Using a Living Trust To Avoid a Conservatorship

The inter vivos trust is more flexible than other devices commonly used in planning for mental or physical incapacity, although its use is not limited to these situations. The trustor may be the trustee and simultaneously a beneficiary. The trustor can provide for a successor trustee to serve on his or her death or incapacity or whenever he or she decides to cease acting as trustee. Alternatively, the trustor may name the spouse, adult child, attorney, accountant, or corporate fiduciary as trustee or joint trustee and retain complete power to manage the trust or to direct the trustee until he or she becomes incapacitated or otherwise declines to act. Further, a trust can provide adequately and flexibly for the care of not only the trustor or trustors, but also their children and grandchildren, even while the trustors are living.

One disadvantage of a trust is that an individual’s ability to create or revoke a trust requires that he or she have the capacity to enter into contracts. Therefore, a trust ordinarily cannot be created to meet the needs of an incapacitated trustor, nor may an existing trust be modified or revoked unless the trust agreement specifically allows that action when necessary or advisable for a person who lacks the capacity.

The cost of administration if a paid trustee is used is still a disadvantage. A trustee’s fees are higher than expenses of the informal devices discussed earlier and may be incurred much earlier than fees in a court-supervised guardianship or conservatorship. Fees can be minimized in various ways. For example, all initial trustee fees may be avoided if a member of the family acts as trustee or if the trustor acts as his or her own trustee and is later succeeded by a family member.

Although creating a revocable trust is not a gift and there is thus no gift tax liability, taxable gifts result from creating an irrevocable trust for any part of the property no longer under the donor’s dominion and control, e.g., a remainder interest vested in a third party. The trust corpus may also be includable in the donor’s estate, for example, if he or she has retained a life estate in it or, as trustee, has the right to determine who receives the income.

Attorney and Executor Fees For Probate

The personal representative and the attorney are EACH entitled to the fee shown on this page. If extraordinary services are performed by them, the court will allow a reasonable fee for those services. Total amount of Executor’s commission probate estate (same as attorney fees) + % of total probate estate

15,000 600 4% of total
50,000 1,650 3% of total
100,000 3,150 2% of total
150,000 4,150 2% of total
200,000 5,150 2% of total
300,000 7,150 2% of total
400,000 9,150 2% of total
500,000 11,150 2% of total
600,000 13,150 2% of total
700,000 15,150 2% of total
800,000 17,150 2% of total
900,000 19,150 2% of total
1,000,000 21,150 1% of total
1,250,000 23,650 1% of total
1,500,000 26,150 1% of total
2,000,000 31,150 1% of total

Methods For Avoiding Probate

Because of the many drawbacks to the probate process, many people choose to have their property pass outside of probate. The most common ways to pass property outside of probate include:

  1. A revocable Living Trust. This is the most popular form of probate avoidance. A living trust acts very much like a will except that it avoids the probate process.
  2. Joint tenancy. In a joint tenancy, each joint tenant owns an equal share of the property. When one of the joint tenants dies, their share will automatically go to the surviving joint tenant. Since joint tenancy property does not go through probate, you cannot transfer joint tenancy property by a will.
  3. Life insurance. The proceeds of your life insurance policy will pass directly to the beneficiaries that you named on the policy.
  4. Pay-on-death bank accounts. In these types of accounts (savings, checking, bank money market, certificate of deposit), you will name the person(s) who are to receive any money that remains at your death. While you are alive, the person you name will have no rights to access these accounts.
  5. IRAs and other retirement plans. Many retirement plans will allow you to name a person to receive any money that remains at your death.

The Disadvantages of Probate

The disadvantages of probate proceedings are:

  • Probate costs can be expensive because of the fees paid to both the executor and the attorney.
  • The proceedings are time consuming, and the delays are excessive.
  • Court proceedings are inflexible.

The Advantages of Probate

The advantages of probate proceedings are:

  • Court protection for the heirs and beneficiaries.
  • Probate cuts off the claims of creditors after the four-month period following the issuance of letters testamentary. The personal representative must give notice to known creditors of the estate. A similar procedure exists for the revocable living trust.
  • The transfer of title in a probate is a public record that prevents problems with title companies.
  • Court supervision is available to answer questions and resolve disputes.
  • The probate estate is a separate taxpayer and some tax savings may result.
  • The costs of probate are deductible for income tax and death tax purposes, if properly planned.

What is Probate?

Probate is a method of transferring assets under court supervision as provided in a will, or, if a person dies without a will, of transferring assets under court supervision to heirs in accordance with state law.

Assets in the decedent’s name alone (separate property) must be probated to transfer title. Community and quasi-community property must be probated if it is left by will to someone other than the surviving spouse. Assets that cannot be controlled by a person’s will are not subject to probate. They include:

  1. assets in joint tenancy.
  2. life insurance policy proceeds.
  3. death benefits from qualified retirement trusts, Keogh Plans, IRAs.
  4. assets held in living trusts.

