The Importance of Funding Your Trust & Periodically Reviewing Your Estate Plan

You signed your estate planning documents and placed the original documents in a safe place. You're done with your estate plan, right? Not quite…you'll want to ensure that if you've created a trust as part of your estate plan, that your trust has been properly funded with the appropriate assets. You'll also want to periodically review your estate plan to make sure it still comports with your wishes and that it takes into consideration changes that may occur in your personal or financial situation.

Funding Your Trust

Your trust will control the distribution of those assets which are held in the name of the trust. Title to your assets must be properly transferred to your trust in order to avoid probate. If an asset is not transferred into the trust, a probate proceeding may be required. Transferring real estate to a trust involves preparing a deed and accompanying documents transferring title to the trust. Some assets, such as life insurance policies and retirement benefit accounts, are contractual in nature and controlled by beneficiary designations. Careful coordination of beneficiary designations is required to make sure these assets will be distributed as you intended.

Events Triggering the Need to Review Your Estate Plan

There are many changes in your personal or financial circumstances that could have an impact on your estate plan. A few examples include:

• A change in your marital status (marriage, separation, or divorce)
• Death or incapacity of a fiduciary or beneficiary named in your documents
• A change in your health condition
• Retirement or job loss
• Receiving a substantial inheritance

San Diego Estate Planning, Probate and Trust Administration
Thank you for reading our blog. If you have any questions regarding estate planning, or need assistance with the administration of a trust or estate, contact the Casiano Law Firm for experienced advice and representation.

How Much Will it Cost You to Die Without an Estate Plan?

Occasionally we will meet with a potential client who questions whether the cost of estate planning is really justified. The answer to that question involves consideration of several different factors, including planning for the possibility of future incapacity, tax considerations, and whether probate administration will be required. This blog entry will focus on the cost of probating an estate in California. Generally speaking, if a person dies with assets titled in their name, subject to some exceptions for a very small estate, probate administration will be required.

Probate refers to the process where the court oversees the administration of a deceased person’s estate. The purpose of probate administration is to ensure that any final bills and expenses of the decedent are paid, including any taxes owed, and any claims by creditors settled. Probate is a costly, time consuming process. Probate fees in California are high, and generally fall into three categories:

• Court costs, including court fees, publication fees, surety bond fees, probate referee fees, certification and recording fees;
  
• The personal representative’s fee (the fee paid to the administrator of the estate for his or her services); and the
  
• Attorney’s fee for his or her services
  

The fees paid to the personal representative and the attorney are set by law and computed upon the gross value of the estate as follows:

• 4% on the first $100,000
  
• 3% on the next $100,000
  
• 2% on the next $800,000
  
• 1% on the next $9,000,000
  
• ½% on the next $15,000,000
  
• “reasonable” compensation on the excess over $25,000,000
  

It is important to note that the gross value of the estate is based upon the full value of the assets of the estate, not taking into account any mortgages, debt or other loans or encumbrances on the asset. For example, the deceased may have a home with a value of $1,000,000 and a mortgage of $975,000. The fee to probate the home would be based on the full value of $1,000,000, not the $25,000 net value of the property ($1,000,000-$975,000).

As you can see, failing to create an estate plan can be costly in terms of probate administration fees. Planning in advance will allow your beneficiaries to avoid both the cost and time delay associated with probate. If you have any questions regarding estate planning or probate, contact the Casiano Law Firm for advice and assistance.

Review Your Estate Plan in View of Recent Estate Tax Changes

After much uncertainty and speculation regarding the future of federal estate taxes, on December 6, 2010 President Obama announced a tentative deal had been reached with Republicans to extend the Bush area tax cuts. Effective January 1, 2011, estate taxes are once again in effect, but at an exemption of $5 million for an individual, or collectively $10 million for a married couple. The applicable estate tax rate is 35%. This exemption and estate tax rate will be in effect for two years.

Tax historians note that the new estate and gift tax rates are the most generous since 1931, and provide a unique, yet temporary window for the wealthy to utilize various gifting strategies to pass assets to their children without incurring gift, estate, or generation-skipping transfer tax. This tax break impacts a number of American families. According to the Federal Reserve Survey of Consumer Finances, in 2007, 5.4 American households had a net worth in excess of $2 million.

However, even Americans with no intention of making significant gifts have reason to be concerned about this recent estate tax change, and should have their existing estate planning documents reviewed in light of this change. Many trusts contain what are known as “formula clause” provisions, which tie the amount of a bequest to the applicable estate tax exemption. These clauses were designed to maximize the amount a couple could pass on tax-free. Unfortunately, the current exemption of $5 million is significantly different from that of past years, such as the $1.5 million exemption which was in effect in 2005. Thus, if a spouse dies in 2011 with a $3 million estate and unchanged formula clauses, the surviving spouse may be entitled to nothing outright because all of the assets would pass into a trust.

Over the next few months we will examine the recent tax change in more detail, including how this change could affect your estate plan, and the planning opportunities presented by this change. For a personalized consultation regarding your estate plan, contact the Casiano Law Firm.