UNDERSTANDING THE LIVING TRUST by jolinmilioncherie

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									       UNDERSTANDING THE
          LIVING TRUST
   WHAT IS PROBATE?

    Probate is the legal process through which the
    court sees that, when you die, your debts are paid
    and assets are distributed according to your will.

    If you don’t have a valid will, your assets are
    distributed according to state law.
    Probate takes place, with or without a will.
        UNDERSTANDING THE
           LIVING TRUST

   WHAT HAPPENS IN PROBATE COURT

    -   Establishes that a will is valid or if there is no
        will.

    -   Oversees the administration of a deceased
        person’s estate.

    -   Grants legal authority to the executor named in
        the will or an administrator if there is no will.
        UNDERSTANDING THE
           LIVING TRUST
   WHAT HAPPENS IN PROBATE COURT

    -   Supervises the executor or administrator
        and receives reports from him/her.

    -   Assures that all bills, taxes and other
        claims against the estate are settled.
        UNDERSTANDING THE
           LIVING TRUST
   WHAT HAPPENS IN PROBATE COURT

    -   Supervises the distribution or the
        remaining assets to the rightful heirs.

    -   Closes the estate and releases the
        executor or administrator from further
        obligations.
PROBATE TAKES PLACE WHETHER
   OR NOT THERE IS A WILL


-   Testate- with a will.
-   Intestate- without a will.
 PERSONAL REPRESENTATIVE

Personal Representative

 -   Have a a lot of complicated, time,
     and consuming work.

 -   Meet with attorney's) for the
     estate.
 PERSONAL REPRESENTATIVE

Personal Representative

 -   Accompany the attorney's) to court
     when the court decides if the will is
     valid and appoints you as
     executor/administrator.
PERSONAL REPRESENTATIVE


-   Have the estate’s real estate and
    personal property appraised.

-   Find and list estate assets; cash on
    hand, bank accounts real estate, life
    insurance, business interests,
    accounts receivable.
PERSONAL REPRESENTATIVE


-   Pay or settle the decedent’s bill,
    accounts payable and creditors’
    claims, including medical burial,
    funeral.
               CONTINUED

   PERSONAL REPRESENTATIVE

    -   Prepare personal income tax,
        federal income tax.

    -   Pay property tax for estate real
        estate assists.
PROBATE CAN BE EXPENSIVE

-   Legal/executor fees and other costs
    must be paid before your assets
    can be fully distributed to your
    heirs.
PROBATE CAN BE EXPENSIVE

-   If you own property in other states,
    your family could face multiple
    probates.

-   Probate fees average
    approximately 4% to 10% of the
    estate's gross value.
    WHAT IS GROSS VALUE OF THE
             ESTATE?

    -   Is the fair market value of the
        estate before debts are paid.

   PROBATE TAKES A LONG TIME
    -   Usually 9 mos. To 2 years. During
        part of this time, your assets are
        usually frozen.
WHAT IS GROSS VALUE OF THE
         ESTATE?


-   If your family needs money to live
    on, they must request a living
    allowance, which may be denied.
    YOUR FAMILY SECRETS ARE
        PUBLIC RECORDS

-    Probate is a public process, so any
     interested party can see what you owned
     and who you owe.

-    The process invites disgruntled heir’s to
     contest your will.

-    Can expose your family to
     unscrupulous solicitors.
    PROBATE TAKES CONTROL
          FROM YOU
-    A judge selects the administrator.

-    Probate process determines how
     much it will cost.

-    How long will it take.

-    What information is made public.
    PROBATE TAKES CONTROL
          FROM YOU


-    HOW TO AVOID PROBATE

-    There is no Probate when someone
     dies who owns no real estate, no
     stocks or bonds or other investment
     with title.
  PROPERTY PASSING TO THE
SURVIVING SPOUSE MAY AVOID
         PROBATE

-   Life insurance usually do not go
    through probate.

-   Some investments do not go
    through probate.
  PROPERTY PASSING TO THE
SURVIVING SPOUSE MAY AVOID
         PROBATE

DOES JOINT OWNERSHIP AVIOD
PROBATE?

-   No it usually just post pones it.
-   Surviving owner dies. The asset
    must be probated.
    DOES JOINT OWERSHIPSHIP
        AVOID PROBATE?


- Joint tenant means that the first
  person to die loses all control over to
  whom or how assists will be
  distributed.
     DOES JOINT OWERSHIPSHIP
         AVOID PROBATE?

-   With joint tenant, spouses effectively
    lose their right to two $3,500,000
    federal estate tax exemptions.

- If the joint tenants are not husband
  and wife, gift taxes may be due.
        JOINT TENANT CONT.

-   Joint tenant exposes one joint tenant
    to the financial risk, liabilities and
    other potential problems created by
    the joint tenant.

