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Estate Planning


Estate Conservation

Without careful action, the estate you have spent a lifetime building could be significantly less by the time your heirs receive it. Careful action on your part can help ensure that your heirs receive the estate you intend them to have. Ill-informed or misguided efforts may be a little better than no action at all, allowing taxes and probate fees to shrink your estate.

Estate Shrinkage:

The following chart below, shows how the estates of some famous people fared after their deaths. A quick look will demonstrate the dramatic effect estate settlement costs can have on what your heirs eventually receive.

Name                              Gross Estate        Net Estate         Shrinkage

John D. Rockefeller, Sr.        $26,905,182        $9,780,194        64%

Elvis Presley                10,165,434        $2,790,799    

Walt Disney                       $23,004,851        $16,192,908       30%

You may think this does not apply to you because your estate is not nearly as large. But in fact, making adequate preparations for the conservation of your estate has many benefits, regardless of its size.

What is an Estate?

Your estate is simply all the wealth you have accumulated during your lifetime. That includes real estate, stocks, bonds, business interests, retirement plans, personal effects, and anything else you own.

What is Estate Conservation?

Estate conservation and planning includes preparations necessary to accomplish two goals:

1. Management during your lifetime

2. Distribution upon your death 

Benefits of Estate Conservation:

Taking the necessary steps to conserve your estate offers a number of important benefits. It can enable your heirs to avoid conflict, delays, and expenses when settling your affairs and distributing your estate. 

This is a summary of the benefits of estate conservation. Take a moment to review these, and check off all the items you would like to accomplish

Select person(s) to receive your assets.

Determine how and when your beneficiaries will receive their inheritance.

Select individuals to manage your estate, including the executor, trustee, and others.

Minimize estate settlement costs, including probate expenses and estate taxes.

State your wishes regarding guardians for your children.

Make sure your heirs have enough liquid capital to cover your burial, settlement, and income tax costs.

Estate Distribution Techniques:

There are a number of methods which assets can be distributed upon your death:

1. Intestacy - without a Will

2. Will, Trust or other Estate Planning document

3. Premarital Agreement

4. Different methods of property ownership

Problems With Intestacy: (Lawyer's favorite)

First, this is the most common method: do nothing. Dying without a will is called dying "intestate." There are four (4) main problems with intestacy:

1. Distribution

2. Fees and taxes

3. Probate

4. Guardianship of children determined by the Court


The second technique you can use in distributing your estate is to have a Will drawn up. A Will is simply a list of instructions that tells the judge exactly how you would like your estate distributed. If the probate court upholds your Will, the court will use it in deciding how to distribute your property to your heirs.

There are a number of factors you should consider when deciding whether or not to use a Will to provide for the distribution of your estate. A properly drafted Will:

Controls distribution

May minimize fees and taxes

Ensures probate 

Premarital Agreement:

Wills may have additional limitations in certain nontraditional family groups, such as second marriages and gay and lesbian relationships. For example, if you want to leave your estate to your children from a previous marriage, a will alone may be insufficient as the sole estate conservation strategy if your spouse challenges it. In fact, most states require that your spouse receive a certain portion of your estate, often based on the length of the marriage.

A premarital agreement may be one solution that helps ensure that your estate is distributed as you intended.

Property Ownership:

 Many of us have been told that there are ways to use property ownership to avoid probate. In some cases, that may be true. But, there are a number of other considerations you should bear in mind. How you hold title to property will affect how your assets will be distributed. There are four (4) basic types of co-ownership:

1. Joint tenancy

2. Tenancy by the entirety

3. Common property (nine states only)

4. Tenancy in common

Dangers of Joint Tenancy:

Because of the survivorship feature with joint tenancy, there are dangers in holding joint tenancy with other individuals.

If you change your property titling, it creates a present gift. You may have actually gifted half of the value of that asset to the joint tenant. From that gift, there can be potential tax liabilities and potential loss of assets if the other joint tenant were to get in financial difficulty. You may also lose tax benefits from rental property or other assets that generate tax losses, because half of those benefits will be passed along to the other tenants.

Property ownership is especially important in second marriages or in families with more than one set of children. Carefully consider the effects of acquiring new assets in joint tenancy if you intend for your children to have them after your death. If newly acquired assets are in both your names, they will go to the survivor, namely your spouse, not to your children. There are also significant tax effects in holding property this way that should be reviewed carefully.

Community Property Laws:

California is a community property state. Under a community property statute, all property earned or acquired by either spouse is presumed to be owned in equal shares by each spouse. For estate conservation purposes, there are no restrictions on how each spouse can give away his or her half of their community property. There is no law requiring one to leave his or her half of community property to the surviving spouse, although many do.

Property Agreement:

One useful tool may be a property agreement, which is really no more than a declaration of property ownership clearly stated between spouses or other parties.

