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Estate Planning

Form Revocable and Irrevocable Living Trusts in order to avoid costly probate, preserve control over your family members, personal property, and real property.

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Medi-Cal Planning

Once a loved one goes into a Long Term Care State and they cannot afford a nursing facility the state can, if they are financially qualified, cover the bill. The problem is they also come back to recover once your family member has passed. Ask us how we can help.

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Business Formation

We can take a look at your assets and explain to you what housing them in particular Business Entities can do for you in regards to liability protection and tax splitting.

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Top Three Benefits of a Trust

It's a given that you should have a written legal document distributing your assets at your death. Now the question becomes: should you have a will or living trust?

It is estimated that only about 20% of Americans have living trusts. So should you join that 20 percent?

Here are our top reasons why a living or trust could just benefit you.

What is a living trust and how is it different from a last will?

A living trust (sometimes called an "inter vivos" trust) is a written legal document through which your assets are placed into a trust for your benefit during your lifetime and then transferred to designated beneficiaries at your death by your chosen representative, called a "successor trustee." They can be revocable or irrevocable.

On the other hand, a will is a written legal document with a plan of distribution of your assets upon your death. Your executor, as named in the will, oversees this process, and notably, nothing in your will takes effect until after you die.

1. A Living Trust Avoids Probate

One of the first benefits of a living trust is that it avoids probate. With a valid will, your estate will go through probate, the court proceedings through which your assets are distributed according to your wishes by the executor.

A living trust, on the other hand, does not go through probate, which often means a faster distribution of assets to your heirs—from months or years with a will down to weeks with a living trust. Your successor trustee will pay your debts and distribute your assets according to your instructions.

Notably, both documents allow you to choose a guardian for your children in the event of your death.

2. A Living Trust May Save You Money

Remember this really all depends on your financial situation. At first, drafting a living trust will likely cost more than drafting a will as it is a more complex legal document. Moreover, you must also transfer your assets such as bank accounts, stocks, and bond accounts and certificates to the trust through separate paperwork; simply writing up a living trust does not actually "fund the trust."

Other procedures involved in an estate plan with a living trust could also include changing the beneficiary on your life insurance policy to the trust, appropriately dealing with your IRA or 401(k) plan, and also creating a "pour-over will" that will provide for the distribution of any assets acquired after the creation of the living trust but before your death or any assets inadvertently excluded.

Note that the pour-over will, just like any will, will have to go through probate.

While a will costs less to draft, a living trust can save your estate money at the time of your death as the distribution of assets in the trust will not go through probate; court costs for probating your will are taken from estate, although note that for a simple, uncontested will, costs are often nominal.

Regarding contests, living trusts will likely hold up better in the event that someone comes forward contesting the distribution of your assets; accordingly, court costs to cover any will contests may also need to be considered.

As far as savings of income and estate taxes, there is often no substantial difference between living trusts and wills, although living trusts may provide savings for married couples in the form of joint living trusts.

3. A Living Trust Provides Privacy

One big difference between the two legal documents is the level of privacy offered with a living trust. As a living trust is not made public, upon your death, your estate will be distributed in private. A will, on the hand, is public record and so all transactions will be public as well.

Another difference is the handling of out-of-state property you own upon your death. With a will, that property will have to go through probate in its own state; a living trust can help you avoid probate.

What other benefits does a living trust provide?

Beyond the top three main benefits, another benefit is that a living trust is written so that your trustee can automatically jump into the driver's seat if you become ill or incapacitated.

On the other hand, if you simply have a will without a durable power of attorney, the court will appoint someone to oversee your financial affairs who will have to report to the court for approval of expenses, sales of property, etc. One widely reported public example of this is the conservatorship of Britney Spears' father over his daughter's financial affairs.

Note that if you draw up a durable power of attorney, including one for health care decisions, you can avoid a court-appointed conservator for your affairs.

With a living trust, however, your handpicked successor trustee can manage your affairs without court intervention, and since the trust is revocable, if you dispute your incapacity, you can retain control yourself.

While a living trust makes sense for some people, wills are just fine for others. A general rule among tax planners is that the larger the value of the estate, the greater need there is for a living trust—although even this is not foolproof.

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Irrevocable Trusts

Irrevocable living trusts are for a variety of purposes. Both irrevocable trusts and revocable trusts avoid probate, but an irrevocable trust has other advantages. In addition to avoiding probate, an irrevocable living trust can reduce taxes and protect assets.

Basic Types of Trusts

The person who creates a trust is called the grantor, the person who manages the trust is called the trustee (who may also be the grantor), and those people or organizations for whom the trust is created are called beneficiaries.

A trust may be either revocable or irrevocable. With a revocable trust, the grantor retains full control of the assets placed in the trust, may remove assets from the trust, may change the beneficiaries, and may cancel (or revoke) the trust entirely.

With an irrevocable trust, the grantor gives up this type of control. Once ownership of an asset is transferred to the trust, the grantor may not remove it from the trust. The grantor may not change beneficiaries, alter any of the terms of the trust or revoke it.

A trust may be a living trust or a testamentary trust. Living trusts become effective while the grantor is alive. Testamentary trusts are set up along with a will and do not become effective until the grantor’s death. (A revocable living trust becomes irrevocable when the grantor dies.)

Death and Taxes

Whether any taxes need to be paid when someone dies depends upon the value of their estate, and which state’s laws apply. In 2018, the federal Unified Gift and Estate Tax will apply if the value of the estate exceeds $11.2 million. This amount changes from year-to-year.

Some states also levy some form of tax, also based upon the value of the assets in the estate, usually referred to as a death tax or an inheritance tax. The state tax applies if the deceased person’s primary residence was in the state, or if he or she owned property in that state.

