Essential Guide for Drafting California Estate Plans
Explore key considerations every attorney should know when drafting California estate plans, including an overview of important documents like wills, trusts, powers of attorney, and health care directives.
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What Every Attorney Should Know Before Drafting a California Estate Plan Anna Soliman, Jaqueline Yu and Elizabeth Acevedo / September 24, 2021
What Every Attorney Should Know Before Drafting a California Estate Plan Elizabeth G. Acevedo Shareholder Weinstock Manion, A.L.C eacevedo@weinstocklaw.com (310) 553-8844 Jacqueline D. Yu Principal The Law Office of Jacqueline D. Yu, P.C. jyu@jacquelineyulaw.com (310) 313-1195 Anna K. Soliman Trust Counsel and Managing Director Fiduciary Trust International of CA asoliman@ftci.com (213) 596-8617
Roadmap General Overview of Estate Planning Documents Wills Trusts Funding of Trusts and General Assignments Power of Attorney Health Care Directives Beneficiary Designations
General Overview of Estate Planning Documents Having the essential estate planning documents in place can help ease clients state of mind and ensure they are prepared for their future. Health Care Directive Beneficiary Designations Power of Attorney Title Will Documents Revocable Trust
Wills in General Health Care Directive Purpose of Wills Provides for the disposition of any assets held in your individual name Beneficiary Designations Power of Attorney Testate vs. Intestate Probate Threshold of $166,250 as of January 1, 2020 Guardians and Executors Title Will Documents Will names guardians for any minor children, along with executors to handle the probate estate Revocable Trust
Pour Over Wills Assets in the name of Decedent Health Care Directive Decedent s IRA (with a separate beneficiary) Beneficiary Designations Power of Attorney Pour Over Will Decedent s Life Insurance Proceeds (with a separate beneficiary) Title Will Documents Revocable Trust Revocable Trust POD accounts and other assets with beneficiary designation forms (with a separate beneficiary) Subtrusts under the revocable trust Subtrusts under the revocable trust
Trusts in General Health Care Directive Revocable Living Trusts The revocable trust is the workhouse of a modern estate plan The trust terms provide for the management and distribution of your property Beneficiary Designations Power of Attorney during lifetime and at death Simple living trust vs. trusts designed for tax planning Distribution Clauses Tangible personal property Specific gifts Title Will Documents Residuary gifts Trustees During a client s lifetime, client is typically the trustee and beneficiary of the trust, and can handle the trust property in the same manner as if there were not a trust Revocable Trust Upon your death or in the event of incapacity, successor trustees manage and distribute the trust property pursuant to the trust terms Reasonable Compensation
Current Federal Tax Rules Related to Estate Planning Estate and Gift Tax Individuals may transfer (either during lifetime or at death) up to $11.7M free from federal gift and/or estate taxes. Transfers over the $11.7M million gift and estate tax exemption are subject to a 40% tax. This amount will be adjusted for inflation each year. In addition to the lifetime gift exclusion, individuals may gift up to $15,000 annually free from federal gift tax. This amount will be adjusted for inflation each year. Marital Deduction and Portability Generation-skipping Transfer Tax The generation skipping transfer (GST) tax is a separate tax that applies to transfers (made during lifetime or at death) to individuals two or more generations below the transferor (i.e. from grandparent to grandchild). The GST tax exemption is $11.7 million. Generation skipping transfers over the $11.7 million GST tax exemption are subject to a 40% tax. This amount will be adjusted for inflation each year. Income Tax Step-Up in basis at time of death means that heirs receive assets with income tax basis equal to the date of death value (or alternate valuation date) Top marginal federal income tax rates is 37% on ordinary income and 23.8% on long-term capital gains and qualified dividends.
