top of page
Living Trusts

1.   Why do I need a living trust? 

My estate is less than $11.7 million per individual.

There is a big confusion between two exemptions that the IRS allows concerning the transferring of one's estate.  They are the "annual exemption" and the "lifetime exemption."  Each calendar year, you can gift the sum of $15k to as many people you want without income or gift tax consequences.  Throughout your lifetime you can currently gift $11.7 million to your heirs or non-relatives who are less than 37-1/2 years younger than you without death taxes.  Most Americans do not pay death taxes but probate on the other hand can be quite expensive and time consuming.

The largest advantage to making a living trust is that property left through the trust doesn't have to detour through probate court before it reaches the people you want to inherit it.  In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it.

The average probate drags on for months (18-24 in California) before the inheritors get anything.  And by that time, there's less for them to get: In many cases, about 5% - 14% of your property in California has been eaten up by lawyer and court fees.  If you own property in other states;  your estate must go through the probate process there also.

Still, not everyone has to worry about probate, and some people don't need a living trust at all.  Maybe just some joint tenancy and/or a lift estate would work.

2.   How does a living trust "avoid probate"?

Property you transfer into a living trust before your death doesn't go through probate.  The successor trustee -- the person(s) you appoint to handle the trust after your death -- simply transfers ownership to the beneficiaries you named in the trust.  In many cases, the whole process takes only a few weeks, and there are no lawyer or court fees to pay.  When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.

3.   What's the difference between "revocable" and "irrevocable"?

In California, a living trust is considered revocable unless declared irrevocable in the trust document.  As implied by their names, a revocable trust can be changed or revoked after its creation, while a person signing an irrevocable trust gives up the right to change or revoke the trust. Revocable trusts are quite often devised to supplement a will and/or to name someone to handle the grantor's affairs should the grantor become incapacitated.  A trust usually must be made irrevocable if the grantor wants to avoid income or estate taxes.  Tax authorities consider the grantor of a revocable trust to be the owner of the property because he or she still controls the property.  For this reason, income from assets held in a revocable trust must be reported as income to the grantor for income tax purposes.  At the death of the grantor, property in a revocable trust is included in the estate for calculating estate taxes.

Irrevocable trusts are often designed to be the beneficiary of a life insurance policy.  Such a life insurance trust can also spell out how the policy's money is distributed to survivors.  In addition, irrevocable trusts are often set up to manage money given to minors and to charities.  Finally, an irrevocable trust can be used to transfer assets to another person in the event that the grantor requires expensive medical care.  Although doing so may protect the grantor's family by ensuring that the cost of medical care does not wipe out the family fortune, it may also make the grantor ineligible to receive federal and state Medical Assistance.  State law prohibits the beneficiary of a trust fund from receiving public assistance or public health care benefits.  However, the California Legislature passed a law permitting disabled people to receive supplemental needs trusts without jeopardizing their public assistance status.  These irrevocable special needs trusts must be designed to meet the special needs of disabled people that are not met by public assistance benefits; therefore, one should only create this kind of trust after consulting with an attorney.

4.   Must I have the trust recorded to make it legal?

No.  In California, just recording the Memorandum of Declaration of Trust Agreement (which is optional) is sufficient enough to prove that a trust existed in case the documents are lost or destroyed.

5.   What do all the different Articles in my trust mean?

A brief description of all the different Articles is outlined in the downloadable file "LivingTrustManual.pdf".

6.   Can I disinherit my children or give them unequal portions?

Yes.  In fact you can leave your estate to anyone or anything.  Your living trust is a contract and as such is the "law of the contract."

7.   What is the difference between distribution according to "per stirpes by right of representation", "per capita", and "surviving beneficiary"?

"Per stirpes" means if one of your beneficiaries pre-decease you and they have children . . . their children will divide the inheritance among themselves.  "Per capita" means that if one of your beneficiaries pre-decease you and they have children . . . their children will become equal co-beneficiaries with you other children/beneficiaries.  "Per surviving beneficiary" means that the last beneficiary named still alive gets everything.

8.   I've loaned/given a lot of money to one on my children.  How do I make sure that my other child/ren is/are fairly treated when I die?

You can stipulate in your trust "distribution" section that all loans must be repaid to the trust before distribution or their portion will be reduced by the loan amount and distributed among the other beneficiaries.

