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A California Living Trust is a legal document that replaces what most people think of, when they think of a Last Will & Testament. In other words, a living trust makes sure your assets go to the people you choose. In practice, to establish a living trust, a Trustor (who is the person who creates the trust) signs a document called a Declaration of Trust, usually naming him or herself as Trustee of that Trust. At the same time, the Trustor transfers his or her assets to the trust. Transferring assets into the trust is known as funding the trust. When properly funded, a CA revocable living trust enables an estate to avoid probate upon death. A living trust also avoids a second probate for your spouse or partner when he or she passes away, and if you hold property in other states, it avoids a probate there as well. Click here to read more...

There are three main ways people pass their estate (things they own) to others in California. You can either do nothing, set up a Last Will & Testament, or create a California Living Trust. If you do nothing, your estate will pass via California's Intestate Succession Laws and could very well require an expensive California Probate. This means that you have no control over who gets what of your assets and your loved ones will probably be forced into an expensive CA probate court proceeding. A Last Will & Testament, by contrast, is a set of instructions regarding who gets what of your assets, at what time, and under what circumstances. Wills generally also require Probate if you own your home, or have personal property assets, such as investments, totaling over $166,250. Some people think if they have a Will they can avoid Probate. The opposite is true though. Having only a Will virtually guarantees that a Probate will need to be opened. Still, a Will is better than doing nothing, because at least you can ensure that your estate goes to the people you want it to go to (something you can't do under the intestate succession laws). BUT, if you set up a Living Trust, you get both benefits: you can avoid an expensive Probate and ensure that your assets go to the people you want, under the terms/conditions in which you want them to get the assets.

A Revocable Living Trust generally does not provide asset protection. This upsets people at times because they really want protection and they have "heard" they can get it with a trust. We suspect people are confused because sometimes asset (i.e. creditor) protection is available with trusts, even a revocable living trust. That protection is not available to the person(s) who set up the trust however. Rather, it is later available to beneficiaries, if there is a spendthrift clause in that trust and those beneficiaries have limited access to the trust assets. Which really brings up how asset protection is achieved in the first place. It is achieved by giving up the control and benefit of those assets. This occurs when a revocable living trust becomes irrevocable (for example, the person who set up the trust passes away or other triggering event occurs) or during life people sometimes set up an irrevocable trust and voluntarily give up the “direct” control and benefit of those asset(s). Click here to read more...

It depends. First of all, there are dozens of different taxes in America. Usually, when people wonder about taxes, they are thinking of income taxes. But in the world of trusts and estates, attorneys are always talking about three main categories of taxes: that is, (1) property and/or (2) income taxes, as well as (3) estate, gift, and generation-skipping taxes. With regard to property taxes, a Living Trust does not help or adversely hurt people, so long as they know what they are doing when “funding” their trust. When it comes to income taxes, a living trust will not affect you at all, while you are alive. After you are gone however, there are a few concerns to think about. First, you probably do not want to hold assets in a trust, and have that trust earn income, without passing that income out to trust beneficiaries. The reason is that trust income tax rates are usually much higher than individual income tax rates. Second, if you hold capital assets (i.e.-real estate, stocks, etc.) in your revocable trust, you will be entitled to a step-up in tax basis, upon your passing. In other words, your beneficiaries can turn around and sell the trust's capital assets, tax free. This same benefit is not always otherwise available. For example, if you hold an asset (most commonly, a home) in joint tenancy there will not be a 100% step-up in tax basis. That means capital gains taxes might be owed. Finally, transfer taxes (or estate, gift, and generation-skipping taxes) don't affect many people anymore. That's because everyone can pass $$11,580,000 (in 2020) to their heirs tax free. Moreover, that number goes up over time, with cost of living adjustments. If you are fortunate enough to have an estate that is greater than this amount, you will face an additional tax rate of forty cents on every dollar above the current exemption amount that you give away. Clearly if you are affected by transfer taxes, this tax is draconian in nature and you should engage in transfer tax planning, both with and without the use of trusts. (Please note that this is an extreme simplification of the tax system as it applies to estate planning and you should not reply upon the information herein, without consulting with a tax and estate planning attorney.)