Revocable Trusts Single Person s Living Trust Single Person: Two Phase Trust First phase: during the lifetime of the Settlor Second Phase: Distributions to Beneficiaries after death Specific gifts Estate tax Married Couple s Trust: Three Phase Trust First phase: During the lifetime of both of the Settlor Trust for CHILD Irrevocable Receives balance of trust property Second Phase: Division after first Settlor dies Third Phase: Distributions to Beneficiaries after second Settlor dies Trusts for Children Assets distributed at different ages vs. continuing trusts Distribution for health, education, maintenance and support
Revocable Trusts for Married Couples The Sweetheart Plan All assets to Surviving Spouse either outright or in a Survivor s Trust. Possible Disclaimer Trust. Joint Revocable Trust Joint Revocable Trust No estate tax due No estate tax due Survivor s Trust Revocable Receives survivor s half of trust property and balance of decedent s half Disclaimer Trust Irrevocable Receives disclaimed assets Survivor s Trust Revocable Receives all property
Revocable Trusts for Married Couples The AB Plan Joint Revocable Trust Survivor s Trust receives survivor s separate property and one-half interest in community property share and any marital deduction transfer from deceased spouse. Bypass Trust receives deceased spouse s separate No estate tax due property and one-half interest in the community property up to an amount equal to the deceased spouse s available federal exemption amount. Survivor s Trust Revocable Receives survivor s half of trust property and balance of decedent s half Bypass Trust Irrevocable Receives remaining estate tax exemption Fully available to survivor Income and principal available for health, education and support
Revocable Trusts for Married Couples The ABC Plan Joint Revocable Trust Survivor s Trust receives survivor s separate property and one-half interest in community property share. Bypass Trust receives deceased spouse s separate No estate tax due property and one-half interest in the community property up to an amount equal to the deceased spouse s available federal exemption amount. Marital Trust Irrevocable Receives balance of decedent s half Survivor s Trust Revocable Receives survivor s half of trust property Bypass Trust Irrevocable Receives remaining estate tax exemption Marital Trust (or QTIP Trust) receives the portion of the deceased spouse's separate property, community property interests that exceed the deceased spouse's remaining exemption amount. Income required to be distributed Principal available for health, education and support Fully available to survivor Income and principal available for health, education and support
Revocable Trusts for Married Couples Example Living Trust No estate tax due Bypass Trust Marital Trust Survivor s Trust Irrevocable Receives balance of decedent s half Income required to be distributed Principal available for health, education and support Irrevocable Receives remaining estate tax exemption Available for health, education and support Revocable Receives survivor s half of trust property Fully available to survivor Estate tax Child 2 Trust Child 1 Trust Available for health, education and support Available for health, education and support
Funding of Trusts and General Assignments
Funding of Trusts Retitling Assets in the Name of Trust Assets in the name of Decedent [name of trustee], trustee of the [name of trust]. Types of Assets Real Property Pour Over Will Bank Accounts Business Interests General Assignment Revocable Trust Cars, boats and planes Personal Property Items Role of General Assignment Subtrusts under the revocable trust Subtrusts under the revocable trust
Funding of Trusts Example of General Assignment Language:
Power of Attorney Purpose of Power of Attorney Health Care Directive A legal document giving individual(s) (the agent(s) or attorney(s)- in-fact ) the power to act for another person (the principal ) for Beneficiary Designations Power of Attorney financial matters. Durable vs. Nondurable Durable: remains effective after later incapacity Non-Durable: used only for a set period of time Title Will Documents Springing vs. Immediate Immediate: effective immediately Revocable Trust Springing: Springs into effect after incapacity
Power of Attorney Examples of Powers Health Care Directive Beneficiary Designations Power of Attorney Title Will Documents Revocable Trust
Health Care Directives Purpose of Health Care Directives Health Care Directive A legal document giving individual(s) (the agent(s)) the power to act for another person (the principal ) for health care matters. Beneficiary Designations Power of Attorney Springing vs. Immediate Immediate: effective immediately Springing: Springs into effect after incapacity Directions from Principal Include: Title Will Documents Permitting an autopsy Disposition of Remains Revocable Trust Organ Donation Artificial Life Support and End-of-Life Care
Beneficiary Designations Health Care Directive Beneficiary Designation Forms Retirement Accounts Beneficiary Designations Power of Attorney Secure Act Signed into law in late December 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act generally eliminated the ability of beneficiaries of retirement accounts to stretch the required distributions from a retirement account over the beneficiary s life expectancy. For individuals dying on or after January 1, 2020, retirements assets generally will be required to be distributed within 10 years of death. (Limited exceptions apply if your beneficiary is a surviving spouse, minor child (but not a grandchild or more remote descendant) or disabled or chronically ill.) Life Insurance Title Will Documents Revocable Trust Pay On Death Accounts
Questions? Feel free to contact us Elizabeth G. Acevedo Shareholder Weinstock Manion, A.L.C eacevedo@weinstocklaw.com (310) 553-8844 Jacqueline D. Yu Principal The Law Office of Jacqueline D. Yu, P.C. jyu@jacquelineyulaw.com (310) 313-1195 Anna K. Soliman Trust Counsel and Managing Director Fiduciary Trust International of CA asoliman@ftci.com (213) 596-8617