9.   What is a successor trustee?  Aren't me and my wife the trustees?

Successor trustees manage the trust estate after the death of the Grantors and/or incapacity of the Grantors.  Husbands and wives are co-trustees while they are both alive, conscious and capable.

10.  Do I have to use my children as the successor trustees after I die?

No.  Anyone who you trust or any statutory entity can be the trustee of a trust.  However, professional trusteeship costs but is much more impartial in distribution of the estate.

11.  What's the difference between "successor" and "co" trustees?

Successor trustees manage the trust estate in the other they are named in the trust document.  Co-trustees work together (hopefully) as a team.  Co-trusteeships should always have an uneven number of trustees.

12.  I/my spouse/both of us has/have been previously married.  How do we share the estate after one or both of us die?

There are too many ways to accomplish this to list in this small space.  For example, where one spouse has two children and the other has four; if both husband and wife agree to a 50/50 split . . . two of the children would get 25% each and the other four 12.5% each.

13.  What is "funding the trust" and how do we do it?

Funding is the process of putting your assets into the trust.  Remember, only assets inside your trust avoid the probate process at the time of your death.  Items left outside your trust could go through probate and what's left over "pours over" into the trust for distribution via the pour-over last will and testament.

14.  What are the "Schedules"?

Most trusts have only a Schedule "A".  In California we use Schedule "A" to list all the community property;  Schedule "B" to list all the quasi-community property; Schedule "C" to list those assets owners by the husband and not the wife; and Schedule "D" for assets owned by the wife and not the husband.

15.  What's the difference between conveyance, transferring, and assignment?

Conveyance is the legal process of changing ownership from your name(s) into the name of the trust.  Transferring is changing the beneficiary designation from someone to the name of the trust.  All other items that are strictly listed in the trust are considered to be assigned.

16.  Now I have my fully funded living trust . . . what do I do with it to keep the Schedules current?

Keeping the trust assets current is very simple but must be taken seriously.  You can simply line out sold or surrendered items and write in the new assets in the appropriate Schedule.  New real property must have trust grant deeds made to convey the property into the trust.  As your parents told you to do when you were children . . . "Clean up after yourselves and keep all your toys [assets] in your toy box [living trust]."

17.  How do I make changes to my living trust?

Changed are made utilizing the amendment forms provided with your trust.  Make sure to do them in duplicate and annotate your trust to show that an amendment was made.  Also write a Minute in the minutes section to further validate the amendment.

18.  What is a "reformation" of the trust?

Like bread left out to long, living trusts get stale and need to be refreshed.  A reformation is when the entire old trust verbiage is revoked and all new updated legal verbiage is amended into a new trust package.  Reformations of trust agreements keep their original creation date.

19.  What does my spouse / successor trustee do after I die to take my name off as a trustee?

Your surviving co-trustee or successor trustee files an Affidavit of Death of a Trustee along with an original copy of the Death Certificate to the county recorders office.  After it is filed . . . that person is removed as a trustee.

20.  My first spouse died and I want to get remarried.  Can I have a second living trust with my new spouse?

Yes.  More than one living trust is allowed not even between deceased spouses but also between divorced spouses.  One thing to remember is that your life-time exemption is still the same.  No extra points for extra marriages.

21.  Does my living trust protect my assets from judgment creditors?

No. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name.

After your death, however, property in a living trust can be quickly and quietly distributed to the beneficiaries (unlike property that must go through probate).  By the time creditors find out about your death, your property may already have been dispersed, and the creditors may not know exactly what you owned (except for real estate, which is always a matter of public record).  It may not be worth the creditor's time and effort to try to track down the property and demand that the new owners use it to pay your debts.

On the other hand, probate can also offer a kind of protection from creditors.  During probate, known creditors must be notified of the death and given a chance to file claims.  If they miss the deadline to file, they're out of luck forever.


Pour-Over Last Will and Testament

22.  I thought I didn't need a Will now that I have a living trust?  What gives here?

A living trust without a last will and testament is only a trust.  To avoid probate . . . one must present to the probate court an original will that specifies that the decedent's estate is in trust.

A will is an essential back-up device for property that you don't transfer to yourself as trustee.  For example, if you acquire property shortly before you die, you may not think to transfer ownership of it to your trust -- which means that it won't pass under the terms of the trust document.  But in your back-up will, you can include a clause that names someone to get any property that you haven't left to a particular person or entity.

Remember, if you don't have a will, any property that isn't transferred by your living trust or other probate-avoidance device (such as joint tenancy) will go to your closest relatives in an order determined by state law. These laws may not distribute property in the way you would have chosen.

