One of the first questions clients often ask me is, what is the difference between a will and a trust, and why should I want one or the other? There are five key things a will can’t do – avoid the expense of probate, immediately transfer your assets to your heirs, protect you and your heir's privacy, avoid estate taxes, and provide incapacity protection. But a complete estate plan with a living trust can handle all of these things.
A Will Does Not Shield Your Heirs from the Expense of Probate
This often comes as a surprise to many people, but it’s true – wills do not avoid probate. If the gross value of your estate is over $150,000 in California, your heirs will have to go through the entire slow, expensive and public process of probate even if you have a will. And probate is expensive. Even a modest estate of $200,000 would incur $14,000 in attorney and executor fees.
A Will Won’t Immediately Transfer Your Assets to Your Heirs
While it is theoretically possible to conclude a probate matter in about 6 months, most estates take even longer. What this means is that your beneficiaries may need the money from the estate but they won’t have access to their inheritance until after the court is satisfied that all creditors have been notified, and the estate is in a position to be closed, and the assets distributed. A trust puts the successor trustee immediately in charge.
A Will Won’t Protect You or Your Heirs’ Privacy
Probate is a public court proceeding. One of the required documents for a probate case is a complete inventory detailing all of the assets, and all of the expenses and all of the income during the time of the probate case. The order for distributing all of the assets details exactly who gets what. In today’s world of identity theft, this information is a treasure trove from a scammers perspective.
A Will Can’t Protect Your Estate from Estate Taxes
Estate tax planning for high net worth individuals involves a number of different legal strategies, but none of them involve creating a simple will. The reason is that a will deals with what is in your estate, and in order to deal with estate taxes, we look at ways to move assets out of your estate.
A Will Provides No Incapacity or Disability Protection
A will only takes effect at a person’s death. But if you are unable to make medical or financial decisions, who will be able to make those decisions on your behalf? An executor under a will won’t be able to help you.
The One thing Only a Will Can Do
In California, the one thing a will can do, but a trust can’t, is nominate a guardian for your minor children. That is one reason why all of our estate plans that include a living trust also include a will. A will is always included as a backup document to a living trust.
Some of the most disturbing crimes against the elderly involve financial exploitation. While physical abuse is often easy to spot, financial abuse can be more difficult to detect, as victims often have no idea they’re being swindled until their money suddenly vanishes.
Most victims are more than 70 or 80 years old, and involve crimes like fraud, embezzlement, identity theft, along with welfare and insurance scams. If you’re caring for an elderly loved one, be on the lookout for the following red flags of financial abuse:
1. Unusual financial transactions or spending
The most obvious sign an elderly family member is being exploited is if there are sudden changes to their spending, banking, and/or financial practices. At the same time, the person may start behaving secretively, confused, or otherwise atypical about money matters. A few of the most frequent actions include:
● Someone who is normally meticulous about their finances suddenly starts seeing unpaid bills, non-sufficient funds warnings, and/or unexplained credit card charges.
● The elderly person starts opening, closing, or changing banking and investment accounts, especially without regard to penalties or fees.
● Someone with consistent spending patterns starts showing a sharp increase in spending and/or investing.
● The person’s account sees a suspicious increase in ATM use, withdrawals, and/or checks made out to unfamiliar recipients.
2. The appearance of a “new” person in their life
Because they’re often alone and isolated, seniors are particularly susceptible to being “befriended” by strangers who take advantage of their loneliness to exploit them. And it may not be a stranger—relatives who haven’t been around for years can suddenly start spending lots of time with the person.
This situation is particularly dangerous when the new acquaintance, caregiver, or relative spends time in the person’s home, where they have easy access to the person's accounts, financial statements, and personal documents.
One sign that something is amiss is if the senior acts unusual when it comes to the new caregiver or friend. They may seem nervous when that person is around, stop participating in their usual social events, or be reluctant to speak about the person with you. This is a red flag the new person may be trying to isolate or control them.
3. Unneeded goods, services, or subscriptions
Outside of loneliness, the elderly are often physically unable to handle household chores and maintenance like they used to. Given this, they’ll likely need service providers to take care of the work for them. But every new person they surround themselves with is a potential swindler.
Watch for unscrupulous door-to-door salesmen and home repair contractors, who stop by offering unsolicited products or services, especially related to home remediation issues. And they don’t have to physically present to perpetrate fraud—there are countless telemarketing and email scams that target unsuspecting seniors in order to make a quick buck or steal their identity.
