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This is Keith A. Davidson from Albertson and Davidson. In this video, I want to talk to you about the differences between Wills and Trusts. A lot of times people think that Wills and Trusts are the same thing, that they’re the same type of documents, and they really aren’t. Wills and Trusts are very different, and so let’s start with a discussion of Wills, and then we’ll talk about Trusts and you can see the differences between the two documents.

Wills are testamentary documents, and what that means is they only come into effect, they only actually are created, upon somebody’s death. Now you go ahead and create the Will and write it down and sign it prior to death, but it doesn’t operate until after death. For Wills, there’s a lot of what we call formalities that you have to follow.

To have a valid Will, you have to have it in writing. It has to be signed by the person who’s creating the Will, and a typewritten Will has to be witnessed by two witnesses, or it has to be in the testator’s own handwriting. That’s what we call a holographic Will. If you don’t meet those formalities when you create a Will, then the Will simply isn’t going to be valid. That’s something that is unique to Will’s. You’re not going to have that with Trust.

After somebody passes away, a Will cannot operate over their assets until you take that Will to court and you have the court admit the Will to probate. That’s where the court decides whether the Will is valid or not, and until the Will is admitted to probate, nothing can happen with that Will. You can’t administer it. You can’t manage the decedents assets. It has to go through this court process in order to operate and then the Will ultimately will dictate how the assets pass out of probate and to the beneficiaries who are intended to receive them. And that’s generally how a Will works.

A Trust is very different because most people create what we call a living Trust. In legal terms, we would call that an inter-vivos Trust, meaning that it’s created during your lifetime and it actually operates during your lifetime. So the Trustee of your living Trust can manage your assets, can make management decisions over those assets, and it operates even if you lose capacity. That’s different from a Will because the Will never helps you if you lose capacity, but a Trust does. And then after you passed the Trustee can administer that Trust without having to go to court.

Trust don’t require any court oversight in order to be administered. And in order to create a Trust, all you have to do is have something in writing and signed. You don’t technically even need to have it notarized, although most Trusts are notarized and they probably should be, but that’s not a legal requirement that they be notarized.

Trusts tend to be a lot more flexible because you can leave your assets to your children or your beneficiaries, and you can have all sorts of flexibility in how you leave your assets to them. So, you can leave something in a child’s Trust that holds their assets until a certain age, or you can leave something to your grandchild and also hold that until they reach a certain age. There’s all sorts of flexibility that you can build into your Trust that is much harder to do under a Will because the Will has to go to court and through the probate process in order to be administered.

So that is some differences between a Will and a Trust, and I think you’ll see that they’re very different documents.

Casey Kasem’s passing is a sober reminder of how people with estate plans can still be subject to bitter Court disputes in their golden years.  Prior to Mr. Kasem’s death his wife and children (from a prior marriage) were involved in a bitter conservatorship dispute.  Mr. Kasem had apparently prepared a healthcare directive naming his daughter and her husband as agents to make health care decisions (according to news reports).  But Kasem’s wife

had other ideas.  She refused to allow Kasem’s daughter and husband to act.  When faced with the possible appointment of a conservator over Kasem, she fled the state and went to Washington state where the battle over Kasem continued.  Kasem’s passing ends the conservatorship dispute, but my guess is that there is an estate fight in the works.

Kasem’s plight prompts the question: what are family members to do when planning documents fail them?

Healthcare Directive Issues

In Kasem’s case, he had the right planning document in place—a healthcare directive—but it did him little good because his wife did not honor it, and the document cannot enforce itself.  Since Kasim’s wife had possession of him, she was able to circumvent his wishes as stated in the Healthcare Directive apparently.  So what good is a Healthcare Directive?

As with most planning, it is great to have and will work most of the time, but not all of the time.  When you have warring family members who do not get along and work at cross-purposes to each other, then a piece of paper is not going to help much.

The key, is working together with family members to develop a workable plan that works for everyone.  Easier said than done in some cases.  But still, even in tough family situations communication is key.

Having a clear plan on who will make decisions, what the future plans will be for financial management and caregiving (either at home or at a facility), and as much about future medical decisions, or philosophies, is all helpful information.  And the more that is written down, the better.  If nothing else, it will help a Court make a good decision if ever a Court has to get involved in your future care.  Don’t leave it up to chance, as chances are, you will be sadly disappointed by what occurs.

