Our Estate Planning and Elder Law FAQs
How do I set up a trust? Does a will have to be notarized to be enforceable? Is my mother eligible for Medi-Cal? Who should I name as a guardian to my children in my will? In our FAQs, we offer answers to the most commonly-asked questions about wills, trusts, probate, and other estate planning topics.
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What Is A Trust? What Benefits Do Trusts Offer Us?
A trust is basically an agreement where a single person or a married couple (the grantor or creator) give their assets to another person who acts as the trustee (manager) and the trustee holds it for the benefit of the third person who is the beneficiary. The grantor(s) act in three capacities: grantor, trustee and beneficiary, while alive. The trustee will manage the trust assets just as they always have.
So a trust is a legal way to hold assets. It sets out who the beneficiaries are during the lives of the grantors and who the beneficiaries are after the grantors pass; who the trustees are; and how the trust will be administered. As far as benefits, a revocable living trust saves your family time and money by avoiding probate -- the court controlled process which is expensive and time-consuming. A trust confers several other benefits as well. Unlike a will, a trust has provisions for a successor trustee when a trustee becomes incapacitated and is no longer able to manage the trust assets. So that avoids the necessity for a possible conservatorship where you have to go to court and have someone appointed to act for the incapacitated person. That is a very expensive and lengthy process. Good estate planning avoids that. Another benefit is that a trust is harder to contest than a will. So if there is a dissatisfied family member who wants to get in a fight and contest it, the trust makes it more difficult.
What Are The Different Types Of Trusts? Should I Have More Than One?
There are different types of trusts that serve specific purposes based on a family's situation. We start with the revocable living trust - the foundation of any estate plan. First, it avoids probate if properly funded and second, it provides protection should the trustee become incapacitated.
What if there is a child (whether it be a minor or adult child) that has a disability (a “special needs” person)? If a special needs person were to receive an inheritance, it may render them ineligible for valuable government benefits such as Medi-Cal. The solution is for the parents to create a Special Needs Trust that protects disabled beneficiaries or even a surviving spouse. The disability may be schizophrenia, cerebral palsy, severe autism, or Alzheimer’s. They may be unable to work.
Remember, Medi-Cal is a needs based program. If a special needs person inherits a great deal of money, he or she will not qualify for Medi-Cal or SSI or worse yet, may be disqualified from receiving benefits they had been receiving. As a result, his or her inheritance will be spent down quickly if they need ongoing healthcare. If the inheritance had gone into a special needs trust the asset would not be considered their asset for purposes of qualifying for government benefits. A fiduciary acts as the trustee who hopefully understands these benefit programs and is permitted to use assets to supplement or enhance a special needs person life. For example, a trustee may purchase a home for the special needs person. Or if he or she lives in a group home, the trustee may pay for a single room.
Next we have the spendthrift trust. It’s similar to a special needs trust. This is for beneficiaries who don’t manage money very well and/or have a drug and alcohol problem. A spendthrift trust protects the beneficiary from their own reckless behavior and preserves assets. The parents can specify the scheduling of distributions, the amount and under what conditions the trustee may make distributions. There may be provisions where the trustee may require a blood test before authorizing a distribution if they suspect alcohol or drug abuse. Then the trustee can require rehabilitation before any further distributions can be made.
The “IRA Inheritance Trust” – is what we call a living trust for retirement accounts. Understand that typically we don’t want a living trust to own retirement accounts (e.g. IRA’s, 401(k)’s, etc.) unless there is a beneficiary who is a minor. Otherwise, the tax deferral advantages will be lost. But again, what if you have an adult child who doesn’t manage money well? We offer the IRA Inheritance Trust as a solution. This trust was specifically approved by the IRS. This trust not only protects the adult child’s share from mismanagement – it also protects the “stretch out” of each beneficiary’s share over their lifetime (although current legislation known as the SECURE Act may radically change the “stretch out rules” - learn more here). Beneficiaries (even responsible ones) often make the mistake of cashing out their share of the retirement account proceeds, not realizing that a tax will be due as a result. Furthermore, there may be a loss of hundreds of thousands of dollars that could have accrued over their lifetime had they kept the rollover IRA intact.