One fairly common scam involves inviting the older person to a free lunch or dinner in exchange for listening to a “seminar” about a financial product or service. The elderly often feel obligated to “buy something” after getting what they thought was a free meal.
Make sure that another adult relative is present before signing any contracts, and always consult with us if you’re unfamiliar with a new investment or financial opportunity.
4. Changes to wills, trusts, titles, power of attorney, etc.
The worst cases of financial abuse of the elderly can even involve the person making changes to wills, trusts, and other estate planning documents. Other potentially harmful changes can involve deeds, refinanced mortgages, property titles, and/or adding someone to a joint account.
Pay especially close attention if the older person seeks to grant power of attorney to someone out of the ordinary, as this can open the door for massive theft of assets and potentially fatal changes in a senior’s caregiving services.
One major advantage to establishing a relationship with a lawyer during your early years is so we can get to know you while you’re young, healthy, and clear, and then monitor if anything goes awry in your later years.
One reason financial scams are so hard to detect is that the elderly—like all of us—are embarrassed to admit they’ve been swindled, or they may not want to get a new “friend” or relative in trouble by telling others about their suspicions.
However, anyone can fall prey to financial fraud, so it’s important the elderly know that you’ve hired us as your Personal Family Lawyer® to provide trusted advice and guidance for all financial and legal matters. We can help secure your family’s most valuable assets with robust legal protections to prevent fraud and scams of all kinds. Call us today to schedule a Family Wealth Planning Session to make the most empowered and informed decisions for yourself and the family members you love.
Assuming you’ve created a plan that contains your unique goals and wishes for your family, the next step is to ensure that your plan is carried out. The first tip is to not hide your estate plan. It’s easy to hang on to “important” paperwork for years, burying the legal “treasure” (your estate plan, and other helpful information) in a mountain of irrelevant papers. Let’s create an effective map by following these steps:
Fully Fund for Future Feats of Family Fealty
Sorry, just like Jack Sparrow can’t resist Spanish gold, I can’t resist an alliteration.
When you leave assets out of your trust, the plan you carefully crafted with your attorney could go by the wayside. Create your plan, then transfer your assets into it. But beware – assets like life insurance and retirement plans have special rules; don’t transfer those assets into your trust without careful instructions from your attorney.
There are two key things I think every parent should communicate to their family, no matter how private they wish to keep the other details of their estate plan.
The first is, tell people who will be in charge, especially the one who will be in charge. The successor trustee needs to be ready to step in at the right time. If they don’t know that they’re “it” they won’t know to act. And everyone else needs to know who to talk to in order to get things moving.
The second thing is that the person who will be in charge next needs to know where the documents are. And have the ability to get those documents. If you use a bank safety deposit box, make sure their name is on the account for the box. Bank safety deposit boxes often present a problem, because the legal documents granting you the authority to access the bank safety deposit box are locked securely in the safety deposit box. A fire safe box at your home keeps the documents accessible while keeping them safe.
What You Don’t Have to Say
You don’t have to spill the beans on how much money you have or the details of all your assets. How much, and where are details for another day. But they are important details for that other day, as I discuss in the last point.
You don’t necessarily have to go into the details of who is getting what. I do think generally the more you communicate on this point, the more problems you’ll avoid for your beneficiaries down the road. If the conversation is going to be too awkward, work with your attorney to communicate some of the “why” behind what you’re doing, either in the estate plan or in a separate letter. Confused kids cause chaos, and chaos leads to expensive litigation.
Create a Map for Later
Stop and think for a minute. The person you’ve chosen to be the successor trustee has a big job. At some point in the future, they’re going to be all alone, handling your affairs, using the information you’ve left behind. Every year the state spends a lot of your money that sits unclaimed, mostly because the people who would have benefited from it had no idea that money was there. We all have buried treasure; the question is what clues will we leave behind for those who follow.
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Growing up my family did a lot of camping. Mountains, plains, rivers, lakes, desert, you name it, we probably set up a tent there. Got to get up close and personal with some amazing places, and not just the usual Lake Tahoe, Yellowstone, Yosemite places.
One of our rituals at the end of every trip was to pick up the camp site. And by that, I mean we would scour the place. By the time, we were done, it would look like only chipmunks had lived there.
I’m sure the next person to arrive at our former campsite appreciated it.
Question: when it’s time for your kids to handle your estate, what will they find? A clean orderly campsite?
A friend of mine remarked recently, “If I don’t get an estate plan in place, my daughter will hate me forever.” Probably a bit of an exaggeration. Probably.
