DOCUMENT FINDER

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There are two very important numbers for residents of California: $100,000 and $675,000. Estates under $100,000 are not subject to probate, and estates under $675,000 do not pay any federal estate tax. So... if your estate is under $100,000, you probably do not need a living trust and you (or your heirs, really) do not have to worry about the estate tax.

Between $100,000 and $675,000, the goal is to avoid probate by making a living trust. You are still within the federal estate tax "exemption," so no estate tax planning is required.

If you die with a net worth of more than $675,000, the IRS starts to take huge bites out of the estate. Those who are lucky enough to have this problem should think about a living trust plus some tax planning!

Let's say it a different way:

• An estate less than $100,000 is not subject to probate, so you should not need more than a Simple Will and Powers of Attorney.
• Estates over $100,000 are probated in California. In order to avoid probate, you need a living trust.
• Estates over $675,000 are subject to probate and need a living trust. In addition, they may require some tax planning to reduce the federal estate tax.

To use this Document Finder, simply locate the entry that describes your marital status and the value of your estate. For tax purposes, the total value of your estate includes the proceeds of any life insurance payable on your death, unless someone else owns the policy.

ESTATE PLANNING MADE EASY

The first item on the agenda is living trusts. If you own a home or other real estate, or if you own securities (stocks, bonds, limited partnership units) with a total value in excess of $100,000, you should have a living trust.

Many people think that all they need to protect their estate is a simple Will. They don't realize that a Will does not avoid probate, does not reduce attorney's fees or Court costs, does not prevent the inconvenience and delay of Court administration, and does not provide any means of managing your estate if you should become incapacitated.

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A Will is designed to specify who will receive your property (the beneficiaries) and who will carry out the instructions in the Will (the Executor). All of this is done, however, through a formal Court proceeding known as "probate."

In order to avoid probate, you need to create a trust. A living trust spells out who will receive your property and designates someone to carry out the instructions in the trust, so in a way it does the same thing that a Will would do. The difference is that with a living trust the property is transferred privately, without the expense and delay of probate.

To understand how a living trust works, you should be familiar with each of these terms: trustor, trustee and beneficiary. The trustor is the person who creates a trust and transfers assets into it. The trustee manages all of the assets held by the trust, deciding how to invest funds, when to buy or sell property, etc. The beneficiary is the person who receives the income and/or principal of the trust.

As an example, assume that John and Mary Brown are setting up their family trust. The first step is for an attorney to prepare a written trust agreement, which is often called a "Declaration of Trust." John and Mary will be the trustors, because they are the people who have created the trust. They may also act as the trustees, which means that they will retain total control over the management of their estate. And they will be the beneficiaries for as long as either one of them is living.

After making the trust, John and Mary will change the way they hold title to their assets. Now their real estate, bank accounts, stocks and other property will be held in their names as trustees. If their trust is dated May 10, 1986, they would hold title as follows: "John Brown and Mary Brown, as Trustees of the Brown Family Trust dated May 10, 1986."

By naming themselves as the trustors, the trustees and the beneficiaries, the Brown's have exactly the same rights to their property that they had before making the trust. In addition, they can amend or revoke their trust at any time, for any reason.

Think of a living trust as a legal "wallet" -- you can put things in, you can take things out. The advantage to using this holding device for your assets is the law makes a distinction between you and the trust. People die, but trusts do not. Your trust has unlimited life, like a corporation, so the probate Court will not have any control over the assets in the trust.

Now that the Brown's have set up a trust, how will it operate in the future? John and Mary will continue to control their own estate, just as they did before they created the trust. They will be able to buy, sell or borrow against property, to make investments, to spend money or to give money or property away, and to do anything else that they could have done before making the trust.

When one spouse dies, the surviving spouse will act as the sole trustee and beneficiary, retaining total control over the whole estate. So if John should die in 2006, Mary will be the sole trustee and beneficiary.

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Let's assume that Mary has an accident in 2007, and she is unable to manage her estate. In the trust agreement, John and Mary named their son, Ralph, as the alternate trustee. Ralph will be able to manage the estate on his mother's behalf, depositing checks, paying bills, and renting the house to produce income if it is needed. He can do this without creating a conservatorship, because the management of a trust is a private family matter and does not require any Court supervision.

In 2008, Mary recovers and she is able to manage her estate again. Under the terms of the trust agreement, she has the right to reassume her position as sole trustee, and she does so.

Mary dies in 2016, leaving two children -- her son, Ralph, and her daughter, Anita. As the alternate trustee, it is Ralph's responsibility to carry out the instructions in the trust agreement. John and Mary provided that when they were both deceased, the total estate would be divided evenly between their children; and at the time of Mary's death, the estate consists of a home and bank accounts.

Acting as the alternate trustee, Ralph records the death certificate, an affidavit of death, and a new deed to the home which shows that Ralph and Anita are equal owners. He takes the trust agreement and a copy of the death certificate to the bank, and changes title to the accounts into his name and Anita's name, as equal owners. If there were other assets, they could be transferred in the same way, quickly and without any Court proceedings.

