Estate Planning

Trusts

Trusts are legal entities that are capable of doing most things that individual people can do, such as entering contracts, purchasing real property, making investments, opening bank accounts, starting businesses, and even inheriting property.

Settlers (or grantors) create trusts and put assets into those trusts.  The person who manages those assets, operates the trust, and directs the trust assets according to the guidelines of the trust is known as the trustee.

Beneficiaries

Receive the trust income and/or principal. This structure, where trustees manage trust assets for the beneficiaries, can create a shield between the creditors of the beneficiaries and the assets held in trust.

In California, most people (even those with a relatively small net worth) are generally better off if they have created a revocable living trust and a pour-over will, the latter of which typically leaves everything to the revocable living trust.

Revocable Living Trusts

A Grantor Trust is created when the person establishing the trust is also the beneficiary of that trust.  The most common grantor trust is known as a revocable living trust in that the same person or people are the settlors, beneficiaries, and the trustees of that trust.  The primary purposes behind a revocable living trust are: (1) to provide for oneself in the event of incapacity; (2) probate avoidance; and (3) to provide for an intended distribution of assets after your demise.  During the settlor’s lifetime, he or she retains all the benefits of ownership, including the ability to sell, lease or mortgage trust property.  In addition, the trust is created with a last will and testament feature by providing for asset distribution after the grantor’s death.

Wills

A will can distribute property that you own at the time of your death.  It can also fund trusts and designate guardians for your minor children. Additional estate planning documents may be required for distribution of non-probate property, joint property, trusts, annuities, retirement benefits and life insurance.

A boilerplate or fill-in the blank type will carries a risk.  These types of wills are not designed for individual circumstances or to maximize all that benefits that you may have under the law.  Moreover, they may also fail to maximize the tax savings that your estate is entitled to.  Just as every person is unique, the level of protection that each client needs will often vary.  For example, some people may need more protective trusts to safeguard their assets from aggressive creditors, lawsuits or estate taxes.  It is important to discuss your individual needs and desires for protection with an estate planning attorney who can take those factors into consideration when drafting your trust and pour-over will documents.  If you would like personal advice and counsel on how effective your current will is or drafting a new will, contact Geraldi Law Offices today.

Pour-over Wills

The pour-over will acts like a catch-all in that if an asset was not properly placed into the living trust during the grantor’s lifetime, the asset will be directed by the poor-over will into that trust after the grantor’s demise.  At that point, the trust controls the distribution of the assets. This is designed to both avoid estate taxes and the costs that are typical to an unpredictable probate process.  These types of wills should provide for property management, protection from creditors, and minimize tax obligations for your heirs.

Daniel Geraldi will make sure that your will is properly written, help you set up the right kind of trust, and counsel you on choosing the right trustee, so that the need for court supervision will be limited.

Powers of Attorney for Finances

A power of attorney is a legal document that provides you the ability to authorize another party to act on your financial behalf. A power of attorney can be broad or narrow in that it can be created to give legal and financial authority for a single event or for the long term.  In your overall estate plan, this document is designed to protect you prior to your death. A power of attorney can give you the peace of mind that your financial affairs will remain in order in case you lose the mental capacity to care for such matters on your own. This document will name a trusted party to take care of all your financial and legal needs if you have diminished mental capacity and are generally unable to care for your own finances or legal rights. It is important to create this document while still in good mental health as full mental capacity is required at the time of creation to be later enforceable.  This means the party executing the document must be of sound mind in the eyes of the law to fully understand what rights they are transferring.

It is essential for all adults, not just the elderly, to have a power of attorney in place because an unexpected illness or accident can happen at any age.  Daniel Geraldi is eager to assist you in the creation of your powers of attorney.  He services all areas of California. For more information on how to set up a power to attorney, contact Geraldi Law Office today.

Advanced Health Care Directives

An advanced health care directive is very similar to a power of attorney in that it authorizes another individual to act and make decisions on your behalf.  However, whereas the power of attorney authorizes that other individual to handle your finances, an advance health care directive grants authority over your health and medical treatment decisions.  Confusion and disputes may arise when a person without this properly drafted and executed document becomes bed ridden or otherwise unable to make their own medical decision.  Having this document in place will assist others, such as your family members, to get medical records and make health care decisions on your behalf.  This document states the types of medical treatments that can and cannot be used in your care.  It can also address issues such as artificial life support, resuscitation, organ donation and tube feeding.  Having a valid advanced health care directive in place gives you the assurance that your decisions will be followed and it provides your family members with a clear statement of your medical wishes.

All adults, not just the elderly, should have an advanced health care directive in place.  This is because an unexpected illness or accident can happen at any age.  For more information on how to set up an advanced health care directive, contact Daniel Geraldi.

Irrevocable Life Insurance Trusts (“ILITs”).

  Unlike a traditional insurance policy that would be included in your estate and thus subject to estate tax, you can set up an Irrevocable Life Insurance Trust (ILIT) as an entity outside of your estate. The insurance proceeds paid to the trust are not subject to estate taxes and can be earmarked to pay all or part of the estate’s tax liability following your death.  This can be beneficial in that it can eliminate the need to sell other estate assets to pay those taxes.

There are generally two ways to create an ILIT: (1) you can transfer an existing life insurance policy into an ILIT; or (2) you set up an ILIT first and then purchase a new insurance policy through that ILIT.  Transferring an existing policy to an ILIT does serve to remove that asset from your estate.  However, changing the policy ownership to the trust can prove to be a bit complicated in some cases.  Additionally, the IRS requires to be included into your estate the proceeds of any life insurance transferred by you, the insured, within three years of your death.  Thus, there is a risk that if you do not survive for three years following the transfer that you could lose the full tax savings benefits of the ILIT.  For this reason, it is usually best to create an ILIT, fund it with some cash, and then instruct the trustee to purchase a new policy for the benefit of the trust.  Married couples may also want to purchase a survivorship life (sometimes known as a “second-to-die”) insurance policy.  These policies insure both spouses.  However, they pay benefits only when the second spouse dies (which is when the estate taxes will need to be paid).  The benefit of these types of policies is that they usually require lower premiums and thus serve to maximize the tax savings while reducing the insurance costs.

Contact Daniel Geraldi to learn more about the benefits and mechanics of creating an ILIT.