Then there is the Personal Asset Trust. This is an asset protection trust for beneficiaries. This trust provides protection against creditors, judgments, and the biggest threat of all – divorcing spouses. What if your adult child is in a high-risk occupation, such as a physician or is an owner of rental properties? A personal asset trust is the smart choice.
The Medi-Cal Asset Protection Trust is a very sophisticated trust and is an invaluable tool that we use in Medi-Cal planning.
We have the Bridge Trust for those who want asset protection for themselves. This is a very unique, sophisticated asset protection trust.
As you can see, there are many different types of trusts that serve different purposes. Every family's needs are different. We design estate plans that serve the unique needs of our clients.
Are Assets Held In A Trust Protected From Creditors?
A revocable living trust does not protect assets from creditors. That is a big misunderstanding that many people have. It avoids probate but it does not provide asset protection.
We do offer, however the Bridge Trust for those who want asset protection for themselves. This is a very unique, sophisticated asset protection trust. The Bridge Trust® combines the strengths of an offshore trust with the simplicity of a domestic asset protection trust (“DAPT”).
The Bridge Trust is an Asset Protection Trust registered offshore but domesticated (Domestic Asset Protection Trust) for tax and administrative purposes. This means that there are no complicated foreign filing requirements or IRS forms.
If a legal crisis occurs, the Trust and accompanying assets “cross the bridge” to the offshore jurisdiction, beyond U.S. court authority – for ultimate peace of mind.
Then there is the Personal Asset Trust. This is an asset protection trust for beneficiaries. This provides protection against creditors, judgments, and the biggest threat of all – divorcing spouses. What if your adult child is in a high risk occupation, such as a physician or is an owner of rental properties? A personal asset trust is the smart choice.
What Is Involved In Trust Administration? How Does It Compare To The Probate Process?
Although many of the same steps are involved in probate and trust administration, there are a few important differences in these two ways to settle a deceased person’s estate. Probate is a court-controlled process that is required to transfer assets when assets are in the deceased’s name only. An executor is named to present a list of all the deceased’s holdings to the court, who will then subtract any outstanding debts from the estate before releasing the rest to beneficiaries. Some of the disadvantages to probate are that the proceedings are public record, it is often expensive, and it can take a long time before assets are distributed.
A living trust allows assets to be transferred without going through probate. If a loved one has assets in a trust in his sole name and he becomes incapacitated or passes away, the assets immediately come under the control of the successor trustee named in the trust agreement. The court is not involved since the “owner” of the assets has not changed—the trust is still the owner—allowing the estate transactions to remain private. In addition, the new trustee can access accounts immediately, making trust administration typically shorter and less expensive than probate. However, the trustee is legally responsible for the management and distribution of trust assets, and the trust must have been properly funded to avoid probate proceedings.
What Exactly Is Probate In California?
Technically, probate means “proving the will” through a probate court proceeding. Most people think of it as a long, drawn-out and costly legal process to ultimately transfer property from the decedent to the beneficiaries.
What Factors Set The Stage For Probate To Occur?
When someone dies with a will, the named executor will need to open probate by filing a Petition For Probate with the court. If the decedent had no will, someone will need to open an “administrative” probate by filing a petition. The court will appoint the administrator and will ultimately distribute assets to the decedent’s closest living heirs at law, as specified by statute.
What Are My Options To Avoid Probate In California?
If, in your lifetime, you don't make estate plans, your death could bring about a long process before distribution of your assets. It's called probate.
Probate is expensive and the longer it goes on, the less your beneficiaries will receive. So, by working with an attorney well-versed in drafting estate plans, you can avoid probate and all of the difficulties it could bring.
There are four ways to pass on your assets and avoid probate:
1. Revocable Living Trusts
Certainly, the living trust avoids probate and that’s why people do it. So, for example, a new grant deed will be recorded that transfers title from the married couple’s names to their trust and thereby avoid probate of the home. So if your assets are titled in the name of your trust and you become incapacitated or pass away, the assets immediately come under the control of your successor trustee named in the trust agreement. The court is not involved since the “owner” of the assets have not changed—the trust is still the owner—allowing the estate transactions to remain private. In addition, the new trustee can access accounts immediately, making trust administration typically shorter and less expensive than probate. However, the trustee is legally responsible for the management and distribution of trust assets, and the trust must have been properly funded to avoid probate proceedings.