To review, John and Mary Brown created a living trust for the benefit of their family. They transferred title to their home and other assets into their names as trustees, and they directed that as long as they were both living they would be the trustees and beneficiaries. The trust agreement stated that upon the death of either spouse, the surviving spouse would continue as the sole trustee and the sole beneficiary. The trust also provided that if neither spouse could act as trustee, the alternate trustee would be their son, Ralph. And finally, the trust specified that when both John and Mary were deceased, the estate would be divided between their children, Ralph and Anita. The living trust saved their family a small fortune in legal fees by (1) avoiding a conservatorship when Mary was incapacitated and (2) avoiding a probate on Mary's death.

Does it make sense for a single person to have a living trust? Yes, a single person should set up a trust to avoid probate and the possibility of a conservatorship. The only difference is that you do not have a spouse to name as an alternate trustee or beneficiary, so you will probably skip directly to your children or other heirs.

There are two types of death taxes: a federal estate tax and a California pick-up tax. First let's look at the federal estate tax. There is no tax if all of your estate is going outright to your husband or wife. It doesn't matter how large your estate is, since there is now an "unlimited" marital deduction.

On the death of a single person, or on the death of a surviving spouse, the estate will pass free of death tax if the total net value of the estate, including life insurance proceeds, is under $675,000.

You may have thought of making gifts to family members or other individuals, either out of generosity or as a means of reducing your taxable estate. The general rule is that the donor (person making the gift) must pay a federal gift tax based on the amount of the transfer.

However, you can give up to $10,000 per person in any year without having to pay any gift tax. This is an annual exclusion, so you could make a $10,000 gift each year. And there is no limit to the number of recipients, so if you have three beneficiaries in mind, you could give them $10,000 each, for a total gift of $30,000 each year. If you are married, you and your spouse can give $20,000 each year to each beneficiary, so this doubles the amount that you can transfer without paying any gift tax. The beneficiary does not need to be related to you and does not report the gift as taxable income.

In the event that you give more than the $10,000 exclusion ($20,000 if married), you must file a gift tax return by April 15 of the following year. You don't necessarily have to pay any gift tax, though, because you can elect to use up part of the $675,000 "estate tax exemption" in advance. The I.R.S. lets you pass $675,000 to other people free of tax and they don't care whether you do it in the form of lifetime gifts or by inheritance, or a combination of both. If Jack gives his daughter, Linda, $60,000 this year, the first $10,000 is covered by the annual exclusion and the remaining $50,000 is subject to gift tax. Jack can either pay the gift tax or use up $50,000 of his $675,000 exemption, leaving $625,000 that he can pass free

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of federal estate tax to his heirs when he dies. If Jack doesn't want to use up any of his $675,000 estate tax exemption, then he simply has to keep his annual gifts under $10,000 per year per person.

A major exception is that married persons can give any amount to each other, free of gift tax. Another bit of good news is that the California gift tax law has been repealed, so there is no longer any state gift tax.

If your estate is under $675,000, lifetime giving doesn't make any sense from the standpoint of reducing death taxes. Also, you can't deduct the amount of a gift on your income tax return, unless the gift is to a qualified charity. So if you give $10,000 to one of your children, or to a friend, it will have no effect on your income tax for that year; except thereafter you will no longer be paying income tax on any interest the $10,000 produces.

For larger estates, lifetime giving is sometimes a good way to reduce the estate to minimize death taxes. But remember that when you make a completed gift, you can no longer use what you have given away. Have you allowed for inflation, unexpected medical bills, or other expenses which could cut into your cash resources and affect your standard of living?

Probate is a formal Court procedure that is required to clear legal title to your beneficiaries. Probate is not required for any asset that is held in joint tenancy or trust form, or for separate property or community property going to a surviving husband or wife.

Single persons should be informed about the problems of probate, because their estate will probably be probated when they die. Married couples should also know about probate, because if they happen to die at the same time (as in an accident), each of their estates would require a probate in order to go to their children or other beneficiaries.

Your estate is subject to probate if:

• You are a single person and hold title in your sole name, or
• You are married and own separate property or community property which is not going to your spouse,

• Your estate is worth more than $100,000 when you add up the value of all real and personal property.

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Example: Husband and wife own a $110,000 estate, and they hold everything in joint tenancy. When one of them dies, there is no probate to clear title to the surviving spouse. But when the survivor dies, the entire estate is subject to probate, because it is over $100,000 and is then owned by a single person.

What is actually involved in probating an estate? First, the person who has been named as Executor in the Will files a petition with the Court asking to be formally appointed and authorized to act on behalf of the estate. If there is no Will, this person is called an "administrator." An inventory of all assets in the estate is filed with the Court. Creditors are given four months to file claims against the estate (this waiting period applies even if the estate doesn't owe any money). After taxes and claims have been paid, the Executor files a petition asking the Court to approve the final accounting and to authorize distribution of the estate.

The Executor employs an attorney to do all of the legal work required, and the attorney receives a statutory fee based on the size of the estate. The fee is computed on a percentage basis, and is paid to the attorney at the close of the probate proceeding.

In computing the attorney's fee, the estate value is not reduced for real estate loans.

So if you own a home worth $100,000, but you owe $80,000 on it, the full $100,000 value is used to figure the attorney's fee. The estate value will include the proceeds of life insurance and annuities, unless a beneficiary has been designated in the policy. The attorney may also be entitled to "extraordinary" fees if any real property is sold, if he prepares a federal estate tax return or income tax returns, or if he represents the estate against disputed creditor claims.