This is a great and relatively new question being asked by people. Traditionally, estate planning practices have focused on issues surrounding death, incapacity, and taxation. But as the population continues to age, how to get and pay for long term care has become a major part of the estate planning equation. Besides all the “normal” estate planning and probate issues that arise in trusts and estates practices, elder law attorneys also focus on long term care issues, such as social security disability, Medicaid (Medi-Cal in California), and Veteran's Pension Benefits. While many estate planning and elder law issues overlap, very few trusts and estates attorneys have dedicated themselves to learning both of these intricate areas of law. Nowadays, this is extremely unfortunate since lots of estate planning attorneys are not truly giving their clients the best advice. Sometimes the advice given, or services provided, are just plain wrong, in fact. So how is one to know what is the right thing to do? Well, here is a basic guideline: If you are older than 65 and have assets that total less than $1,000,000, you are doing yourself a huge disfavor by not talking to an estate planning attorney that also focuses on elder law. Even if you are younger than 65 and have assets above $1,000,000, you would do well to find an attorney who is experienced in both areas. The difference in who you hire, could literally be the difference between aging gracefully, or going broke in your golden years and having to rely on family members to take care of you.

There are three ways for seniors to pay for long term care: They can either pay it themselves, they have long term care insurance that will pay part or all of it, or they will need to rely upon government help. Since the average cost of residential care facilities in California ranges from $3,000 to $8,000/per month, while skilled nursing care is upwards of $10,000/month, most people can't afford to pay privately for very long. This financial strain is compounded, if both a husband and wife need care, or if acute care is needed. In such circumstances, costs could easily exceed $30,000/month. So while many people can afford to pay privately, they usually can't afford these costs indefinitely. That's where long term care insurance and government benefits come in. If you were fortunate enough to have qualified for, had the foresight to purchase, and could afford the premiums of long term care insurance, that insurance will be incredibly valuable in paying for your long term care. Unfortunately, most people don't have long term care insurance and even if they do, usually this insurance doesn't cover everything, forever. Which highlights the third way people pay for care: They are a veteran who qualifies for Veterans Pension Benefits or Medi-Cal steps in to pay for care. Both these programs require that an applicant show limited resources. Of course, there is no problem qualifying for these programs once a person has already spent all their money on long term care and they are now broke. But it is very important to realize that the government will only help with food, shelter and medical long term care needs. Everything else underneath the sun, the government will not pay for. Maybe family members can chip in to pay for items and services that are needed. The much better approach however is to speak with an elder law attorney and protect some, or even all, of your assets so that you can age with dignity and not have to rely upon others to pay for your basic needs.

Medi-Cal is a combined Federal and California State program designed to help people pay the costs of long term nursing care for public assistance recipients and other low-income persons. Medi-Cal is a need-based program and those who seek its assistance must pass certain eligibility requirements. The Affordable Care Act does not affect the Medi-Cal program for those who are over 65 years of age. The rules surrounding Medi-Cal qualification, in the long term skilled-nursing care arena, are incredibly confusing and difficult to navigate. You should definitely not try to do so on your own without the help of an experienced expert. But to learn more about the specifics and how to qualify for Medi-Cal, Click here ...

The Department of Veterans Affairs offers two disability income benefits for veterans who served on active duty. The first of these benefits — Pension — provides supplemental income to disabled or older veterans who have a low income. Pension is for war veterans who have disabilities that are not connected to their active-duty service. If the veteran’s income exceeds the Pension amount, then there is no award. However, income can be adjusted for future and recurring unreimbursed medical expenses, and this allows veterans with household incomes larger than the Pension amount to qualify for a monthly benefit. There is also an asset test to qualify for Pension. The second disability income benefit is called “Compensation” and it is designed to award the veteran a certain amount of monthly income to compensate for potential loss of income in the private sector due to a disability or injury or illness incurred while in the service. In order to receive Compensation, a veteran has to have evidence of a service connected disability. Most veterans who are receiving this benefit were awarded an amount based on a percentage of disability shortly after they left the service. There is generally no income or asset test for most forms of Compensation, and the benefit is nontaxable. Most elderly veterans who never applied for Compensation, may not realize they can apply many years after leaving the service. Other veterans may be receiving Compensation but their condition has worsened. They can reapply and get a larger amount based on a higher disability rating. Compensation and Pension claims are submitted on the same form and VA will consider paying either benefit. If a claimant is awarded both benefits, the claimant can only receive one of them. Generally, for applications associated with the cost of home care, assisted living or nursing home care, the Pension benefit results in more income. Unfortunately, much like the Medi-Cal program, the VA Pension Benefit program is incredibly confusing and rife with pitfalls for the uninformed. To learn more about the specifics and how to qualify for VA Benefits, Click here ...