Convincing a Parent to Step Down as Sole Trustee

A similar problem is when a parent no longer has the ability to manage his or her financial affairs, but refuses to admit it.  How does a child step in as successor Trustee when a parent refuses to step aside?  While most Trust documents have a procedure to find a parent “incapacitated” to act, that procedure typically requires a note from one or two physicians—what if your parent refuses to go to the doctor, or refuses to have a mental exam done?

This is a tough problem with no good solution.  If you cannot convince a parent to either step down or see a physician for a mental exam, you have few good choices.

Of course, you can file to obtain a conservatorship over your parent, which would then establish (in a very forcible, expensive, and public way) that your parent no longer has capacity (that’s what happens in a conservatorship, before being awarded the Court must make a finding that the elder lacks mental capacity).  But that is not a good option, as it tends to make a mess of the entire situation (not to mention royally piss-off your parent—and you thought staying out past curfew was bad…).

Alternatively, I have had children act as a Co-Trustee as a means to provide help to a parent without pushing the parent aside altogether.  Co-Trustees work together to jointly manage the Trust estate and pay bills.  The Co-Trustee idea allows you to approach your parent and ask to help them in their role as Trustee, rather than replacing them in that role.  A parent can remain as Co-Trustee with you, and you can take the laboring oar in managing Trust assets and paying bills.  It can be a real win-win for everyone involved.  And it is much easier to talk to a parent about helping them—not replacing them.

Estate planning is not perfect.  There are challenges and issues that we must face.  There’s no doubt that planning is important to avoid being dragged into Court, and a majority of the time good planning will avoid a trip to the courthouse, but not always.

 

 

How much do lawyers cost?  Well that’s a loaded question that no lawyer wants to answer.  And yet, every client and potential client wants to know—“what’s this gonna cost me?”  Well as a lawyer I have no desire to discuss this on a blog post put out into the public realm.  Or if I do discuss it, I want to state it in either general terms that avoids the question, or highly specific terms that makes no sense to anyone—even me.

As a human being, however, I have a desire to just tell it like it is.  We all know legal services are not free.  So why not talk about the costs using specific examples that gives people some idea of what they are in for?

Part 1: Transactional Lawyer Work (and Fees)

Before we start throwing out numbers, we need to discuss the different type of legal services a firm, such as mine, undertakes.  There’s two broad categories: “transactional” services which are things like estate planning, uncontested trust administrations, probate (uncontested), and the like; and “litigation” which is all the contested court work like Will and Trust contests, Trustee breach of duty, abused beneficiary cases, and the like.  In this post, I will discuss the transactional attorneys fees you can expect to pay:

1.         Estate Planning–$2,500 to $5,000.  If you are going to use a lawyer to create an estate plan for you, then you should expect to pay in the range of $2,500 to $5,000.  Some attorneys will flat fee an estate plan for you, and others do not.  And I’m sure there are some lawyers who bill less than $2,500 (and I know there are lawyers who charge more than $5,000), but this is the typical range you can expect from a lawyer drafted estate plan.

I tend to charge around $4,000 to $5,000 for estate plans that I do.  Why so much?  Well I like to spend a good deal of time preparing a proper estate plan.  Throwing together a Trust and Will for someone without thinking through how that affects all of their assets and family situations is not helpful to anyone.  I think I provide more in value than I charge, but not everyone agrees and that’s okay.  The point is to find a lawyer with whom you feel comfortable.

Practice Area:
http://www.aldavlaw.com/practice-areas/transactional/estate-planning-and-advanced-estate-planning/ 

2.         Probate—Percentage of the estate Probate fees are set by statute, you can read my previous post on how they are calculated.  I have heard some people (o.k. lawyers) say that the statutorily set fee is a “mandatory” fee or a “minimum” fee—not true.  The statutory fee is a maximum fee that goes to the attorney who handles the probate.  In most modest estates, those with assets less than $1 million, the statutory fee is about right for the amount of work to be done.  For estates in excess of $1 million, the statutory fee may be more than is necessary to handle the estate, especially if it is an easily handled, liquid estate with no contestants.  In those cases, lawyers can reduce their fees from the statutorily set maximum, but few do so.

I have reduced my probate fee on estates in excess of $1 million depending on the underlying circumstances, so ask around and see what kind of deal you can get if you have a larger estate to probate.