Choosing the Right Executor and Successor Trustee:

An executor is the person you designate to carry out the directions and requests of your will. Your Successor Trustee would be the person to handle the management of your living trust if you become incapacitated or after your death. The demands of being executor and/or trustee may take a long time. They may be technical and time consuming. You also have the option of nominating a corporate trustee. Prior to making any designation in an estate planning document, discuss this with your attorney.

Estate Planning Documents:

Just as an executor carries out your wishes in the distribution of your estate after your death, granting someone power of attorney gives a trusted individual the power and authority to act on your behalf in legal and financial matters if you should become incapacitated.

A typical power of attorney will not be applicable to a person with a disability or someone who is incompetent. To accomplish that, you will need additional agreements. You should consider including one or more of these as part of your estate conservation efforts:

·   Power of attorney for health care

·   Durable power of attorney (for financial management)

·   Living will

·   Special Needs Trusts (either as stand-alone instruments or incorporated into other estate planning documents)


Another technique you can use to control the distribution of your estate is establishing a trust. The use of a trust can minimize fees and taxes. Some trusts can completely avoid probate. Because trusts offer some unique advantages over other estate planning conservation methods, they may be the answer to many of your estate conservation needs.

To start with - what is a trust? The classic definition states that a trust is a legal arrangement under which one person or institution controls property given by another person for the benefit of a third person.

Parties Involved In a Trust:

Several parties can be involved in a trust. The person giving the property is referred to as the trustor (or settlor), the person controlling the property is referred to as the trustee, and the person for whom the trust operates is referred to as the beneficiary. Generally, you are allowed to be the trustor, the trustee, and the beneficiary of a trust simultaneously.  

Types of Trusts:

For Estate Planning purposes, there are primarily two types of trusts:

Testamentary trusts

Living trusts

Testamentary Trusts:

Using a testamentary trust will enable you to control the distribution of your estate. This includes enabling you to name the guardian of your minor children’s assets until they reach whatever age you feel is appropriate.

Testamentary trusts are usually established by a will upon the death of the trustor. Thus, when you use a testamentary trust, the assets in your estate will go through probate with all the costs and delays the probate process can bring.

While testamentary trusts do not bring about any immediate estate or income tax savings upon the death of the trustor, they can be very useful in preventing estate taxes as the property passes to successive beneficiaries.

Living Trusts:

Using a living trust also enables you to control the distribution of your estate - just like a testamentary trust. But, unlike testamentary trusts, properly funded living trusts completely avoid probate, including any associated fees.

When you set up a living trust, you can generally transfer the title of all the assets you wish to place in the trust from you as an individual to yourself as trustee. Technically, you no longer own any of the assets transferred in your own name - everything now belongs to the trust - so there is no longer anything to probate when you die. Your estate will still have to pay final income taxes, but your living trust can minimize estate taxes. And if you are the trustee, you can maintain full control over the assets. You can buy or sell as you see fit. You can even give assets away.

Living trusts offer an additional benefit: They enable you to completely avoid being placed under court-appointed conservatorship if you ever become incapacitated or otherwise unable to manage your affairs.

Advanced Trust Strategies:

There are several more advanced trust strategies that can be used to ensure that your estate is not unduly taxed:

A-B and A-B-C trusts

Irrevocable trusts

Life Insurance trusts

Charitable trusts

A-B Trusts:

In an A-B trust, you and your spouse establish a single living trust with an A-B provision. Upon the death of the first spouse, two separate trusts are created. The assets of the surviving spouse are transferred to the A trust and the assets of the deceased spouse are transferred to the B trust. By properly limiting the surviving spouse’s interest in the B trust, those assets will use the deceased spouse’s federal estate tax exemption limit in force at the time of their death. Therefore, the surviving spouse will be entitled to use his or her own federal estate tax exemption against the assets of the A trust.

Upon the death of the second spouse, the assets of both the A trust and the B trust pass to the beneficiaries, completely avoiding probate. If each trust contains less than the applicable federal estate tax exemption, these assets will pass to the beneficiaries free of federal estate taxes. Thus, an A-B trust can enable you to pass up to the maximum federal estate tax exemption allowable to your beneficiaries free of federal estate taxes.

Irrevocable Trusts:

To minimize estate taxes on assets over the federal estate tax exemption limit, you must give up control over the property. This can be accomplished by transferring ownership of those assets to an irrevocable trust.

Just about any trust arrangement can be made irrevocable. However, bear in mind that when you establish an irrevocable trust, you give up a considerable degree of control over the assets within the trust, and the trust is not easily modified.

Irrevocable Life Insurance Trusts:

If you do not want to give up control over your assets, you need to plan for the payment of estate taxes on all your assets above the maximum federal estate tax exemption limits. One popular way to accomplish this is with an irrevocable life insurance trust. 

In this strategy, an insurance policy is placed in an irrevocable trust. This keeps the policy out of the taxable estate and allows the proceeds to pass on free from federal estate taxes. An irrevocable life insurance trust can therefore solve a number of estate conservation dilemmas.