Law Offices of Roshni T. Desai
Long-term Planning For Orange County

Santa Ana Estate Planning & Probate Blog

What is a testamentary trust?

As a Californian resident who is dealing with matters of trusts or trust administration for the first time, it's easy to get overwhelmed. Which option is right for you? What are the legal ins and outs of trusts? Today, we'll take a look at testamentary trusts.

FindLaw takes a look at what a testamentary trust is, including its purpose, unique features, and how it works together with other aspects of estate administration. First and foremost, testamentary trusts are a type of "express trust". Trusts in general are funds set up while you're living that can either be distributed while you're still alive. For example, trust funds can be used to support those with developmental disabilities.

Avoiding the federal estate tax

Santa Ana residents have to deal with the issue of taxes every year of their adult lives. Yet few realize that even one's death may not signal an end to their tax liabilities. The assets that one has accumulated in hopes of passing on to their beneficiaries may also be subject to tax. However, just as is the case with one's income taxes, there are tax mitigation methods that may help to reduce (or even eliminate) one's estate tax liability

The first point to ponder when considering an estate tax avoidance strategy is whether one will be required to pay the tax at all. According to information shared by Forbes Magazine, the federal estate tax threshold for 2018 is $5.6 million. What this means is that if the taxable value of one's estate does not exceed that amount, then their estate is not subject to the tax. The federal gift tax exemption even allows one to gift the entirety of their estate to their spouse without any taxes being withheld. What is more, one's surviving spouse can even claim the unused portion of their exemption, paving the way for a married couple to protect as much as $11.2 million from estate taxes. 

Which of your assets are subject to probate?

Probate is the legal process where the will of a deceased person is validated and assets are passed on to living beneficiaries. This process also satisfies the debts and taxes of the deceased through an executor. Proceeds from life insurance, bank accounts that are payable at the time of death, certain retirement accounts and real estate ownership accounts will go directly to beneficiaries and do not go through probate. All other property from the deceased will be included in the probate estate.

If you are preparing your estate for end of life circumstances, your estate will comprise of all the assets you own at the time of your death. Everything in your estate will be subject to the probate court proceeding where the assets will be passed on to the rightful heirs. Here are common types of probate assets:

Dealing with debt: What executors should know

Death can be expected and planned for, or a sudden surprise leaving loved ones struggling with the deceased’s financial affairs. Whatever the case may be, there are often a number of financial issues that may arise once a loved one passes. As an estate executor, you may have been named in the will or appointed by a court to oversee affairs involving the estate. You are responsible for ensuring any remaining debts and expenses owed by the deceased are repaid using the value of the estate. While it is critical that some expenses must be paid, there are others that you are not required to pay at all.

Credit card debt is often absolved once the card account holder has passed. If the deceased is the only person listed on the credit card account, there is no obligation for anyone else to make payments on the remaining balance. There are some exceptions where spouses may be liable for credit card debt of a deceased spouse if they reside in a community property state. Property taxes and income taxes, on the other hand, must be paid. You, as the estate executor, can pay for them and later be reimbursed by the estate or wait for the valuation of the estate and pay the taxes with that money.

What is a charitable trust?

If you are one of the many Californian for whom charitable giving is a way of life, you may wish to look into establishing one or more charitable trusts to benefit your church, your favorite charity, your alma mater, etc. The beauty of a charitable trust is that it likewise can benefit you as well.

As explains, the unique thing about a charitable trust is that while it gives you the chance to give back, it also gives back to you. This is because you can split the trust assets from their income, giving one to the charity and the other to a noncharitable beneficiary, including yourself. You likewise can name yourself as trustee.

Probate 101: What you need to know

If you have recently lost a friend or loved one, you may be dealing with a host of emotions. It can be difficult to make critical decisions during such a hard time, especially when it comes to dealing with the final matters of the deceased’s estate. In some cases, the estate may enter into the probate process in California, which could add to the complexity of the situation. Probate is designed to ensure the validity of the will, if one was left behind, and to aid in the distribution of the property to beneficiaries.

During probate, the estate administrator, or executor of the will, is responsible for gathering necessary documents, including the last will and testament, as well as the death certificate. He or she must then locate the property in the estate and have it appraised. Any bills, taxes or expenses left behind by the deceased are then paid off using the estate’s value. The executor is also responsible for protecting the property during this time. Once everything is taken care of, the remaining property and assets are distributed to the rightful heirs named in the will. Any disputes involving who is entitled to what may also be carried out during probate.

Revocable trusts and their uses

Californians have a number of options available to them when they want to build a trust. One of these potential options is a revocable living trust, which has unique properties.

FindLaw defines a revocable living trust as a three-party trust that involves a beneficiary, a trustee, and a grantor. The grantor is the one who created for - and usually also provides for - the trust in question. The beneficiary is the one who receives the funds within the trust, and the trustee is the intermediate person who holds the title to the property and distributes it to the beneficiary according to what's written within the trust.

What is the difference between probate and non-probate?

If you are considering getting your estate plan in order, it will be important to distinguish the differences between probate and non-probate assets.

Knowing the difference between the two is important because it will affect how your final wishes are carried out. Probate is the process by which the court determines how to distribute your property following your death. When your assets are distributed to your heirs through the court, this is probate, when some assets do not go to court but go directly to your beneficiaries, this is non-probate.

What assets do estate administrators deal with?

As someone dealing with matters of the estate in California, you will simultaneously be dealing with someone else's assets. But what exactly are the assets you're meant to handle? How do you know what is or isn't an asset, and how do you distribute said assets?

FindLaw defines an asset as an item of property that's owned by someone. When you're dealing with someone else's assets, it means you'll likely be handling any or all of the following:

  • All forms of money, including bank accounts and retirement funds
  • All forms of residential property, including vacation homes and houses
  • All forms of material possessions, like keepsakes and memorial tokens
  • Expensive physical possessions like cars, jewelry, and artwork

Protect your disabled child with a special needs trust

As the California parent of a disabled or special needs child, you face unique estate planning considerations, and the decisions you make while making plans for the future can have a huge impact on your disabled child’s life after your passing. At the Law Offices of Roshni T. Desai, we recognize that you have many options at your disposal when crafting your estate plan, and we have helped numerous clients facing similar circumstances uncover solutions that meet their needs.

Per CNBC, the lifetime care costs associated with providing for a special needs child can reach seven figures or more. Creating a special needs trust is one way you can help plan for your child’s future without impacting his or her ability to receive public benefits. More specifically, many special needs individuals currently have access to certain benefits that help them get by, such as Medicaid or Supplemental Security Income, but in some cases, leaving assets behind to your child can threaten eligibility for such programs.