The Executor or administrator is entitled to the same statutory fee that the attorney receives. This means the combined attorney's fees and Executor's fees on a $100,000 estate are actually $6,300 -- over 6% of the value of the estate! In addition, there are Court filing fees, appraisal fees paid to a Probate Referee, and the expense of publishing legal notices in the newspaper. These items will probably add up to another $500 or more.

The minimum time to probate an estate is 6 months. In practice, the average time is more like 15 months, and probates have been known to drag on for 10 years or longer. Probates can also result in unwanted public disclosure, since the estate inventory must be filed with the Court and become a matter of public record. Once this document is filed, any person or agency can obtain a complete list of all assets in the estate together with their appraised values from the County Clerk's office.

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Parents sometimes put property in joint tenancy with their children, because they know this avoids probate. This is not a good idea, however, because a civil Court case or a bankruptcy proceeding could take the child's interest in the property.

For example, Mary has a home and a savings account, and she puts her son Ralph on both of these items as a joint tenant to avoid probate. A year later, Ralph is involved in an automobile accident caused by his own negligence. The driver of the other car is seriously injured and eventually a lawsuit results in a $450,000 verdict against Ralph. Even though he carries $300,000 of liability insurance, this is not enough to pay the whole amount, so where do you think the plaintiff is going to look to satisfy the remaining $150,000 owed under the judgment? To Mary's account, obviously, because now it is held in joint tenancy form so it actually belongs to both Mary and Ralph, and half of it can therefore be taken by his creditors.

Furthermore, if a parent puts an adult child's name on a deed to real property and the child later becomes legally incapacitated, how can the parent sell the property or even borrow money against it? Since the child is a joint tenant, his or her signature will be needed, but unfortunately the child is unable to sign. The parent will have to set up a conservatorship for the child in order to obtain Court approval of the sale or loan, and this will involve a substantial amount of attorney's fees.

All life insurance policies, company retirement plans, IRA's and annuities provide for a "designated beneficiary." The proceeds are delivered to the beneficiary without going through probate, and without being subjected to any costs or delay. This is one of the reasons that life insurance is such an important tool in providing instant cash for your family.

It is important that you have correctly designated the beneficiaries on all such products and plans. In the typical situation, you name your spouse as the primary beneficiary if you are married, and your children are named as contingent beneficiaries. If you are single, the primary beneficiary might be your parents or the survivor of them, and the contingent beneficiary might be your brothers and sisters. A living trust may be named as a beneficiary, but this may result in adverse tax consequences so always check first with your attorney.

Do not name your estate as the beneficiary, because this would make the proceeds subject to probate. The same thing happens if you fail to name a contingent beneficiary and the primary beneficiary does not survive you. In that case, the proceeds may be paid to your estate and probated. So be sure to name a contingent beneficiary!

Here are some sample designations: "wife of the insured;" "children of the insured, per stirpes" (this means if a child is deceased, that child's children, if any, would take his or her share); "parents of the insured, or the survivor of them;" "brothers and sisters of the insured, in equal shares." In making the designations for a retirement plan, you could substitute the words "plan participant" for "insured."

To find out how the beneficiaries are listed on your current policies or retirement plan, contact your insurance agent, your employer or whoever issued the policy or plan to you. If the beneficiaries have not been listed correctly, ask for a form to change the beneficiaries.

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It's easy to avoid probate on cash accounts at a bank, savings and loan, or credit union. Many institutions now have a signature card that provides you with a place to name a beneficiary, and this will avoid probate. On a signature card that does not allow you to directly name a beneficiary, change the way you hold title to the account into the following form of ownership: "John Brown, in trust for Anita Brown."

This is known as a "Totten trust" or a "pay on death account," and it can be used on every type of bank account, including checking accounts, savings accounts, certificates of deposit and T-Certificates. You are allowed to make this change on a time account without waiting for the maturity date.

To have the account divided equally between two or more beneficiaries, simply add on their names: "John Brown, in trust for Anita Brown and Ralph Brown." A married couple might want to hold an account in joint tenancy, but avoid probate when it passes to their children. In that case, the account might read: "John Brown or Mary Brown, in trust for Anita Brown and Ralph Brown."

Some bank employees are not familiar with this wording, and you may have to be persistent before they will allow you to put the account into a joint tenancy/trust format. There are also a few institutions that limit the number of people who you can name as the beneficiaries, and this can be inconvenient if you have a group of people in mind to receive the account. One solution would be to break the money up into smaller accounts, naming different beneficiaries on each account so the amounts will come out right. But then you have to remember that if you withdraw funds from one account, you are reducing the "inheritance" of some beneficiaries relative to the others.

A Totten trust has two limitations. First, it does not provide for alternate beneficiaries if the person you have named as a beneficiary dies before you do. Second, this type of trust does not let you delay distribution to a minor beneficiary. But for small estates that consist primarily of bank accounts and do not include any real property, the use of Totten trusts can avoid probate without the expense of setting up a written living trust through your attorney.

Before you change the signature card, let me ask you one more question. Have you named a cosigner on your account? This is someone who would be able to pay bills and deposit checks for you if you were incapacitated. The correct way to set up the signature card is to name yourself (or you and your spouse) as the owner of the account, and then to also name a beneficiary and a cosigner on the account (this may or may not be the same person). Many banks have a separate "power of attorney" card that is used to designate a cosigner.