2. Death Beneficiaries
Many types of assets, such as life insurance and retirement accounts, transfer to a designated beneficiary when you die. Since they aren't part of your estate upon your death, they are not an asset to be probated.
Other less-well-known types of assets not typically associated with death beneficiaries include:
- Payable-on-Death Accounts: This can be used for bank accounts and offer one of the easiest ways to keep money - even large sums of it - out of probate. All you need to do is fill out a simple form, provided by the bank, designating the person you want to inherit the money in the account at your death. At your death, the beneficiary just goes to the bank, shows proof of the death and of his or her identity, and collects whatever funds are in the account. The probate court is never involved.
- Retirement Accounts: Funds in retirement accounts such as IRAs and 401(k)s do not have to go through probate after your death. The beneficiary you've named can claim the money directly from the account custodian. If you're single, you're free to choose whomever you want as the beneficiary. You can also name a secondary beneficiary, who will inherit the money if your first choice dies before you do or at the same time. If you're married, your spouse may have certain rights to some or all of the money. In California (a community property state), chances are your spouse owns half of what you have in a retirement account.
- Transfer-on-Death Registration of Securities: California adopted a law (Uniform Transfer-On-Death Securities Registration Act) that lets you name someone to inherit your stocks, bonds or brokerage accounts without probate. It works very much like a payable-on-death bank account.
- Transfer-on-Death Registration for Vehicles: California offers car owners the sensible option of naming a beneficiary, right on the registration form, to inherit the vehicle. It's a simple, effective way for folks to pass on their vehicles and small boats.
- Transfer-on-Death Deeds for Real Property: In 2016, California allowed the use of transfer on death deeds for real property. But you should consult an attorney as there are certain caveats to consider.
Note that there are caveats associated with using beneficiary designations and we urge you to consult an estate planning attorney to discuss further. We always advise against passing on assets to beneficiaries outright and unprotected. Learn more here.
3. Joint Ownership of Property
- Joint Tenancy with Right of Survivorship: Property owned in joint tenancy (typically real property but is used in bank accounts as well) automatically passes, without probate, to the surviving owner(s) when one owner dies. It's easy to set-up but there are a number of caveats attached to its use. First, there is no step-up-in-basis upon the death of the first owner which will result in greater capital gains taxes upon the sale of the property. Second, the co-owner can sell or mortgage his or her share -- or lose it to creditors. And finally, a co-owner may not realize that they can't leave their share to someone else in their will or trust. Upon their death, it automatically goes to the surviving co-owner(s).
- Tenants-in-Common: Real property owned as tenants-in-common avoids some of the drawbacks associated with joint tenancy. There is a step-up-in-basis upon the death of the first co-owner hence minimizing the capital gains tax issue. And a co-owner can leave their share of the property to someone else in their trust (or will).
You can give gifts while you're alive, such as tuition money to your grandchildren. But be aware that this may require the advice of an estate planning attorney if gifting is associated with estate tax planning or Medi-Cal planning.
Note that there are simplified procedures for small estates. If the total value of all the assets you leave behind is $150,000 or less in California (as of 2019), the people who inherit your personal property -- that's anything except real estate -- may be able to skip probate entirely. If the estate qualifies, an inheritor can prepare an affidavit (available online) stating that he or she is entitled to certain property under a will or state law. When the person or institution holding the property -- for example, a bank where the deceased person had an account -- receives the affidavit and a copy of the death certificate, it releases the money or other property.
What Actually Occurs During The Probate Process? What Does It Look Like At The End?
Here is a brief overview of the process:
- Identify the property owned by the decedent.
- Determine who is legally entitled to inherit the estate, whether the decedent left a will or died without one.
- File the petition for probate and obtain “Letters” from the court that will enable the executor (or administrator) to take control of the assets.
- Marshall the financial accounts into an estate account.
- Appraise assets.
- File a Final Report with the court and request an Order For Distribution.
How Is Medi-Cal Different from Medicare?