Trusts that are created by the will (testamentary trusts) do not avoid probate.  In fact, jus the opposite.  Those estates must go through probate and whatever is left over goes into a trust for distribution.

23.  Can my executors be different from the successor trustees?

Yes.  However, your executors and successor trustees are doing the same job at the same time and it stands to reason that they should be the same persons.

24.  What is a "pour-over" last will and testament?

A Pour-Over Last Will and Testament is the legal document which controls the disposition of your property at death (pours over into your living trust) and may provide for guardianship for your children after your death. A will is not effective until death. As long as you are living, your will has no effect and no property or rights to property are transferred by it.


25.  Can the Will be changed?

Yes.  Changes to a will are made by drafting a new will and destroying the old one, or by adding a "Codicil."  A Codicil is a legal document which must be signed and executed in the same manner as your will.  NEVER MAKE ANY CHANGES TO YOUR WILL without consulting an attorney or para-legal specialists.  Changes on the face of your original will may make it invalid.


26.  What is my legal residence?

Your legal residence is the state in which you have your true, fixed and permanent home and to which, if you are temporarily absent, you intend to return.  Voting, paying taxes, owning property, motor vehicle registration and so on, are some indicators that one is a legal resident of a state.  You cannot be a citizen at large.


27.  Is my legal residence important in regards to my Will?

Yes.  Your legal residence may affect where your will is probated and the amount of state inheritance or estate tax that may be paid at death.  Changes in residency could require a new will be made but not effect your living trust provided the trust is valid in all 50 states.


28.  What is my estate?

Your estate consists of all of your property and personal belongings which you own or are entitled to possess at the time of your death.  This includes real and personal property, cash, savings and checking accounts, stocks, bonds, real estate, automobiles, etc.  Although the proceeds of insurance policies may be considered part of your estate in some states, a will does not change the designated beneficiaries of an insurance policy.  The proceeds of an insurance policy, although part of your estate for federal death tax purposes, will normally pass to the primary or secondary beneficiary designated on the face of the policy.


29.  To who should I leave my estate?

A person who receives property through a will is known as a beneficiary.  You may leave all of your property to one beneficiary, or you may wish to divide your estate among several persons.  You may state in your will that several different items of property or sums of money shall go to different persons.  In any event, you should decide on at least two levels of beneficiaries: PRIMARY BENEFICIARIES -- those who will inherit your property upon your death; and SECONARY BENEFICIARIES -- those who will inherit your property in the event the primary beneficiaries die before you.  You may even want to select a third-level beneficiary in the event that both the primary and secondary beneficiaries die before you.


30.  Can I dispose (give away at death) of my property any way I want?

Almost, but not quite.  Generally, you are free to give your property to whomever you desire. However, most states have laws which entitle spouses to at least part of the other spouse's estate. This statutory share ranges generally from 1/3 to 1/2 of the other spouse's estate.  Some states, also provide shares of the estate to children of the decedent.  Insurance proceeds and jointly owned property may be controlled by other provisions of the law.  If you have questions concerning the statutory share law in your home state, you should ask a legal assistance attorney.

31.  Should I name a guardian for my minor child/ren?

Yes.  A guardian should be named in a will to ensure that the children and their estates are cared for in the event that both parents should die.  Your guardian should be chosen with extreme care as this person will be charged with the duty of raising your children and managing their legal affairs.  Do not automatically assume that your parents or any other relative will be suitable guardians.  Such factors as the age of the guardian, age of the children, religion, social status, economics, and relation of the proposed guardian to the children, if any, should be considered in making your decision.  Additionally, a substitute guardian should be chosen with the same care as the primary guardian just in case the primary guardian cannot serve in that capacity.


32.  What is an executor?

An executor (executrix, if female) is the person who will manage and settle your estate according to the will.  You should also consider naming a substitute executor in the event that the named executor is unable or unwilling to act as the executor of your estate.  By the wording of your will, you can require that your executor or substitute executor be required to post bond or other security, or you can waive this requirement, thereby saving expense to your estate.  The choice is yours.


33.  How long is my will valid?

A properly drawn and executed will remains valid until it is changed or revoked.  However, changes in circumstances after a will has been made, such as tax laws, marriage, birth of children or even a substantial change in the nature or amount of a person's estate, can affect whether your will is still adequate or whether your property will still pass in the manner you chose.  All changes in circumstances require a careful analysis and reconsideration of the provisions of a will and may make it wise to change the will, with the help of your legal assistance attorney.