- Capital gains exposure, stepped-up-
  basis is on one-half.
    A WILL DOES NOT WORK
     UNDER JOINT TENANT
    Under J.T. if a co-owner becomes incapacitated, you
    could find yourself with a new co-owner, the court.
   COMMUNITY PROPERTY
    -   Ownership between husband and wife each
        spouse owning equal shares.
    -   In this case the ½ interest of each spouse in
        the community property can be will and left to
        persons other than the spouse.
    -   Full step-up basis.
    -   Both co-owners must join in conveyance of real
        property.
     COMMUNITY PROPERTY
           WROS.
-   Will does not work with community
    property WROS.

-   Survivor owns the property by
    survivorship.

- Full step-up-basis.
    TENANCY IN COMMON

-    Any number of persons, can be
     husband and wife.
-    Ownership can be divided into any
     number of interests, equal or
     unequal.
-    Interest passes by will to his
     devisees or heirs.
-    Stepped-up-basis is on one half.
         LIFE ESTATE

-   An estate existing for the life time
    of a person or persons.
-   The person who is the owner of a
    Life Estate is called a life tenant.
-   May be created in a deed by a
    grant to the grantee or by
    reservation in the grantor.
-   Full step-up- basis.
WHAT IS A LIVING TRUST?

-   Is a legal document that, just like a will,
    contains your instructions for what you
    want to happen to your assets when you
    die.
-   A living trust avoids probate at death.
-   Controls all your assets and prevents the
    court from controlling your assets at
    incapacity.
-   You transfer assets from your name to
    the name of your trust, which you
    control.
    WHAT IS INCLUDED IN A
       LIVING TRUST

-   The revocable living trust is the
    central document that governs the
    disposition of your family wealth
    after the death of either or both of
    you and it can reduce estate taxes.
    The living trust, if properly funded,
    also avoids probate and
    conservatorship.
     WHO IS INVOLVED IN A
        LIVING TRUST

-   Trustor- The person who sets up the trust.

-   Trustee-The person who manages the trust.

-   Beneficiaries- The person(s) who receive the
    benefits of the trusts assets.
     WHO IS INVOLVED IN A
        LIVING TRUST

-   Successor trustee- The person who will
    manage your assets when you die or
    become incapacitated.

- Successor Beneficiaries- Person entitled to
  receive the benefits of the trust assets when
  you die.
      POUR-OVER-WILL

- Property that has not been transferred
  to the living trust during your lifetime,
  the pour-over-will provide those assets
  to be transferred to the living trust.
     DURABLE POWER OF
        ATTORNEY
- Allows one individual to handle the
  financial affairs of another, including
  buying or selling, depositing or
  withdrawing funds from bank account,
  etc.
- Power of attorney can commence either
  immediately or upon becoming
  incapacitated.
- Power of attorney can avoid a
  conservatorship if you become disabled.
  DURABLE POWER OF ATTORNEY
       FOR HEALTH CARE

- This gives your spouse or another
  individual or individuals the legal
  authority to make medical decisions
  (including termination of life support)
  for you if you are incapacitated and
  unable to make those decisions
  personally.
    PROPERTY AGREEMENT

   This document, for married couples,
    converts all property, weather
    separate property or held in joint
    tenancy, to community property, if
    either spouse wants to maintain
    specific items as separate property,
    the property a agreement can
    accommodate that need.
   PROPERTY AGREEMENT
         CONT.
- In most cases, the purpose of the
  property agreement is to convert joint
  tenancy to community property
- A living trust manages assets during
  life and distributes at death.
   TITLE TO REAL PROPERTY

- As a general rule, all your property
  should be titled in the name of the
  trust
  A living trust itself cannot acquire
  property, convey interest in real
  property
- John and Jan Smith co-trustees of the
  Smith living trust. Date.
              PROP. 13

- Does transferring property into a living
  trust trigger reassessment?
- Revenne & taxation code 62,
  specifically states that a transfer into a
  revocable living trust does not cause a
  reappraisal or revaluation of the real
  property for tax purposes.
     REVOCABLE LIVING TRUST

-   Is a revocable trust and may be
    dissolved by you at any time.

- Living trust does not provide any
  protection for your assets against law
  suit or tax attachment.
  Living trust provide no income tax
  advantages.
        ADMINISTRATION OF THE
               TRUST

   Trust Administration

    -   Is the process by with the
        successor trustee carries out the
        term of the trust.
       TRUSTEE’S DUTIE’S

- The successor trustee cannot comingle
  trust assets with non-trust assets.
- Maintain records that include separate
  income and principal ledgers.
- Income amount due to each income
  beneficiary of the trust must be
  calculated and paid.
      TRUSTEE’S DUTIES CONT.

   In order to settle any unknown claims,
    notice and publication to creditors is
    essential.
   If a trust becomes irrevocable in which
    or in part upon the death of the
    settler trustee, the decedent’s heirs
    and beneficiaries must be given a
    specific legal notice.
CAN A SINGLE PERSON CREATE A
      REVOCABLE TRUST?