California residents with simple estates and typical objectives can now use a standard form for making their own Wills. This form is known as the "California Statutory Will," made possible by legislation enacted in 1982.

Pre-printed copies of the California Statutory Will can be found in most office supply stores (Wolcotts Form 1665). The form includes instructions and is relatively simple to fill out, particularly if you are married and have children.

The Statutory Will does not work for single people who have no children, or for married couples with separate children. If you fall into one of these categories, you should ask an attorney to draw up your Will.

In order to encourage private individuals to support charities, the Internal Revenue Code makes certain gifts tax deductible. Lifetime gifts to tax-exempt charities are deducted on your income tax return, and gifts under your Will or trust are deducted on an estate tax return.

Qualified organizations include churches, colleges, universities, hospitals, medical research foundations, the Zoological Society, the Salvation Army, the Burn Institute, Boy Scouts, Girl Scouts, Red Cross, United Way, CARE, Y.M.C.A., Y.W.C.A. and many others.

Any type of property or interest in property may be donated, such as cash, personal property, stocks, bonds, mutual fund shares, notes, or real estate. You can deduct the full amount of the gift on your income tax return, within certain limits.

You may have an estate plan that divides your assets between several beneficiaries, such as children. But perhaps there are some personal effects that you have earmarked for one or another of your beneficiaries.

In that case, you write out instructions to your Executor, listing items you specifically want to go to each person. The preamble in the example below is important, because you do not want the Court to interpret this as a part of your Will, require that each of these items be separately inventoried and appraised, and demand receipts from the beneficiaries.

Since you trust your Executor, you keep the instructions informal (not legally binding). The document does not need to be witnessed or notarized.

The following format is designed for a married couple, but it can be easily adapted for use by a single person.

  Dated:_________________________________   __________________    _________________     John Brown             Mary Brown 

You can designate specific items only to people who are already beneficiaries under your estate plan. If your Will or trust gives your estate in equal shares to Anita and Ralph, you cannot designate specific items to anyone other than Anita and Ralph under this form.

I suggest you keep this set of informal instructions with your original Will, but do not actually staple or affix it to the Will.

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In the event you should have an extended illness or incapacity, the Court might have to appoint someone to be able to legally act on your behalf. This is the person who would pay your bills, manage your investments, decide whether or not to rent or sell your home, file your income tax returns, and so forth. To specify who you would want in this position, you can make a nomination in advance of the person who would be your conservator. If you do not make a written designation of a conservator, then the Court will select an individual based on a priority scheme set forth in the Probate Code, and this person may or may not be someone who you would want to be in control of your assets.

Married persons will usually nominate a spouse as their conservator, with adult children as the alternates. However, the individual you name does not have to be related to you. Here is an example:

  Dated:_________________________________   _______________________________________                  John Brown      

Conservatorships are created and supervised by a judge as part of a formal legal proceeding. They require an attorney, which means legal fees, and regular accountings to the Court. Although the reason for these formalities is to make sure that your estate is properly managed during your incapacity, the proceeding can be cumbersome and expensive.

Not unless you are being sued. A declaration of homestead protects some of the equity in your home from any judgment which may be entered against you in Court. But as long as you record the form before any final judgment is reached, it will be completely effective. It usually takes from six months to three years to reach a judgment in Court, so even if someone should sue you there will be plenty of time for you or your attorney to record a declaration of homestead.

I don't advise recording a declaration of homestead unless you are currently involved in litigation, and even then it may not be the right thing to do. The recorded document is cross- referenced under your name, so any person or agency searching public records for information relating to you would find the declaration. Since the only reason to record a declaration of homestead is to protect yourself from a pending judgment, this could raise questions as to your financial condition and credit worthiness.

Yes. Rules for entering a decedent's safe deposit box have been relaxed, so don't worry about the box being "sealed." Safe deposit boxes are very secure, and I recommend you use one. To make it as convenient as possible for your heirs, you should consider naming someone you trust as a joint tenant of the box.

Most institutions charge an annual fee for the rental of a safe deposit box, ranging from $25 to $50 or more depending upon the size of the box. This fee is income tax deductible if you use the box to keep potentially taxable investment-related papers and documents such as stocks and bonds.

You may remember that Lee Marvin (the actor) was ordered to pay a large amount to his former girlfriend, Michelle, because the California Supreme Court found that there was an oral agreement that they would share his income during the period of time they lived together.

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Although the amount of the judgment was ultimately reduced, the case clearly said that a judge can make his best guess as to whether an unmarried couple has made an oral agreement, and if the judge thinks you have made an agreement then he can enforce it. This might mean an award of support, or a property division, or both.

The lesson should be clear to all unmarried persons. If you are living with someone else and you have enough income or accumulated assets that you would like to protect yourself from any claim in the future as to an "oral agreement," you and your partner should sign a written cohabitation agreement.

If you are married, your separate property includes assets you owned prior to marriage, and anything you have received during marriage by gift or inheritance. "Property" refers to both real property (real estate) and personal property, such as stocks and bank accounts.

GLOSSARY

There are several different types of Wills, but the document described here is for people who do not have a living trust or a testamentary trust.