A lot of people mistakenly think that Medicare covers long-term nursing home care but it only provides very limited benefits. It is confusing. One of the major differences is that Medi-Cal is a needs-based program or income based healthcare assistance program. Federal, state and local tax funds fund it.
Medicare, on the other hand, is a health-care benefit that you are entitled to when you reach age 65 inasmuch as you paid into it during your working lifetime.
Here's what Medicare does cover with respect to skilled nursing care (nursing home care): (i) covers the first 100 days of skilled nursing care provided it was preceded by an inpatient hospitalization of at least 3 days. For example, a person suffering a stroke typically ends up in the emergency room, with a subsequent hospitalization, followed by rehabilitation in a skilled nursing facility; (ii) Medicare covers the first 20 days in full; and (iii) days 21-100 are partially covered and in 2019, you will be required to pay a daily $167.50 co-payment. After 100 days, the patient is fully responsible. Given that the average monthly cost of nursing home care in California exceeds $8,500 -- that will rapidly deplete an estate. Most families are simply not prepared for that kind of financial burden!
What Can We Do To Plan For Our Parents Or Loved Elder's Care -- Legally, Financially, & Care Coordination\Patient Advocacy?
How do we maximize an elder loved one’s total well-being? That's the issue. So that would mean services in addition to legal\financial planning, right? How about care coordination and patient advocacy? How about helping the family figure out what their loved one's needs are in a comprehensive way and how to obtain whatever may be required? We call this Life Care Planning that assists families facing tough issues with loved elders. Life Care Planning is a unique, cutting-edge service that our law firm offers. We know that the decision to move a family member or a loved one into a nursing home is one of the most difficult decisions family members face. Family members face this when their loved elder can no longer care for herself or himself, suffers from a progressive disease like Alzheimer’s or dementia or has experienced a stroke or heart attack.
There are two types of long-term care planning situations we face that require very different approaches: “proactive planning” versus “crisis planning”. So if I have a family coming in about their loved one who is in the hospital and are about to be transferred to a skilled nursing facility -- that is crisis planning. Only the first 20 days are fully covered by Medicare and the remaining 80 days of coverage requires a co-payment of $167.50 per day (2019). If it's unclear how long your loved one will need long-term care, then the family must consider Medi-Cal. And we don’t have much time to get them qualified. In these circumstances, I may be able to save 50% of the elder’s assets, which would be a good result. But if given the opportunity to do proactive planning – that is, more lead-time, I may have been able to save most or all of the assets.
An example of proactive planning would be where an elder was recently diagnosed with Alzheimer's or dementia and the family comes to see me. Now we may have four or five years before they ever require a nursing home. That gives us sufficient time, in most cases, to protect all or most of the estate. So that’s the difference.
In addition to saving more assets with proactive planning -- our multidisciplinary team will provide welcome relief from worries before, during and after an elderly loved one's transition to a nursing home. This means that the elder will get the right care sooner, preserve their independence for as long as possible and age with dignity.
The family can experience freedom from the burdens of caregiving, get guidance with every legal, healthcare, and long-term care decision, gain confidence from having a plan for ongoing care as the elder's condition progresses, and relief that you have an advocate on your side.
We know that the emotional, physical and financial strains of providing for an elder's care can be overwhelming and paralyzing. Our Life Care Plan is the solution. It’s a comprehensive, multi-disciplinary approach to meet your elderly, disabled or chronically-ill loved one’s medical, long-term care, legal and emotional needs during a long-term illness or incapacity. It's important for the family to pause, take a deep breath and know that that there are a lot of things we can do. Through Life Care Planning, we can help families who are overwhelmed by all the decisions they have to make when a loved one is suffering from a progressive disease or condition.
Maybe they need some in-home care or a care service worker to come in and do some shifts, or maybe they will need assisted living - so everything is planned out in advance. We call that our Life Care Plan. Each case has different challenges. But it’s important for the family to pause, take a deep breath and understand that there are a lot of things we can do. Through Life Care Planning, we can help families who are overwhelmed by all the decisions they have to make when they have a loved one who is suffering from some sort of a progressive disease or condition.
As for the legal\financial planning, we can reduce or even eliminate nursing home bills, protect life savings and provide financial security, increase the amount of income the healthy spouse gets to keep and protect the children’s inheritance.