Sandra D. Sickler
Attorney at Law
1901 First Avenue, #100
San Diego, California 92101
(619) 696-9973
(619) 696-9974 (Fax)
email: attorneysickler@yahoo.com
Frequently Asked Questions
CAUTION: THIS INFORMATION IS PROVIDED AS A SUMMARY OF CALIFORNIA AND FEDERAL LAW AND FOR GENERAL ENLIGHTENMENT ONLY. FOR SPECIFIC ADVICE CONTACT A QUALIFIED ATTORNEY IN YOUR STATE.
Do I Need Estate Planning?
Everyone who wants to control the disposition of their assets upon their death needs estate planning. Estate planning is the process of listing your assets to determine the approximate value of your estate, considering your personal goals and concerns, (such as providing financially for loved ones, making gifts to charitable organizations, maintaining control over funds left for the benefit of a disabled beneficiary or a beneficiary who does not handle money well), and planning to minimize estate taxes. Once your concerns and goals are clear, documents are prepared to carry our your wishes following your death. Estate planning can also include "incapacity planning." This means laying the ground work to prepare for your possible incapacity. You can specify who you would want to assist you with providing for your food, clothing and shelter if you were to become unable to do so for yourself. You can also name a certain person to assist you in managing your financial affairs in case you were to become unable to do so. This could be the same person whom you name to assist you in providing for your food, clothing and shelter, or a different person. A "Springing, Durable Power of Attorney for Asset Management" is a legal document that leaves you in complete control as long as you are able to manage your own financial affairs. Upon your incapacity, the document "springs into effectiveness" and provides for the person of your choice to take over for your benefit. A living trust may also be used to accomplish these goals.
What is Probate?
Probate is the process of gathering the assets of a deceased person, paying the deceased person's debts, and transferring ownership of the asset to the persons who are entitled to receive them under the deceased person's Will or through the laws of intestate succession if the deceased person did not leave a valid will. Probate can take from 6 months to several years, depending on the type of assets owned by the deceased person, the complexity of his/her estate plan, and whether or not the Will is contested. Probate is a public process. This means that the probate file at the court house is available for inspection by anyone who wants to take the time to go to the court house and look at it.
Are Life Insurance Proceeds Taxable?
Life Insurance is not taxable as income to the named beneficiary. However, it is included in the policy owner's estate for estate tax purposes. If the policy owner's estate (including proceeds of life insurance policies owned by him or her) is valued at more than $600,000.00, the amount over $600,000.00 will be taxed at rates between 37% and 55%. Tax on life insurance proceeds can be avoided through the use of an Irrevocable Insurance Trust. This is a very specialized type of trust. The insured (who may have been the owner of the policy before the trust was established) must give up all "incidents of ownership" in the policy. This means that the insured must give up the right to borrow against the policy, the right to designate the beneficiary, and the right to change the beneficiary designation to keep the proceeds from being taxable for estate tax purposes.
How can I avoid estate tax if my estate is valued at more than $1,500,000?
If you have a spouse, you can do some fairly simple estate planning by creating a "bypass" trust. This will allow a husband and wife to pass up to $3,000,000.00 to the next generation without estate taxes. To use the bypass trust planning, you should create a living trust, although this method can be accomplished by including the bypass trust in a will. Another planning possibility is to create a family limited partnership. A limited partnership creates what is known as "discounts" in value for estate tax purposes. For persons with large estates, this is a very effective planning tool. A much more simple method of reducing your estate is to make gifts. Each person can make a gift of up to $11,000.00 per year to as many persons as they would like. There is no need to file a gift tax return, and the recipient does not have to claim the gift as income. The recipient must claim the income produced by the gift in the future as income. The life insurance trust mentioned above is a very effective method of reducing an estate. Dependable planning to minimize estate taxes should be done with good legal counsel, because there may be unexpected income tax consequences to many techniques that are used to minimize estate taxes.
The $3,000,000.00 that is exempt from estate tax is currently scheduled to increase over the next few years.
Will a living trust protect my privacy?
Until 1998, the answer to this question was yes. In fact, privacy was one of the major reasons for many persons to create a living trust. In 1998, a law went into effect in California that requires disclosure of trust provisions to all beneficiaries of the trust and heirs of the creator of the trust when the trust becomes irrevocable. Usually this means that when the creator of the trust dies, the trust terms must be revealed to beneficiaries and heirs.
This requirement can possibly be avoided by creating an IRREVOCABLE trust in the first place. However, one of the disadvantages of an irrevocable trust is that it cannot be changed. It is important to retain competent legal counsel to assist you in deciding how to protect your privacy by using a trust.
I hope this information has been helpful. Be sure to check with a local attorney before taking any action.
Sandra D. Sickler