If the decedent left a valid will, the will is filed on death in the probate court, and the court, if it accepts the will, appoints an executor. If the decedent left no will, the court appoints an administrator to serve. The executor or administrator are fiduciaries whom the court supervises.

The executor or administrator must collect assets subject to probate, pay debts and death taxes, and request court approval to transfer assets to the decedent’s heirs or to the persons named in the will. The fees charged by executors or administrators and their attorneys are determined by state law (see, Table: California Statutory Commissions and Fees).

The estate pays income taxes due on the income of probate assets until the assets are distributed or the estate is closed. The usual duration of probate is from nine months to two years. The size and complexity of the probate estate determines the duration of probate. A complicated probate can continue beyond two years.

The court grants the executor or administrator approval for transfer of probate assets to the heirs or to persons named in the will. On final distribution and transfer of all probate assets, the court discharges the executor or administrator.

California Advance Health Care Directive

An Advance Health Care Directive (AHCD) allows you to appoint another person (“agent”) to make health care decisions for you if you become temporarily or permanently unable to make those decisions for yourself.

You can select any adult person to be your agent. Since this person will be making important medical decisions for you, you should select someone who is familiar with your wishes, values and religious beliefs. You should also have trust and confidence in this person. Once you have selected someone, you should discuss this with him/her to make sure that they understand their responsibilities and agree to accept the responsibility.

You CANNOT select any of the following people as your agent, unless s/he is either related to you by blood, marriage, or adoption; or s/he is employed by the same treating health care provider, community care facility or residential care facility for the elderly that employs you:

  1. your treating health care provider;
  2. an operator of a community care facility;
  3. an operator of a residential care facility for the elderly; or
  4. an employee of your treating health care provider, community care facility or a residential care facility for the elderly.

The AHCD will become effective only when you are unable to make your own health care decisions and the agent that you selected consents to start making the decisions for you.

Your agent can make almost every treatment decision that you could make, unless you have elected to limit the agent’s authority. However, your agent is prohibited from (1) committing you to a mental health treatment facility; (2) authorizing convulsive treatment therapy; (3) authorizing psychosurgery; (4) authorizing sterilization; or (5) authorizing an abortion.

In order for the AHCD to be valid, you must sign and date the AHCD. If you are unable to sign, someone else can sign the document in your presence and at your direction.

Once the document is signed, the AHCD must either be witnessed by 2 qualified adults or acknowledged before a notary public. If you are having the AHCD witnessed by 2 qualified adults, at least one of these witnesses cannot be a beneficiary of your estate at the time of your death or related to you by blood, marriage or adoption. If you are in a skilled nursing care facility or a long term health care facility, at least one of the witnesses must be a patient advocate or ombudsman designated by the California State Department of Aging.

The only people who CANNOT witness your signature are: (1) a health care provider or an employee of a health care provider; (2) an operator or an employee of an operator of a community care facility; or (3) an operator or an employee of an operator of a residential care facility for the elderly.

Durable Power of Attorney For Asset Management

A durable power of attorney can eliminate the need for a conservatorship by providing a means for managing the assets of an incompetent principal. Using a DPA instead of a conservatorship usually reduces legal expenses, and avoids making the principal’s incompetence and financial affairs matters of public record. A DPA can also be used as a backup device when the primary asset management device is a revocable trust, providing a means of managing assets which were not transferred to the trust when the trust was established.

Except for modest restrictions which preclude granting powers to write wills or to make health care decisions, the powers granted to the attorney in fact may be as wide or as narrow as the principal wishes. Provided there is express authorization in the instrument, a principal can even authorize an attorney in fact to make gifts, create trusts, or take other estate planning actions. The power of attorney may be immediately effective or may spring into operation on the incapacity of the principal. The principal can give different powers to different persons, can appoint multiple persons to exercise a power and can provide for successors.

Disadvantages of DPA for Asset Management

There are several disadvantages to DPAs. In the absence of court supervision, there are few safeguards to ensure that the attorney in fact is serving the principal’s wishes or best interests. In addition, instances of intentional misappropriation are not uncommon.

There are also situations in which an attorney in fact may face adverse estate and gift tax consequences as a result of holding a power. For example, if the attorney in fact can exercise the power to make gifts in his or her own favor, the attorney in fact may have a general power of appointment with respect to any property subject to the gift power. This will cause inclusion of the property in the attorney in fact’s taxable estate in the event the attorney in fact dies first.

Scope of DPA Powers

If sufficiently authorized by the instrument, an attorney in fact may be authorized to perform any acts that the principal might perform, except for execution or revocation of a will, and the giving of consent to certain health care decisions. The DPA can grant broad general powers to the attorney in fact, or can limit the power to specific matters.

Springing Powers

A DPA can be effective immediately on execution or it can be a “springing” power, coming into effect on the principal’s incapacity or other future event or contingency.