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What is an Estate Plan?

Posted by: Zaher Fallahi
Posted On: Nov 03, 2013

Estate planning is a set of legal documents whereby; (a) a potentially costly probate could be avoided (see below about probate), (b) the decedent’s property is distributed according to her or his wishes, (c) the estate taxes, and perhaps the income taxes, may be minimized, (d) the guardians for the minor children and incapacitated beneficiaries are identified and designated, and (e) the decedent’s wishes during vegetative state are carried out. There are legal and tax ramifications regarding the estate plan discussed with client before establishing such plan.

Basic documents contained in an estate plan include; (i) a will called pour-over will, (ii) a living trust, (iii) general durable power of attorney, and (iv) a health-care power of attorney. Certain estates warrant provisions such as A-B-C or others.  Some estates may need other types of trusts; such as Irrevocable Life Insurance Trust (ILIT), and so forth.

The new permanent law of “portability” allows the surviving spouse to utilize the unused portion of the decadent’s exclusion amount. This concept has created new series of discussions about the necessity of an A-B trust, and placed on the spotlight the advantages and disadvantages of either this instrument of estate planning profession.

The term probate refers to the administration of a decedent’s property, even with a valid will. It is a legal process by which the deceased’s assets are accounted for and distributed to the beneficiaries. Probate is public record and there is no reasonable expectation of privacy for the deceased or the beneficiaries. Depending on the complexity of the estate, and the size of the estate, the process may be time consuming and usually takes months or even years, and incurs court fees and attorneys’ statutory fees, based on the gross estate, rather than what the beneficiaries finally receive. A California resident with property in excess of $150,000 or with $50,000 equity in real estate can avoid probate by establishing a living trust. Note; the probate fee is determined by California statute.

What is a trust?

A trust exists when one person (trustee) holds title to property (res) for the benefit of another person (beneficiary). The creator of the trust is called “settlor” or “trustor”, who places the property in the trust.  Although the settlor, trustee, and beneficiary may be different individuals, one person could be the settlor, trustee and beneficiary. For example, one person may create a trust and put property in it, make him or herself the trustee, and use the property for his or her own benefit. In that case s/he would be the settlor, trustee, and beneficiary all at the same time.

Living trust refers to trust established during one’s life time, as opposed to a testamentary trust, which may be created upon one’s death. The term revocable means that the settlor is free to change his or her mind with respect to the terms of the trust while alive, or even revoke the whole trust. On the other hand, generally, the terms of an irrevocable trust may not be amended without a court order or under special circumstances.

For assistance with your estate planning (Will, Trust, Power of Attorney and Advance Healthcare Directive), and probate matters, you may contact Zaher Fallahi, Attorney At Law, CPA, at (310) 719-1040 (Los Angeles) or (714) 546-4272 (Orange County), or e-mail to [email protected]