It might not be such a good idea to call this a "Simple Will," because it is no longer as simple as it used to be. The modern Will contains tax clauses, custodianship provisions and language granting powers to the Executor that did not even exist ten years ago. When we say "Simple Will," we are really saying "a Will that does not create or coordinate with a trust."

A Simple Will always does the following:

1. Designate an Executor
2. Name beneficiaries of the estate
3. Waive (or require) a performance bond

In addition, a Will may:

1. Give additional powers to the Executor
2. Name a guardian for minor children
3. Create custodianships for minors
4. Disinherit those who litigate against the Will

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To summarize, the purpose of a Will is to name the people and/or organizations who will receive the estate (the beneficiaries), designate the person or institution who will carry out the instructions in the Will (the Executor), and state whether or not the Executor must obtain a performance bond.

When an attorney prepares a Will for a client, the document is typewritten and it requires two witnesses. There is another way to make a Will which is valid in California, and that is for an adult, competent person to make his or her own holographic Will. This type of Will is "legal" if it is all in the testator's handwriting and is dated and signed by the testator. Holographic Wills are a great boon to the legal industry, since few people are capable of writing their own Will in a way that will avoid litigation.

If your estate is over $100,000, you must just be reading this section for the heck of it. Because surely you are going to make a living trust to avoid probate, and when you have a living trust you do not use a Simple Will. Instead, you use a Pour-Over Will that follows a special form to coordinate with your trust.

Assuming your estate is under $100,000 and a Simple Will is right for you, these are some of the things to keep in mind when the Will is drafted:

Name alternates! Don't forget to name alternate Executors as well as alternate beneficiaries. For example, "I appoint my son, John Adams, as Executor of this Will. If he is unable or unwilling to serve, then the Executor of this Will shall be one of the following persons, to serve in the order listed: my daughter, Mary Adams; my sister, Alice Jones; or my nephew, Ralph Jones." For the beneficiaries, you might say, "I give the sum of $10,000 to my sister, Alice Jones, or if she should be deceased then $5,000 shall be distributed to her son, Ralph Jones, and $5,000 shall be distributed to the American Cancer Society." Always list alternates, because you may outlive some of the people you name in your Will.

Delay distribution to minors. When children are named as beneficiaries under your Will, or even alternate beneficiaries, you should consider the option of using a custodianship. See the separate listing in this Glossary.

Avoid pretermitted heirs. In the event you are purposely not giving anything to a spouse or a child, be certain to name the "omitted" person in your Will. Example: "I have intentionally made no provision in this Will for my son, Black Bart Adams." If you don't name him in the document, the law assumes that you simply forgot him when you made your Will. Against your wishes, Black Bart becomes what is called a "pretermitted heir," and he will receive the portion of your estate that he would have received if you had not made a Will! To avoid this problem, name any spouse or child you are intentionally leaving out.

Some years ago, I was employed to handle a probate involving a pretermitted heir. The decedent had written her own Will and she had died in 1974, leaving a son and two daughters. She wanted to disinherit the son, so in her Will she simply said that her home should go to her two daughters. Unfortunately, she did not name her son in the Will.

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The probate was started by another attorney in 1975 and my office completed it in 1988. The son, as a pretermitted heir, was entitled to one-third of the house (the part he would have received if there were no Will). However, he had moved to Mexico and later died leaving four children of his own. We were unable to contact any of his children, so the house was sold and one-third of the proceeds was held in a special account for the four children. If they failed to claim the money within seven years, it would go to the State of California.

Clients ask, "When I make a living trust, do I still need to have a Will?" Yes, you do. The trust will control all of your major assets, but you will probably keep some small items outside of the trust for convenience, like your checking account and cars. Also, you might inherit an asset just before your death and not have a chance to put it in your trust.

The Pour-Over Will states that upon your death, everything you own outside of your trust is then added to the trust. This ensures the distribution you set forth in the trust will apply to your entire estate.

The operative sentence in Tom Clark's Pour-Over Will would read like this: "I give the residue of my estate, both real and personal and wherever situated, to the Trustee of the Tom Clark Living Trust dated June 4, 1982, to be added to the principal of said trust and to be distributed in accordance with the provisions thereof."

A power of attorney is a document that gives someone else the right to act on your behalf. Powers of attorney have been very popular between husband and wife, and between parents and children. In most cases, the person who gives the power wants it to be used only if he or she becomes incapacitated. This section concerns the financial power of attorney (naming someone to handle your financial affairs), while the next section has to do with the health care power of attorney.

Under prior law, a financial power of attorney ceased to be legally effective when the person who gave the power became incapacitated. Very few people realize this even today, and many individuals believe that they are protected by a power of attorney which in fact will become totally void as soon as they are incapacitated.

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In 1981, California passed a law that allows you to make a "durable" power of attorney. This power continues to be effective even if you should later become incapacitated.

Before you execute a power of attorney, you should consider the rights and powers you are actually giving your attorney-in-fact. Depending on how the document is drafted, it may be effective from the moment you deliver it, so at any time that person could access your bank accounts, liquidate stocks and other investments, sell your property or borrow money using your property as security. Therefore, if you decide to make a power of attorney, choose your attorney-in-fact with great care.