Practice Area:
http://www.aldavlaw.com/practice-areas/litigation/estate-and-probate-litigation/ 

3.        Trust Administrations–$2,500 to $5,000 (to $10,000??).  When someone dies who has created a revocable, living Trust during his lifetime, the Trust has to be administered in order to pass the assets to whoever receives them.  Sometimes the assets are placed in Trust for a surviving spouse, sometimes in Trust for children or grandchildren, and sometimes it is just an outright distribution to children.  In each of these cases, an administration is necessary because there are notices that must be sent, appraisals that must be obtained, rules to follow, and Trust terms to carry out.

The Trustee is entitled (and encouraged) to have a lawyer help them through this process to be sure it is all done correctly.  What does that cost?  Well that depends on many factors such as the size of the Trust, the complexity of the Trust provisions, the difficulty of the beneficiaries, and the issues that arise in dealing with the beneficiaries.

In my experience that typical range for a run-of-the-mill trust administration is $2,500 to $5,000.  If, however, the estate is big enough to trigger the need to file an Estate Tax Return, then you can add $10,000 or more to that number.  Of course, your Trust estate would need to be in excess of $5.325 million as of 2014 to trigger a Estate Tax return so an extra $10,000 shouldn’t be too problematic for an estate that large.

But when the Trust administration becomes contested, due to a disagreement between a Trustee and beneficiary, that can also add anywhere from $2,500 to $5,000 or more to the cost even if the problem does not end up in court.

You also have to add to that the hard-costs of obtaining things like appraisals, recording deeds, and hiring accountants for Trust accountings (if one is required).  So all told, attorneys’ fees and hard-costs will likely cost from $4,500 to $8,000 or so.

Well that’s the deal for transactional matters.  My next post will talk about the fees for litigation matters.

Practice Area:
http://www.aldavlaw.com/practice-areas/transactional/probate-and-trust-administration/ 

Albertson & Davidson, LLP is pleased to announce the addition of attorney Mark D. Perryman to the firm as a partner.  Mr. Perryman focuses his practice on Trust, Will and Probate litigation.  He also helps clients in estate planning, trust administration and business litigation.  

Mark D. Perryman

“I chose to join Albertson & Davidson because they share my values in fighting hard for clients and helping people resolve their legal problems,” said Perryman.  Mr. Perryman has spent his career practicing in the Inland Empire where he is a well known, and well regarded, litigation attorney. 

“We are always on the lookout for talent, and Mark Perryman is a remarkably talented, and tenacious, advocate for his clients,” said Keith A. Davidson, an accomplished trial attorney and managing partner of Albertson & Davidson, LLP.  “With Mark’s addition to the firm, we have increased our litigation capabilities and now provide a more formidable force for protecting and serving our clients’ interests,” said Davidson. 

Mr. Perryman is a relentless competitor, who grew up in Southern California. A highly recruited athlete, he received a full ride wrestling scholarship to Cal Poly San Luis Obispo, where he was a PAC-10 runner-up and NCAA qualifier. He transferred to Arizona State University, where he solidified his goal of becoming a PAC 10 wrestling champion and earned a top 8 ranking among all wrestlers in the country. 

After becoming an attorney, Mr. Perryman concentrated his study, efforts, and focus to the litigation arena, where he has successfully completed multiple jury trials and over 20 bench trials. His litigation style, competitive drive, and desire to win, mimic the same preparation, aggressive tactics and skills that made him a successful top tier athlete.

Mr. Perryman continues to pay his athletic success forward by volunteering his time to coach wrestling for all ages and trying to be a positive influence on everyone he meets. Mr. Perryman is a dedicated family man and in his off time, he takes a relaxed approach to life, where enjoys spending time with his wife and five children.

“I’m glad he is with us and not against us,” says named partner Stewart R. Albertson.  Mr. Albertson (recently nominated for Trial Lawyer of the Year by the Consumers Attorney Association of Los Angeles) added “Mark will be an invaluable asset to our clients and keep opposing attorneys on their toes. I’m looking forward to watching him so I can learn from his litigation experiences” concluded Albertson.

Albertson & Davidson, LLP is the fastest growing Trust and Will litigation boutique firm in the Inland Empire region of Southern California. Albertson & Davidson represents clients in San Bernardino, Riverside, Los Angeles, San Diego, and Orange counties. In 2013, the attorneys at Albertson & Davidson, LLP have obtained verdicts and settlements in excess of $14 million for their clients.