Great question! Over 99% of the trusts floating out there in the U. S. are revocable living trusts. These trusts are not only useless when it comes to qualifying for government help, but most of the time these revocable living trusts actually hurt California seniors seeking Medi-Cal and/or VA Pension Benefits. That's because living trusts say that the Grantor (person who set up the trust), holds all of his or her assets, for his or her own benefit. And that totally makes sense, except in the case where a person needs to obtain government benefits to help pay for long term care. Asset protection trusts and elder law planning allow a senior to “gift” assets into a trust, in order to take those assets out of their “direct estate.” It might sound counterintuitive to some, but asset protection trusts are NOT directly held for the benefit of a Grantor, but nevertheless succeed in helping seniors obtain crucial government benefits, while the assets inside these trusts still can be available to benefit the senior(s) who set that trust in motion. When compared to outright gifting, asset protection trusts provide valuable tax benefits as well. Indeed, Medi-Cal and Veterans Asset Protection Trusts are valuable tools for those who are trying to pay for long term skilled-nursing, assisted living costs or at-home care, while enabling seniors to avoid probate, obtain tax benefits and, of course, achieve asset protection. These trusts can literally make the difference between a senior getting the care they need while preserving assets for the family unit, rather than the family spending all of their money, just to get an ailing senior, the care he or she needs.

A Medi-Cal Asset Protection Trust (MAPT) and Veterans Asset Protection Trust (VAPT) differ in a few significant ways. With a MAPT, the person setting up the trust can continue to receive the income from that trust. With the VAPT, the person setting up the trust does not receive the income directly. Rather, a trusted love one receives the income, and is able to use that income in the most efficient manner. Another difference between the MAPT and VAPT is how a home is held in the trust. With a VAPT, the home can never be rented and is held in an “intentionally defective grantor sub-trust” to preserve positive tax results. Still, the house can be sold and the proceeds can be used. With a MAPT, the trust is slightly less complicated because there is no need to worry about renting the house and thus, the sub-trust in the VAPT is not needed. Otherwise the basic structure of these trusts are the same. Both are considered irrevocable grantor trusts ready to receive a “gift.” In the case of a MAPT, the trust can provide the Grantor a stream of income over his or her lifetime; however, any assets transferred to a MAPT are no longer available to the Grantor. In practice, the future Medi-Cal benefits applicant makes a gift of these assets to the trust in return for an expected income stream. In the case of a VAPT, income works differently. With a VAPT, the Trustee of this trust can make lifetime distributions from the trust to certain people. These beneficiaries can then turn around and use that money for whatever they want, including paying for items or services for the Veteran. With both trusts, the Grantor keeps a limited power of appointment to change who can receive what is in the MAPT or VAPT upon their passing. This is an extremely important point to remember: Even though the person setting up the irrevocable trust loses some direct control over their assets inside that trust, he or she can always change the ultimate beneficiary(ies) of that trust. In a round about way, the ability to control ultimate disposition of the assets inside that trust, usually provides great comfort to a person putting assets inside an asset protection trust. Also, there are significant tax advantages to holding assets in a MAPT or VAPT. With both a MAPT and VAPT, the grantor retains enough power over the assets so that the assets can stay in the grantor’s estate for estate tax purposes. This allows for a “step up” in tax basis on the property. Thus assets that have appreciated since being acquired by the Grantor will receive a step up in basis at the time of the Grantor’s death — a very significant tax benefit to the beneficiaries. Compare this to an outright gift: if you give appreciated assets to a beneficiary, that beneficiary receives your basis (what you paid for the property) and when the beneficiary sells the property they are going to pay capital gains on all the profit. Plus, those assets are available to the beneficiaries creditors-including ex-spouses, defunct businesses, car accidents, etc. In conclusion, the main point to remember with asset protection trusts is that while MAPTs and VAPTs differ in some significant ways, both types of trusts are superior to outright gifting from a tax planning and asset protection standpoint.