A pre-printed form is available at most office supply stores (Wolcott's Form 1400). In using this form, you will probably want to strike out the bracketed portion of paragraph (g), and you may also wish to strike out all of paragraph (h). Read paragraphs (g), (h) and (i) carefully, and initial any sections you strike out.

The power of attorney should be notarized to guarantee authenticity, and it must be notarized if you want it to be effective with regard to real property. Although it is set up to be recorded (you will see an area in the upper right-hand corner for the County Recorder's stamp), it does not need to be recorded until it is time to use the power, so I advise that you keep the original power of attorney in your safe deposit box. It might also be a good idea to make the attorney-in-fact a joint tenant on your box so the power could be easily accessed.

Some general rules:

• The attorney-in-fact does not need to be related to you or a resident of California, but must be an adult
• A husband and wife should each make his or her own, separate power of attorney
• Avoid naming two or more people to act as your attorney-in-fact at the same time (you may, however, name "alternates" if you wish)

You really only have two choices. You can make a durable power of attorney, in which case your estate will be easily managed if you are ill. Or you can neglect to make a power of attorney, and in the event you are later incapacitated your attorney will be happy to set up a conservatorship to manage your estate.

It is possible to name someone else to make health care decisions for you if you should later be in a coma or mentally incapacitated. The person you select can decide whether to accept or reject any diagnosis, treatment or other medical service on your behalf, subject to the directions or limitations that you spell out in the document.

The durable power of attorney for health care is quite different from the Directive to Physicians under the California Natural Death Act (sometimes referred to as the "Living Will"). Most experts believe the Directive to Physicians was not very effective and in the majority of cases provided no benefit for the patient. Those who have signed a directive or Living Will should now consider making a durable power of attorney for health care.

The durable power would apply to any situation in which you are unable to make health care decisions for yourself, and it is not limited to cases that involve a terminal illness. You may also give any type of instructions to your representative about the extent of care you wish to receive, including a direction to give you the maximum amount of treatment possible if you are terminally ill. Or you may provide in the durable power that you do not wish to have your life prolonged if there is no chance of recovery and "if the burdens of the treatment outweigh the expected benefits."

Without a doubt, the modern living trust is the most important tool in your estate plan. The type of trust we are talking about here is also known as a "Revocable Living Trust." The document itself is sometimes called a "Declaration of Trust," or a "Trust Agreement." It has lots of names, but the important thing to note here is that we are talking about a trust you can revoke or amend at any time.

An A-B Trust is often referred to as a "credit shelter trust." This is a type of living trust, and if you haven't already done so you may want to begin by reading the preceding section concerning living trusts.

The unitrust is a device that can increase your income and provide a number of tax benefits, provided that you are willing to leave assets to a charitable organization upon your death. Let's say that you own some stock or real property that has gone up greatly in value. You would like to sell the asset and reinvest the proceeds in something that would pay you a better return, but you realize this will result in a large capital gains tax.

When you tell your estate planning attorney you have a favorite charity and you would like for this asset to go to the charity upon your death, a unitrust may be recommended.

• Step One: The attorney prepares a document called a "Charitable Remainder Unitrust," and you transfer the asset, or a combination of assets, into this unitrust.
• Step Two: The unitrust sells the appreciated assets without having to pay any capital gains tax.
• Step Three: The full proceeds of sale are reinvested to pay you a rate of return that you establish in the unitrust document. We currently recommend that clients specify an annual return of 7 or 8 percent.
• Step Four: You will receive a deduction on your next income tax return (the exact amount depends on your age and several other factors). If you are not able to use the entire deduction this year, the balance may be carried forward for up to five years.
• Step Five: After paying you an income for life, upon your death the balance of the unitrust will go to the tax-exempt charity that you have designated.

You increase your lifetime income by setting up a unitrust because the full proceeds from sale of the asset, without any reduction for capital gains tax, can be reinvested to pay you an income. Moreover, if you fund the unitrust with cash or municipal bonds, it can invest in municipal bonds (or hold your current portfolio of municipals) and pay you a tax-free income.

You also have the satisfaction of knowing the charity will receive the balance of the unitrust upon your death. Even though it may be many years before the charity will receive the gift, it may provide current recognition and donor award status when you set up a unitrust.

You can obtain a computer printout showing the projected income and tax benefits of a unitrust by contacting any one of a number of charitable organizations in the San Diego area. Most of the major tax-exempt institutions have a planned giving office which can run these illustrations and many will gladly do so without any obligation on your part. If you have any capital assets which you would like to sell and reinvest without paying capital gains tax, it might be worthwhile to obtain one of these computer illustrations. Feel free to contact me directly for a referral to a planned giving office which provides this service.

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A testamentary trust is a trust that is contained in a Will. It can do certain things that other trusts do, such as delay distribution to minor children or provide the estate tax benefits of an A-B Trust. But since Wills are probated and a testamentary trust is part of a Will, the bad news is that testamentary trusts do not avoid probate. In fact, a testamentary A-B trust can actually cause a probate when the first spouse dies!

How do you know whether your trust is a testamentary trust or a living trust? When you have a living trust, the trust is a separate document from the Wills, probably 15 pages or more in length. When you have a testamentary trust, there is no separate trust document and each of the Wills contains all of the provisions necessary to establish a trust upon your death.

