Most Estate Plans Focus on Avoiding Probate, but They Don’t Address Tax Reduction, Asset Protection, and Disability Planning. Most Trust Documents Are the Same… Not Ours.
We have practiced exclusively in estate planning for nearly forty years. During that time, we have reviewed over 11,000 trusts from other attorneys throughout California. The most common problem we discovered with those trusts is that they were primarily designed to avoid probate. However, when probate is the main focus of the estate plan, the door is left open for other problems. For example, we have seen trusts that avoid a 5% probate fee but trigger a 40% tax. We have seen trusts that avoid probate court, but later the beneficiary ends up in divorce court losing half of their inheritance. We have seen people create a trust (thinking all was done) and then later get dementia, which required their children to go through a costly court process to gain access to the trust assets. A Death Plan does not properly address Tax Reduction, Asset Protection, and Disability Planning. It was primarily designed to avoid one problem – probate. At Preston Estate Planning, we believe the industry standard Death Plan is not sufficient. We developed the Life Plan, which incorporates eight features that protect your assets:
- Disability Panel
- Silent Partner Co-Trustee
- Medical Emergency Card
- Asset Protection Inheritance Trust
- Capital Gains Election
- Re-Marriage Protection
- Retirement Trust
- 28-point Maintenance Membership Program
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The Inheritance Trust
After you pass away and your children receive their inheritance, in most trusts those assets are exposed to your child’s potential divorce, lawsuit, and creditors. Which means the assets you intended to leave for your son or daughter could end up with their soon-to-be ex-spouse.
Even worse, when a child dies, the assets could end up in the hands of their surviving spouse, essentially disinheriting your grandchildren. These problems can be avoided by including an Inheritance Trust for your beneficiaries, which shields the inherited assets for the lifetime of your children and grandchildren.
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The Capital Gains Election
At death, there are two taxes that are at issue, the Federal Estate Tax and the Capital Gains Tax. Most trusts are drafted to avoid only one of these two taxes. However, avoiding one tax triggers exposure to the other tax. Obviously, the goal is to avoid the tax that will trigger the highest expense to the estate.
The problem is you don’t know which is the higher tax until the first trustor passes away. If the trust is drafted to avoid one of the two taxes, you’re gambling with your assets. Rather than take that risk, we recommend you include a capital gains election in your trust. This allows the trustee to postpone the decision on which tax to avoid until you have all the facts. It’s like placing your bet on a sports game after the game has ended.
How Can We Help You?
We help you create an estate plan you can trust with a level of protection you deserve
Life changes and so does the law. Have confidence knowing that through the years your plan will stay current
Count on us to guide your trustee in carrying out your wishes and making sure things go smooth after you’re gone
The Silent Partner Trustee
Temporary incapacity (such as a stroke or an illness) can unexpectedly strike at any time. Simply having a successor trustee alone does not properly address this problem.
In order to protect yourself and your assets, your estate plan should include a Silent Partner Trustee. This is like having a co-pilot with you in the cockpit to ensure that you always have someone to rely on when the unexpected occurs.
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The Disability Panel
Choosing a successor trustee to handle your finances is an important decision. However, more important than “who” will take over, is “how” the transition from you as trustee to your successor trustee will occur. This is especially true if you become incapacitated. Establishing that a trustee is incapacitated can be a challenge, both legally and practically. Your trust should have an efficient method of establishing incapacity.
Unfortunately, most trusts use an outdated process to establish incapacity. If your trust contains this outdated method, your successor trustee may be prohibited from taking over as trustee at this most critical time. Including a Disability Panel can solve this problem and provide a smooth transition from you to your successor trustee.
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The Medical Emergency Card
The two most important estate planning documents you need during a medical emergency are usually not available. This should not come as a surprise as nobody knows when an emergency will occur. This means that when you end up in the hospital, your loved ones will not have access to your medical information and your attending physician will not know what your wishes are.
A Medical Emergency Card provides a simple and effective way to ensure that you always have these two important health care documents with you no matter where you are or when the emergency occurs.