It depends on how assets were held and what the decedent did to prepare for his or her passing. In California, generally if a decedent did nothing, or even if they prepared a Last Will & Testament, their estate will probably need to go through a long and expensive Probate Court Proceeding, before assets can be distributed to the decedents beneficiaries. If all assets were held in a payable on death account or were in a “beneficiary designated” account (e.g., life insurance and/or retirement accounts), those assets can usually be moved with a death certificate and a minimal amount of paperwork. However, it's rare that all assets were held in this manner. It is interesting to point out however, that sometimes people try to “outsmart” the system by holding all of their assets this way, but more often than not, there are negative tax consequences, unintended beneficiaries to an estate, and/or a loss of asset preservation (for mom or dad) while they are alive when these methods are relied upon. (So, if you decide to try and outsmart the system this way, you have been warned...) In addition to setting up a Will, holding assets in a beneficiary designated account, or a lack of planning altogether (all of which may require a Probate), assets in California are passed onto loved ones in Revocable Trusts and Irrevocable Trusts. Trusts provide the least costly, most efficient, and flexible manner in which to pass your estate on to loved ones.

Some people think that once they have drafted and funded their living trust, everything is done. And in a sense it is done, at least from the standpoint of the person who created the trust. But it is important to point out that after that person passes away, Trust Administration must be completed by the Successor Trustee named in the trust. And make no mistake about it, there are a lot of tasks for that Trustee to complete and it is usually not so easy for them to do this work on their own. So what kind of things am I talking about? Well, the responsibilities and duties that are required of a Trustee to administer a trust are similar to the duties that a Personal Representative takes on, when appointed to that position in a Probate court. For instance, a Successor Trustee must give notice to beneficiaries, file tax returns, properly appraise, inventory, as well as manage the trust assets, pay off any creditors and ultimately make distributions to beneficiaries. In the process of carrying out these duties, the Trustee must look to the trust document itself and see what it specifically requires. Every trust is different and as such, requires different procedures. These differences depend a lot on the original planning that was tailored to suit a particular persons circumstances as well as the tax planning and asset protection needs of his or her family. Failure by the Trustee to adequately carry out these duties could have devastating consequences on an estate plan. It is therefore extremely important that your Trustee know they must act, after you pass away. Generally a Successor Trustee will carry out his or her duties with the help of an experienced estate planning attorney, so you needn’t be too concerned about their level of sophistication. On the other hand, if your Trustee can handle the work and wants to go it alone, there is no legal requirement that he or she seek the help of professionals. Even though there are many duties for the Trustee to carry out, trust administration is generally less expensive and easier than Probate. Plus trusts can be structured to suit your families exact needs both personally as well as from a tax planning and asset protection perspective. Without a doubt, most of the time, the effort to administer a trust is well worth it’s cost in California.

Failure to “fund” a trust with one's assets is a fairly common mistake these days. Whether is it because people tried and failed to complete an estate plan with do-it-yourself living trust documents, refinanced their home without the proper guidance to ensure that their home was put back into their trust after refinancing, or they just plain never got it right in the first place – the result is always the same when a decedents total assets exceed $166,250 and/or the decedent held real estate outside of his or her trust: the successor trustee is forced to go to court to try and fix the problem after the Settlor (e.g., usually mom or dad) passes away. In California to do this, you must file an 850 Petition with the court (commonly referred to as a Heggstad Petition) to try and convince a judge that mom or dad really wanted to hold their asset(s) in their trust but they just made a mistake, or forgot, or whatever you can think of, to convince that judge to issue an order to fund their trust after it is too late (i.e., after mom or dad passed away). Although this is a bad place for a Trustee to find themselves, it is still far less expensive and time consuming to go to court with an 850 Petition than to go to court under a regular Probate Court Proceeding. If the 850 Petition is granted, a Successor Trustee can continue on, with the “normal” trust administration. If not, all bets are off, as mom or dads estate is going to be stuck in a long and expensive Probate for the next couple of years.