   Yes. A single person can create a
    revocable trust. In fact, it is often
    more important for a single person to
    have a revocable living trust than it is
    for a married couple. This is because a
    single person needs to name someone
    to handle his/her affairs in the event
    that he/she becomes incapacitated by
    a stroke or suffers other disability.
 CAN A SINGLE PERSON CREATE A
REVOCABLE LIVING TRUST? CONT.

   The single person names in his/her
    trust the person(s) who will handle the
    estate not only in the event of
    incapacity, but also upon the death of
    the single person. A single parent will
    often name his/her children to become
    trustee or co-trustees upon his/her
    death.
        NOTICE OF THE TAX
            ASSESSOR
   Death is considered a change of
    ownership and real property is
    reassessed for real estate tax purposes
    at the fair market value as of the date
    of death.
     SINGLE PERSON TRUST


            ACT 1
             JOE
TRUSTOR, TRUSTEE,& BENEFICIARY


           ACT 11
     SUCCESSOR TRUSTEE
    SUCCESOR BENEFICIARY
    WHAT KIND OF REVOCABLE LIVING
     TRUST CAN A MARRIED COUPLE
               CREATE?

   Basically there are two types of trusts for
    married couples. The first type is called a
    simple or basic trust. With the simple
    trust, while both spouses are living ,they
    continue to manage the estate together
    as they had before creating absolute
    control over the estate. When the second
    spouse dies, the assets are distributed to
    the heirs as directed in the trust.
WHAT KIND OF REVOCABLE LIVING
 TRUST CAN A MARRIED COUPLE
        CREATE? CONT.
   The simple trust is advisable for husband
    and wives whose estates meet the
    following conditions:
    – 1.The combined estate is under
      $3,500,000 and will never grow to over
      $3,500,000
    – 2.The spouses are willing to allow the
      surviving spouse to have full and
      unrestricted use of the trust assets after
      the death of one spouse.
      MARRIED COUPLE TRUST

                       ACT 1
                     CHERYL & JOE
               TRUSTORS,CO-TRUSTEES,
                & INITIAL BENEFICIARIES




        ACT 11                         ACT 111
       CHERYL                    SUCCESSOR TRUSTEE
SOLE TRUSTOR,TRUSTEE           SUCCESSOR BENEFICARIES
    & BENEFICIARY                 (USUALLY CHILDREN)
    WHAT IS AN “AB” (A-B) TRUST?


   An A-B trust is means of dividing a
    “husband & wife” estate into two trusts
    upon the death of one spouse. The main
    purpose for using A-B trust is to prevent
    losing any portion of the $3,500,000
    federal estate tax exemption when the
    first spouse dies. For example, let’s
    assume that a husband and wife have an
    estate valued at $7,000,000.
    WHAT IS AN A-B TRUST? CONT.


   If the husband dies leaving estate to the
    wife, and then the wife dies thereafter,
    leaving the estate to the children, the
    children will pay estate taxes of
    $235,000. If, however, upon the death of
    the husband the estate was split into A-B
    trusts then each trust would be able to
    pass $3,500,000 on to the children tax
    free, with no estate taxes due at all.
A-B TRUST FOR TAX CREDIT


             CHERYL & JOE
               $7,000,000
               JOE DIES




              CHERYL DIES
    A                           B
             CHILDREN GET
 CHERYL                        JOE
               $7,000,000
$3,500,000                  $3,500,000
               TAX FREE
   USING THE A-B TRUST FOR
          CONTROL

 How can l make sure that my
 current spouse and children
 from a former marriage are
 both protected?
       USING THE A-B TRUST FOR
              CONTROL

   You can use the A-B trust to control your
    share of the estate upon your death. You
    can provide for lifetime use of the assets to
    your spouse, such that upon the death of
    the second spouse, the principal can return
    to your original family.
   The second spouse’s estate then would go
    to the spouse’s family. This helps assure
    that both sides of the family receive their
    proper inheritances.
       USING THE A-B TRUST FOR
           CONTROL CONT.

   Without an A-B trust, when property is
    left in joint tenancy outright to a
    second spouse in a will, an estate can
    totally shift from your own family
    entirely to your second spouse’s family
    if you happen to die shortly before
    your second spouse dies.
        A-B TRUST FOR CONTROL


                       WITH A-B TRUST
                        CHERYL-JOE
                        JOE’S HOME




                 CHERYL’S
                                               JOE’S FAMILY
CHERYL LIVES      FAMILY        JOE’S ESTATE
                                                INHERITS
  IN HOME      INHERITS HER      OWNS HOME
                                                  HOME
                  ESTATE
         WITHOUT A-B TRUST


                 WITHOUT A-B
                    TRUST




                 CHERYL DIES       CHERYL DIES
   JOE DIES
                  CHERYL’S         JOE’S FAMILY
   CHERYL
                FAMILY INHERITS     DOES NOT
INHERITS HOME
                     HOME         INHERIT HOME

								
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