Make your kids love you forever – leave a clean campsite.
To get started with your estate plan, schedule your free vision meeting.
If you’re like most people, adding your child to your bank account seems like the easiest thing to do, rather than relying on legal documents like a power of attorney. There are at least three reasons why this estate planning “shortcut” is a bad idea.
Your child may have to pay gift taxes if they do the “right thing” for their siblings
When you add your child to a bank account, they become a co-owner of the account, which means they become the sole owner of the account at your death. Any money they give to their siblings or anyone else will be considered a gift, and will fall under gift tax rules, not under any inheritance rules. Currently, the gift tax exclusion amount is $14,000.
You disinherit your other children
As one person found out when her sister decided to keep her father’s $100,000 bank account, there was nothing she could do. Plus, the estate expenses were paid from other assets of the estate, and nothing from the bank account – that money now belongs to her sister.
You expose yourself to your child’s financial woes
The worst thing that could potentially happen to your bank account is to have your child’s own financial woes spill over and effect your account. Because your child’s name is on the account, collectors, creditors, and litigants are all going to be looking at your bank account. As a co-owner, your child can take money out for any reason, and you won’t have any recourse against them. If your grandchildren are applying for college loans, your account could get in the way.
Adding a child to your bank account is one of many choices people make that have unexpected outcomes. Consulting with a financial planner and an estate planning attorney can help you avoid these pitfalls.
An estate plan gives you lots of opportunities to define when and how your beneficiaries can use their inheritance. Inheritance is a nice word for everything you’ve worked hard for all these years. Maybe you want to specify that your children can only invest in tax free bonds, and can never use your money for a vacation ever, or maybe you don’t. Either way, your estate plan can provide some pretty amazing legal protection for your beneficiaries without controlling their lives.
The “Old Way” of Trust Planning
Traditionally, trusts survived just long enough to avoid probate for Mom and Dad’s estate, and divide everything between the children. At the end, the children now own everything directly, which sounds great. Unfortunately, this exposes your hard earned money to your children’s creditors, lawsuits, and potentially, even divorcing spouses.
The “New” Better Way
Instead of giving your children their inheritance outright, each beneficiary may instead receive their inheritance inside a special trust created by your own personal Living Trust. This trust gives your child the benefits of ownership without the legal liability of ownership. It’s like giving your children their inheritance inside an LLC without the expense and complication of the corporate overhead.
How it Works
Let’s say Doctor Lenny inherits a home and some cash from his parents who had an “old” trust. On his way to work the car in front of him stops suddenly causing Lenny to crash into the back end of a bright red Italian sports car. Months later, and several attorneys later, Doctor Lenny hands over what is left of his assets to settle the lawsuit – his own assets and his inheritance, gone.
If we rewind and give Doctor Lenny his inheritance in a “new” trust, his parent’s home and cash are now held in his own separate trust. Same car crash, same lawsuit, and Doctor Lenny is handing over what is left of his assets – except the inheritance. His parent’s house and cash are left untouched.
Who it's For
If you would like your beneficiaries to think of their inheritance as capital to be wisely managed and invested, this type of trust is for you.
Please note: any trust strategy alone does not guarantee “bulletproof” asset protection. But it does offer dramatically increased protection over holding assets outright. Before proceeding with any estate planning, you should consult with a qualified attorney.
Besides Top Ramen, there are two essential legal documents your high school graduate needs to have in place.
Two Key Legal Documents
It may be hard to believe your child heading off to college really is an adult, but they’ve officially crossed that threshold into adulthood. It’s an exciting time. And it’s a very legally vulnerable time because now your child does not have a default backup for important medical and financial decisions the way you and your spouse do. Even between spouses though, I think every adult should have these two key legal documents.
Your child’s medical information is legally protected, and it may be difficult or even illegal for medical providers to share information with you in case something happens to your child. When congress passed The Health Insurance Portability and Accountability Act in 1996 (HIPAA) one of their goals was to protect patient privacy. Because the penalties for violating the rule can be steep, doctors and hospital administrators are very cautious when releasing medical information. As a parent that can present a very frustrating and frightening situation in a hospital emergency room. Your child may not be in a position to give consent, and you don’t have time to go get a court order (an “emergency” action by the court could still take a week or more for a “temporary” order) not to mention the cost of filing fees and attorney assistance. To avoid all of that, your child (now adult) should prepare an Advance Health Care Directive to appoint the person they want to represent them if they are unable to speak for themselves.