Avoiding or Reducing Taxation

There are several types of irrevocable living trusts designed to avoid or reduce state and federal estate taxes. These are used by those wealthy enough to be subject to the taxes, and include:

AB or Bypass Trusts. Used by spouses, these provide for a surviving spouse to receive income from (or the use of) trust property, but upon the death of the second spouse the property passes to other beneficiaries (typically children or charities). Taxes are delayed until the second spouse dies. This is a complex arrangement, where the original trust indicates what property belongs to each spouse. Property is divided between two trusts when the first spouse dies. However, if the property appreciates in value between the spouses’ deaths, the amount of the tax may be higher.

QTIP and QDOT Trusts. Also used by spouses, a Qualified Terminal Interest Property (QTIP) trust allows estate taxes to be delayed until the second spouse dies. If one of the spouses is not a United States citizen, a Qualified Domestic Trust (QDOT or QDT) is used instead.

Generation-Skipping Trusts. With this type of trust, the child of the grantor receives income from the trust property. Upon the death of the child, the trust property goes to grandchildren. This avoids taxation when the child dies, but it is only delayed until the grandchildren die. However, there is a federal generation-skipping transfer tax that applies.

Charitable Trusts. These have a charity as a beneficiary. With a charitable remainder trust, a person (such as a spouse or child) receives income during his or her life, and upon that person’s death the trust property goes to the charity. With a charitable lead trust, the charity receives the income for a certain amount of time, then the property goes to a person or group of persons. With a pooled income trust, two or more grantors place property in the trust and receive income for a specified period of time, then the property goes to the charity.

GRITs. A Grantor Retained Income Trust (GRIT) allows the grantor to receive income from trust property for a specified period of time. To be effective in delaying taxes, however, the grantor must live past the specified period. There are two forms of the GRIT. With a Grantor Retained Annuity Trust (GRAT), the grantor receives a set dollar amount of income (paid at least annually). If the amount of payments varies, typically because the grantor receives a fixed percentage of trust assets (revalued annually) it is called a Grantor Retained Unitrust (GRUT).

QPRTs. In a Qualified Personal Residence Trust, the grantor transfers title of his or her home to the trust, but retains the right to live in the home rent free for a specified period of time. At the end of the period, the home goes to the designated beneficiaries.

Life Insurance Trusts. The trust owns a life insurance policy on the grantor. Since the proceeds of the policy do not go to the grantor’s estate, they are not taxable. Such a trust must exist for at least three years before the grantor’s death. If a previously owned policy is transferred to the trust, the trustee cannot be the prior policy owner.

Protecting Property

living irrevocable trust can also protect and preserve property that might otherwise be lost to creditors or to requirements for receiving certain government benefits.

Protection from Creditors. Once you transfer property to the trust, you no longer own it. Therefore, your creditors may not go after that property. Living trust forms also have provisions so that creditors of beneficiaries cannot go after trust property.

Medi-ca1 Planning Trusts. Medi-cal has certain eligibility rules, which require that you use most of your assets for your care before you will be able to receive benefits. If you transfer assets to an irrevocable trust, you no longer own them and they are not counted in determining eligibility. However, assets must be placed in trust a certain number of time before you apply for Medicaid.

Spendthrift Trusts. These are used to protect gifts to individuals you don’t believe will be capable of managing their finances, or who are at risk from creditors. The trustee will manage the property.

Special Needs Trusts. These are designed to provide funds to support a person with special needs, without compromising their ability to satisfy income and asset qualifications to be eligible for government benefits.

Successor Beneficiaries

Since the irrevocable trust may not be modified, it is important to cover the possible death of beneficiaries by designating successor beneficiaries. If all beneficiaries die before the grantor, the property goes back into the grantor’s estate. It will then be subject to probate, the claims of creditors, and estate taxes.

The “Pour-Over” Will

Most people don’t transfer all of their property into a trust, therefore, it is a good idea to have a “pour-over” will that leaves any remaining property to the trust.

Conclusion

Anyone with significant wealth should evaluate the potential benefits of an irrevocable living trust. But even those of more modest means may benefit from the asset protection and Medi-cal planning features offered in any irrevocable living trust form.

It is best to consult a professional, as there are many complexities to creating a trust.

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Advanced Medi-Cal Planning

Medi-Cal is California’s program for administering federal Medicaid funds. Medi-Cal has several different programs.

The most misunderstood is “Long-Term Care” coverage. Most people first hear about Medi-Cal Long Term Care coverage when a family member or loved one is hospitalized, then discharged to a rehabilitation or skilled nursing facility.

Medicare may pay for this extended care for a while…but not long. The maximum period Medicare will pay for qualifying individuals is 100 days, but most families will find themselves receiving a notice of termination of Medicare long before that. For those who do not have long-term care insurance, the choice then becomes to pay the cost themselves, over $7,000 per month, or apply for Long Term Care Medi-Cal. Few could afford to private pay for long without seriously impacting the financial security of the spouse and family. Both married and unmarried individuals also worry as the estate they intended to pass to their children or heirs is rapidly eaten up by nursing home bills.

The clear alternative is the Long Term Care Medi-Cal program. Medi-Cal will pay for 100% of nursing home expenses for those who qualify. Some may need to pay a “share-of-cost,” but many will not. Even those with a relatively high share of cost pay far less than the private pay rate for a nursing home. With our assistance, the majority of those who consult with us can qualify for Long Term Care Medi-Cal, legally preserving most, if not all, of their assets for themselves and their loved ones.

We can help you minimize the “share-of-cost,” and often use techniques allowing you to direct your share of cost for payment for beneficial therapy for your family member.

Most Importantly we can also often help avoid recovery claims by the State.

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