When a minor child inherits money or property and no trust has been set up, these assets will be held by a guardian until the child becomes an adult at age 18. At that time, the guardian must make a final accounting and distribute the assets to the child. A guardian cannot hold back funds to a later age, even if that would be in the child's best interests.

A living trust is the best way to delay distribution to a minor, because you can specify installment payments that will go to the child at certain ages. A popular plan is to pay for the child's education, and then to give the child one-third of the inheritance at age 21, another third at 25, and the rest at age 30. This sort of flexibility is only possible with a trust.

But what about the person with a $50,000 estate who does not really need a living trust to avoid probate, yet feels this is too much money to be inherited outright by an 18-year old child? The answer is to set up a custodianship under the terms of a Will.

Instead of saying, "Upon my death all of my estate goes to my son, Thomas Jackson," the parent would select a trusted friend or relative to manage the son's inheritance. Let's assume that this is Uncle Andrew. Then the Will would state, "Upon my death my estate shall be distributed to Andrew Jackson, as custodian for my son, Thomas Jackson, to age 25 under the California Uniform Transfers to Minors Act." This means that Andrew will be able to manage the assets for Thomas, to provide money as it is needed for his support and education, and to turn the balance of this fund over to Thomas when he reaches age 25.

Any age between 18 and 25 can be selected for making the final distribution. It is a good idea to name at least one alternate custodian, in case your first choice should be unable or unwilling to serve.

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The Executor is the person who carries out the instructions in your Will. There is no requirement that your Executor be a resident of California, although it is certainly more convenient if you can select an individual who lives in your part of the country. The Executor can be someone who is a beneficiary under your Will. You may also name a bank or trust company as your Executor, but be aware that most institutions will not act as Executor for an estate that is less than $400,000.

The trustee is the person who manages the assets in a trust. This can be a natural person, or it could be a bank or trust company. Most people act as their own trustee while they are living and competent.

Immediately after making a living trust, you transfer title to your assets into the trust. As an example, we'll say that Mary Jones is an alert 85-year-old woman who wants to act as her own trustee. In addition to preparing her living trust, her attorney will also make a new deed to her home, which changes the title to "Mary Jones, as Trustee of the Mary Jones Living Trust dated January 3, 2001."

Changing the facts just a little bit, let's say that Mary is not so spry anymore and has been relying on her daughter, Margaret, to deposit checks, pay bills and manage her financial affairs. Mary should consider making her daughter the trustee of her trust, in which case the ownership of Mary's home, her bank accounts, and all of her other assets would be changed to: "Margaret Jones, as Trustee of the Mary Jones Living Trust dated January 3, 2001."

Margaret is not really the owner of her mother's estate, but is merely authorized to manage these assets. The real owner of the assets is still Mary, and she can tell her daughter how to invest the trust assets, what to buy or sell, and so forth. You can think of Margaret as an agent, carrying out her mother's instructions.

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Does the trustee charge a fee? If you are serving as your own trustee, then of course there is no fee. Should another person or a bank be acting as trustee, they will be entitled to a reasonable fee for their services. A typical annual fee would be 1% of the total net value of the assets held by the trust.

When you appoint a trustee, Executor or guardian, you must decide whether or not to require a performance bond in order for that individual to serve. A bond is a type of insurance policy that will reimburse you if this person runs off with your money, makes a very stupid investment, or finds some other way to damage your estate through bad faith or gross negligence. The cost of a bond is about 1/2 of 1% of the total net value of the estate, and this premium is paid on an annual basis. Of course you do not bond yourself, so if you are the current trustee of your trust, there is no cost for a bond at this time. The annual premiums begin when someone else becomes the trustee, i.e. upon your death or incapacity.

Most of my clients have a great deal of confidence in the people they appoint to manage their estate, so bond is usually waived. It may seem appropriate to waive the bond for Executors and guardians, given the fact that a judge reviews all financial transactions as they take place or at least when the next accounting is filed with the Court.

But I encourage clients to think seriously before they waive the bond for a trustee. Bear in mind that your trustee can act privately, without any supervision from an attorney or the Court. Here is the scenario: you have become incompetent, and the person you have named as an alternate trustee in your Declaration of Trust becomes the trustee and starts to manage your assets. Now assume that your trustee simply forgets to hold title to your bank accounts in the proper trust form. For example, when he rolls over a certificate of deposit, he has the account put into his own name without adding the necessary words to show that he is acting as the trustee of your living trust.

To make matters worse, the trustee then has some financial problems and ends up in bankruptcy. Your account will be used by the Bankruptcy Court to pay the trustee's personal debts, and there goes your financial security. Which brings us to the reason for requiring a bond: if you had bonded the trustee, the insurance company would reimburse your estate for this loss. The advantage of a performance bond is peace of mind, but of course it has a price just like any other type of insurance.

Whether or not to waive bond is a personal decision, and you should think it over carefully. You may require a bond for certain persons to serve as trustee, while waiving the bond for others. When you require a bond, the cost of the insurance is paid by your estate.

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Probate is the Court proceeding that transfers a decedent's estate to his or her heirs. As an estate planning attorney, I enjoy a substantial income from probating estates. Will I ever run out of probate business by doing so many living trusts for my clients? The answer is "no," because for every person who makes a living trust, there are others who wait, and wait, and wait. And then they die.