The second document is called a Durable Power of Attorney, and it gives the appointed agent the ability to handle all financial matters. While most college age children don’t have a lot to manage, the Power of Attorney can be a good safeguard against a potentially devastating impact of an event that leaves them incapacitated. Imagine a car accident has left your child incapacitated – can you step in and handle all the important legal and financial matters that will ensue?
It can save you thousands by avoiding the need to obtain a conservatorship of the estate. You may think, well, my child just has a small bank account, what is the big deal? The big deal is everything that is not in a bank account: handling insurance claims, lawsuits, lawyers, lenders, and the IRS. Your bank paperwork won’t help with any of those people – you’ll need a conservatorship or a power of attorney to act on your child’s behalf.
So, in between all the notebooks and highlighters, slip two important legal documents. Welcome to the adult world, kid.
Most people I work with haven’t revealed a lot about their estate to their children. And usually, there is no good reason to let your children know all the details about your financial matters. But take a moment and step back – if something were to happen to you, how would your child, your successor trustee, your executor, know where to start?
If you have a trust in place, the first place to look is the trust property exhibit. But that may not address life insurance policies, retirement benefits, and potentially assets acquired since the trust was created.
You may intend that your children get “everything” when you’re gone, but unless there is a map to guide your children to where “everything” is, they may spend many frustrating hours searching through your house and paperwork to try and figure out what is there.
How big of a problem is this? In 2015, the Legislative Analyst’s Office estimated that California took in $400 million in income off of unclaimed assets. They estimated that unclaimed property had become the fifth largest source of income for the state.
Your children could lose a valuable life insurance policy because they had no idea it was there and didn’t get the premiums paid while you were incapacitated.
A bank account may just sit because there is nothing at home to indicate you have an account there.
To avoid these problems create, and more importantly, maintain, a list of where things are. Opening a new bank account? Add it to the list. Closing an account? Update the list. Company changing names? Update the list. Oh, and make sure your children know where the list is.
If you think you might have unclaimed property, search the state's Unclaimed Asset Database.
My dad always said that wisdom is learning from other people’s mistakes – it’s cheaper than learning from your own mistakes. Here is a classic example to learn from: the estate of Estelle Elsa Manwell, from El Dorado County. Ms. Manwell was well to do – according to court documents she owned real estate in Contra Costa and El Dorado County worth $1,238,848. Ms. Manwell must have known that she did not have much time to live because she signed a handwritten will just days before she passed away. This handwritten, or “holographic” will left her estate to her 5 living children, but stated, “I do not want any of my property sold outside of my family for a minimum of 20 years.” The will also neglected to nominate an executor or mention whether the executor would be required to carry a bond. Ms. Manwell's will left a few problems for her children.
Because by statute the executor is paid the same as the attorney (though some may choose to waive this fee) the position can have an enviable financial bonus for an heir. For an estate of $1 million, the executor can collect $23,000. The court records indicate that the children of Ms. Manwell fought over who would be executor. This fight could have been avoided by simply naming the executor in the will. Now the family relationships will have to recover from what was said and done in a public (and expensive) forum.
The attorney’s fees and executor fees could have all been avoided by creating a trust, allowing the assets to pass to the heirs without going through probate. That amounts to nearly $50,000 in expenses, not to mention the months, and potentially years it will take for the court to process this hand-crafted document.
Tying beneficiaries hands
Sometimes restraining the beneficiaries is for their own good, and serves as a way of protecting them from creditors or their own foolish choices. But in this case, the children (likely all in their 40’s or older) will be forced to stay on title together on assets with which they can do nothing until 20 years later, minimum. These five children, who have just finished fighting over who will be the executor, will have to manage multiple properties in several counties – together. I have a feeling only the lawyers will appreciate this arrangement. Managing real estate can be time-consuming and costly. Managing with multiple owners with their own unique perspective, and potentially antagonistic attitudes towards each other is a recipe for waste. Sometimes a client has a sentimental attachment towards particular items, like a home wrapped with memories of family events, holidays, and birthdays. I try to remind clients that their children have their own fond memories, but also have their own lives to lead. Tying their hands and preventing them from making necessary decisions could ultimately hurt their children in the long run. Better to create a structure that will make it easy for the children to carry out your wishes, but gives them necessary options.
Haste makes waste
In summary, by leaving these planning decisions to the very last minute, Ms. Manwell left behind a situation that will cost her children financially and emotionally over a long period of time. All of these things could have been avoided by careful advanced planning.