Probate is a legal proceeding to wind up a persons legal and financial affairs after death. In California, probate is conducted in the Superior Court of the County where the decedent lived. Probate proceedings usually take anywhere from 6 months to several years and probate generally is very expensive. Some people think if they have a Will they can avoid Probate. The opposite is true though. Having only a Last Will virtually guarantees that a probate will need to be opened to transfer your assets to beneficiaries. How does Probate work? The person who is nominated in the Will petitions the probate court to be appointed Executor. If there is no Will, California law provides a list of people who have priority to be appointed Executor. In any case, heirs and relatives are given notice about hearings and they can come monitor or even contest proceedings. In the easiest probates, the executor makes an inventory of estate assets, locates and pays off creditors, files tax returns, and manages the assets of the estate. After all the duties of the Executor have been completed, the estate’s assets are distributed to the heirs and the probate is finalized. If your estate goes through the probate process, legal expenses of roughly 4% on the first $100,000 of the estate; 3% on the next $100,000; 2% on the next $800,000; and 1% on amounts over $1,000,000 will be incurred. That means an estate with property including the family home, bank accounts, and the like of one million dollars will incur $23,000 in legal fees. Executors are entitled to the same exact fee for their work so double that amount for them. Sometimes in exceptionally complicated probates, the court will award even larger fees for the Executor and Attorney. Also, court costs, appraisal fees, and asset selling costs are more expenses incurred in a probate. Although this is an extremely simplified explanation of what it means to go through probate, it does explain the main two reasons of why everyone is trying to avoid it with a revocable living trust. That is, it takes a long time to go through Probate Proceeding and is much more expensive than a simple Revocable Living Trust which accomplishes the same exact thing.

There are many reasons that can lead to trust and probate litigation in California. But, in my opinion, there are three extremely common causes. The first set of reasons surrounds arguments that the person who created a Trust or Last Will and Testament was not in his or her “right mind.” The argument goes that either the Trustmaker or Testator did not have the mental capacity to create his or her documents, or that they were under the duress or undue influence of someone who was exerting pressure on them. This does indeed occur often enough. Such issues do not frequently crop up when estate planning is carried out with an experienced attorney however. That's because experienced attorneys usually employ several methods to prevent future challenges to the Trust or Will being created. As the primary precaution, experienced attorneys will always question and counsel clients alone to figure out their intent. If we feel the least bit uncomfortable with our clients circumstances, we will require him or her to go out and get an independent medical doctor to evaluate our client and say that he or she has capacity. Finally, as a boot and suspenders approach, I sometimes even have my clients go talk to a second attorney and get a “Certificate of Independent Review,” where the other attorney also discusses my clients wishes with him or her and confirms that their plan is exactly what he or she wanted. I have never had anyone successfully challenge one of my estate plans because of these precautions. The second major area that leads to litigation deals with how a Trust or Will is interpreted. Unfortunately, many estate planning documents are not written clearly enough so that a layman, attorney and/or judge can all perfectly understand what the Trustmaker or Testator intended. Interestingly, this is not a huge issue when families get along well and the estate is being split “fairly.” Too often however, these prerequisites do not exist and the estate planning documents are unclear. This is particularly true with do-it-yourself documents such as Legalzoom, Nolo, and We The People Wills and Trusts. When you combine poorly written documents with families who have a history of discord (especially in the case of blended families) and/or the dispositive provisions in the Will or Trust favors one over another... Look out because litigation is right around the corner! To prevent the likelihood of fights over the interpretation of estate planning documents, it is extremely important to hire competent counsel to clearly draft those documents in the first place. The third common cause of trust litigation stems from “supposed bad acts” carried out by a Trustee, after the Trustmaker has passed away. When Trustees do not act reasonably or prudently, they breach their fiduciary duty. Sometimes the breaches are extensive, such as outright theft. This brings up the most overlooked, yet incredibly important, decision you can make with your trust: Choosing your Trustee. You must have a lot of faith in the person(s) you put in control to be your Successor Trustee(s). If you are unsure about anyone, you are probably better off hiring a private professional fiduciary or a bank to be the Trustee. Again, this is where an experienced estate planning attorney can guide clients and make all the difference for people setting up a Trust or Will. This is especially important when there are children from a prior relationship. In short, there are many reasons that lead to California Trust and Probate Litigation but most of the time an experienced trust attorney can guide clients away from such pitfalls.