I have heard it a million times before: “I don’t need a Trust because ____________” you fill in the blank: I don’t have enough money, I won’t care when I’m dead, California probate is easy, my wife and I own everything in joint tenancy…there’s many, many excuses and misinformation regarding Trusts in California.

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In California, a probate must be opened for anyone dying with more than $150,000 in personal property (things like bank accounts, brokerage accounts, stocks, bonds, etc); or more than $50,000 in real property (which in California is almost all real property).  That means that if you own a home, regardless of whether the home has a mortgage or not, your estate will likely have to go through probate before it can transfer to your heirs. 

Probate is no easy task. See our prior posts on probate here and here.  It can take 12 to 18 months (or more) to complete, and it costs a lot.  For even a modest estate worth $500,000, the statutory attorneys’ fees alone are $13,000.  Add in another $13,000 for the executor and anywhere from $1,500 to $2,000 in hard costs (such as court fees, probate appraiser fees, publication of notice, etc.) and the total probate fees and costs can be around $28,000 for a $500,000 estate.  That’s far more than the typical fee for a lawyer to prepare an estate plan, which can run from $2,000 to $3,000 on average. 

How about estate taxes?  Luckily, California does not have an estate tax or inheritance tax.  But the Federal Government does have an estate tax, and the current estate tax limit is $5 million (plus a little more for inflation).  That means that anyone with an estate worth less than $5 million will pay no tax. 

There was a time when a Trust was necessary to save substantial money on estate taxes, back when the estate tax limit was only $600,000.  Now that the estate tax limit is $5 million, most people don’t need a Trust to save on estate taxes.  But a Trust still saves the trouble and expense of probate if you own real property or have more than $150,000 in personal property.  It also allows for someone to manage your financial affairs if you ever lose capacity, which is reason enough to have a Trust.

Still not convinced?  That’s okay because us lawyers make far more money on estates where proper planning is not done.  We would much rather earn a big, fat probate fee or spend years litigating your estate after you’re gone.  Not planning is a great way to make a lawyer a beneficiary, and maybe even the biggest beneficiary, of your estate. 

That may sound a bit jaded, but I have learned over the years that no matter how much sense planning makes, many people just won’t do it.  If you really want to save money, time, and trips to the Courthouse, it’s time to put your Trust in Trusts.

Death may be certain, but estate taxes are not.  At least not at the end of 2012 when the current Estate Tax exclusion of $5.12 million is set to expire and be automatically reset to $1 million.  With proper planning, married couples can combine their exclusions for a total amount in 2012 of $10.24 million.  At that rate, there aren’t too many estate subject to estate tax.  But if the estate tax exclusion falls back to $1 million ($2 million for couples who plan), there will be far more people affected by this tax.  Worse yet, the tax rate, currently set at 35%, will increase to a staggering 55% of asset value at time of death.

The size of your estate is based on the total fair market value of all your assets measured from your date of death.  But there are a few surprises thrown in as well.  For example, your estate inlcudes the total death benefit of all life insurance policies you own.  So if you have a $1 million term life policy (an asset that does you little good while alive) it counts towards your total estate value.  Add in a house, a retirement account, and a few bank accounts, and your estate could top $1 million easier than you think.

If you own your own business, that must be valued as well.  Your estate could end up owning a 55% tax on assets that are highly valued, but not highly liquid.  That can cause a financial hardship for your family after your gone.

So now is the time to take advantage of the increase Estate and Gift tax exclusion amount of $5.12 million. But what action should you take?  That depends on your situation.  There are quite a few different ways in which to reduce the size of your estate while also benefitting your family members.  

For example, you can fund a Trust for your children or grandchildren that can be used for educaitons, health, and support items.  You can fund a life insurance trust that allows you to pass the death benefit of an insurance policy to your children free of estate tax.  You can even create a family business (referred to as a family LLC) that could provide a way to share the wealth while also reducing your estate value.

For a few other interesting ideas, check out this article from www.nerdwallet.com’s personal financial management blog (quoting some expert advice that you may find interesting).  

Keith A. Davidson describes in this video the basic requirements for creating a California Will and Trust. He refers to the basic creation elements as “formalities” and “intentionalities”, terms he uses in teaching California Will and Trust creation at Chapman Law School (which he borrowed from his own Trust and Will professor, Father O’brien (thank you Father O’Brien!), who taught at Loyola Law School in Los Angeles).  For those viewing this blog by email subscription, you can click on the title for a link to the video.