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Revocable living trust 301
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Photo credit: Jeff Chiu
To carry on the discussion of planning our personal estate using a Revocable Living Trust (RLT), today we'll learn about property agreements and the Last Will and Testament/Pour over Will.
California is a community property state. What that means, according to Glen L. Rabenn, Certified Family Law Specialist, is that California law defines for its residents any asset acquired or income earned by a married person while living with his or her spouse as community property (http://budurl.com/uhz9). One can title their property as separate and or individual property if they solely possessed it prior to their marriage.
So, what is a community property agreement? Should you require it, this document transmutes -- or in normal language, converts or transfers -- ownership of your joint property to community property unless specifically designated as separate property of the husband or wife.
Why a community property agreement? This document converts ownership of your current jointly-owned property to community property unless specifically designated as the separate property of either spouse. If the agreement classifies some or all property is individual property of one's spouse, then the rights of the other spouse and their property are limited and specified by the agreement. Classification as community property may provide substantial income tax advantages on the first death, which is why this document is so important. Without it, you may pay an increased tax bill unnecessarily.
To execute or endorse a community property agreement and for it to be binding, legal document, you must sign and date it in the presence of a notary public.
So now let's talk about the Last Will and Testament/Pour-Over Will. This document has two parts; the first is the Last Will and Testament, the second is the Pour-Over Will. Wikipedia defines “A will or testament as a legal declaration by which a person, the testator, names one or more persons to manage his or her estate and provides for the transfer of his or her property at death. […] In the strictest sense, a ‘will’ has historically been limited to real property, while ‘testament’ applies only to dispositions of personal property, though this distinction is seldom observed today. A will may also create a testamentary trust that is effective only after the death of the testator.” (http://budurl.com/xwku)
What is a Pour-Over Will? It is a short will stating that any assets left out of your Revocable Living Trust will become part of, or "poured over into," your RLT upon your death. These assets will have to go through the probate process first to get them into the trust, then distributed as outlined in the trust. And let me tell you, that can be a costly mistake. In California, probate fees are set by statute, so depending on the value of the asset(s) going through probate, you can be looking at a fee of several thousand dollars. (A house would be a good example of an asset that could possibly be left outside of the revocable living trust that could garner a high probate fee.) Guardians for minor children are also identified in the wills as are prior marriages and other children.
Why a Pour-Over Will? Some people are not very diligent in funding their trust, unfortunately. This document makes certain unfunded assets are distributed according to your wishes outlined in your trust. Your goal, however, is to avoid probate and the Pour-Over Will should not be relied upon to transfer assets to your trust.
In the last few articles, I've made the disclaimer that I am not an attorney. You cannot take this article to be legal advice for you. You must retain your own attorney so that your estate planning documents fit you and your current situations like a glove. Having said that, to execute this document and for it to be binding, and legal, in addition to signing your last will and testament, you must initial every page. Remember to include the date of your trust should it be mentioned in your Will. Consult your attorney and tax advisor about any elections required for favorable tax treatment. And finally, you will be required to have two witnesses who are “disinterested,” meaning they are not mentioned in the Will and have nothing to gain by it.
Those are the salient points key to understanding the reasons why having your own Property Agreement and Last Will and Testament/Pour-Over Will, as supporting documents to your Revocable Living Trust, are essential to properly planning for your personal estate. Again, I am not an attorney, so please, I beg you, especially for you, the do-it-yourselfers, retain an attorney to draft these documents for you, if not at the minimum, review what you have done. It is money well spent if you’re trying to save money doing it yourself. By getting your drafts reviewed by a certified estate planning attorney, you’ll have the peace of mind knowing that what you didn’t know, if anything, has been addressed. You don’t want your last requests to be dishonored over a technicality, do you? Then take responsibility and make sure that doesn’t happen.
In my next article, we’ll discuss two different powers of attorney that each adult should have no matter your age or net worth. Stay tuned and thanks for reading.
© 2009 Start Smart Advisor™, Inc.
For more info: Read Michael Jackson’s Will here: http://budurl.com/4wga. Read Marilyn Monroe’s Will here: http://budurl.com/7wel. Here’s what happens if you have assets without a trust—Jerry Garcia public accounting of his assets: http://budurl.com/tfcx. Download Anna Nicole Smith’s Will here: http://www.megadox.com/d/436.
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Personal Financial Planning ·
Estate Planning ·
Tax Planning ·
Family Planning ·
Legacy ·
Generation Skipping
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