I suppose an average attorney's fee for probating an estate in San Diego County is about $5,000. Since most of the work is done by paralegals, an attorney may spend less time working on a probate than drafting a living trust. But because of the way the "system" works, we charge five times as much for a probate as we do for a trust.

If you are single, widowed or unmarried, whatever you own is your separate property. But married persons can also hold separate property, i.e. assets which are not jointly owned by their spouse. The most common categories of separate property are: (1) property that you owned prior to marriage, which you have kept in your separate name; and (2) assets you have received during marriage by gift or inheritance, which you have kept in your separate name.

Joint tenancy is a form of co-ownership between two or more people which can be used on bank accounts, stocks, real estate, and virtually any other type of asset. When one joint tenant dies, the item is automatically then owned by the surviving joint tenant(s). Unlike community property, which is only between husband and wife, joint tenancy can be used by either married couples or by unrelated individuals.

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On old deeds and stock certificates, you often see this wording: "joint tenants, with right of survivorship," or "joint tenants, WROS." However, the extra words do not add anything, because joint tenancy already implies the right of survivorship.

To illustrate how joint tenancy works, let's say that John owns a home in joint tenancy with his daughter, Kathy, but his Will says that upon his death everything is to go to his wife, Mary. Who is going to get the house? I hope you didn't bet on Mary, because the answer is that joint tenancy overrides the Will, and since Kathy is the surviving joint tenant, she will receive the house automatically upon John's death.

Community property is a form of co-ownership between husband and wife. Note: an asset cannot be held as joint tenancy and community property at the same time. If title to a particular asset is held in community property, each spouse can control his or her half of the asset by a Will.

With community property, the surviving spouse receives a full stepped-up basis on any capital asset for federal income tax purposes. On the other hand, when an asset is held in joint tenancy form the surviving spouse only receives a stepped-up basis on one-half of the asset.

Let's translate that into common English. If the surviving spouse sells any assets during his or her remaining lifetime, there will be less income tax to pay if title to the asset was originally held in community property form rather than joint tenancy. So from a tax standpoint, community property is better than joint tenancy.

However, if you do not have a living trust then there is a possible problem with community property. While it is no longer subject to probate, another type of Court proceeding is occasionally necessary in order to remove the name of the deceased spouse. When required, this proceeding takes about two months, and the legal fees are roughly one-third of what it would cost to probate an estate of the same size.

A living trust provides the perfect solution. Since the trust is not subject to Court supervision, the name of the deceased spouse can be removed without any legal proceedings. At the same time, the surviving spouse will receive all of the tax benefits that result from community property ownership.

It seems like we keep coming back to the living trust. As I said before, the modern living trust is the most important tool in your estate plan.

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ACHIEVING YOUR OBJECTIVES

Making an estate plan is both easy and affordable. Clients who want a simple Will may not need to bring in any documents, but this is something we will discuss over the phone prior to setting an appointment. If you know you will be making a living trust, my office will send you a list of items to bring to the first meeting, and a questionnaire you can complete if you wish to reduce the amount of time we will spend collecting information in the office.

During the first interview, you can decide how your estate will be distributed and who will manage this process. As we talk, I develop a list of your personal objectives so the Will or trust can be tailored to exactly carry out your wishes. It generally takes about one week after this interview for my office to finish all of the paperwork.

The second conference is to review and sign the documents. You will receive two sets of papers -- a set of signed originals for your safe deposit box, and a set of xerox copies for your home records.

All estate planning services are billed at $195 per hour. In most cases the total fee to prepare a living trust estate plan is between $900 to $1,300, with my time allocated as follows:

Initial Conference Phone calls and follow-up Preparation of documents Sign-up conference

1-1/2 to 2 hours 1/2 hour 1 to 2 hours 2 hours

Legal services for probate and conservatorship work are billed at the statutory rates set forth in the California Probate Code.

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My office is located at 2727 Camino del Rio South, Suite 150. When approaching from the west, look for a sign two feet high near the sidewalk with "2727" in large numerals. You may park in areas that say "permit required," and there is more parking on the two upper levels if the lower lot is full. Enter the door on the west side of the building and turn left.

To reach my office from the beaches, take Highway 8 east to Texas Street. At the end of the offramp you turn right, then immediately turn left on Camino del Rio South. Go 3/10 of a mile and look for the building on your right.

From North County, take Highway 15 south until you see the sign for Highway 8 west and Camino del Rio South. You take the Camino del Rio South offramp. At the end of the offramp, turn right onto Camino del Rio South. Go straight at the stop light. The building will be on your left just behind a group of about 6 mailboxes.

From East County, take Highway 8 west to Texas Street. The offramp will put you on Texas Street heading south, and you turn left at the second traffic light, which is Camino del Rio South. Go 3/10 of a mile and look for the building on your right.

Coming from the South, the directions are simpler if you can take either Highway 163 or Highway 15 north. From 163 north, you go east on Highway 8 and follow the beach instructions above. From 15 north, go west on 8 and then follow the East County instructions.

From Highway 805 north, take Highway 8 west to Mission Center Road. At the end of the offramp, turn right on Camino del Rio North. You pass Mission Valley Shopping Center on your left as you continue to the major cross street, which is Qualcomm Way (Texas Street). Turn right, go over the freeway and then turn left on the frontage road, which is Camino del Rio South. Go 3/10 of a mile and look for the building on your right.