people may think that an irrevocable trust protects an estate from creditors, but such benefits could change in the future. At the same time, changes to an irrevocable trust may be difficult to accomplish because of the nature of this type of estate planning document.

Issues could arise with irrevocable trusts if a trustee becomes unavailable because that individual typically has ownership of the assets. There is also the potential for mishandling of funds by a trustee. In a family scenario, an adult child might promote the idea of an irrevocable trust to keep an inheritance from being consumed by debts accrued from their parents' medical issues later in life. However, parents might reject the idea of becoming bankrupt to protect their assets. With a revocable trust, many of these issues may be avoided due to the benefactor also acting as the trustee until the point at which they become incapacitated or die.

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