34.  OK, I have a trust . . . what does my executor do with my Will after I die?

See FAQ number 22.


Durable Power of Attorney

35.  What is a Durable or "Continuing" Power of Attorney for Finance?

A "Continuing" Power of Attorney for Finance continues if you become incapable of managing your property.  It specifies that it is a "continuing power of attorney for property", and/or it says that it can be used during your incapacity.  If it doesn't say that, it is not a continuing power of attorney and it cannot be used during your incapacity and it ends if you become incapable.  Obviously this defeats the purpose and so you must insert this clause in your Power of Attorney for Property.

36.  What's the difference between a Durable Power of Attorney for Finance and a Durable Power of Attorney for Personal Care?

  • A Power of Attorney for Fiance deals with your personal possessions and finances, whereas

  • A Power of Attorney for Personal Care deals with your personal health care decisions such as hygiene, shelter and consenting to medical treatment

The term "attorney" refers to the person you give the authority to and should not be confused with your lawyer.

37.  What is the difference between a "springing" and "immediate" power of attorney?

Powers of Attorney are valid as long as you are competent.  On the other hand, a "springing" power of attorney springs into effect after you have been declared incompetent or incapacitated. It is not affected by subsequent periods of capacity and incapacity.  An Immediate Durable Power of Attorney takes affect now and is not dependent on a future event.  


38.  What does a Durable Power of Attorney for Finance do for me?

Ask yourself what would your family do if they didn't have the power to access bank accounts or manage your business affairs if you were in a car accident and in a coma.  Further what would happen to your finances if you became mentally incompetent.  A Durable Power of Attorney for Finance authorizes someone to deal with and manage your property for you.  Your property includes all your assets and finances unless you specifically exclude certain things.

39.  Isn't my Will with executors named in it sufficient?

No.  A Will only covers your affairs once you pass away.

40.  I took the properly recorded Springing Durable Power of Attorney to my Bank and they wanted me to fill out another form.  Why?

Your bank's power of attorney allows the person named to manage your assets deposited with that bank, but only that bank. Also, they have their own "hold harmless" clauses for their protection.

41.  Does my chosen "attorney-in-fact" have to be a lawyer?"

Absolutely not.  The person you designate is your "attorney-in-fact".  You can name one attorney-in-fact or more than one.  You can require that they act together ("jointly") or you can have them act separately as well as together ("jointly and severally").  If you designate more then one, you should include some form of disagreement resolution.

You can also take the wise precaution of naming someone to replace, or substitute for, an attorney-in-fact who cannot act, or continue to act, for you - a "substitute" attorney-in-fact.

42.  Why would I want a Power of Attorney for Personal Care?

You should have a Durable Power of Attorney for Personal Care in case you, because of accident or illness, become incapable of making decisions for yourself.  In it you authorize someone to act for you and your best interests in your personal care items such as health, education, maintenance, and support.

By preparing a Durable Power of Attorney for Finance now, you can ensure that your property, your assets, your bank accounts, are managed by someone you trust who knows you and what you want, to act in your best interests, when you can no longer make the decisions for yourself.

43.  What should I consider in making a Durable Power of Attorney for Finance?

  • Who do you want to manage your finances?

  • What instructions will you give them?

  • Will it be limited or general?

  • Do you want more than one attorney-in-fact,

    • and if you want more than one, are they to act jointly or jointly and severally?

  • If your attorney-in-fact can't act or continue to act, do you want to name a substitute?


44.  What is a Limited Power of Attorney?

A "limited" Power of Attorney is given to someone for certain specific items and no others.  For example you may appoint someone to pay your bills, write checks, but do nothing else.

45.  What is a General Power of Attorney?

A "General" Power of Attorney authorizes your attorney to do anything that you can do, except writing your will.

46.  What if I become incapable and do not have any Durable Power of Attorney?

If you become incapable and do not have a power of attorney, the Probate Court appointed conservator(s) become(s) the guardian of your person and property.  If someone who cares about you wants to be named conservator or "guardian" instead, they can go to court and ask to be named your guardian.  It is far more efficient and cheaper if you appoint your own conservator before the need arises.  Going to court is always expensive and wasteful.

47.  Do I have to sign a Durable Power of Attorney?

No, absolutely not.  No one can make you sign a Power of Attorney.  However it is very important to consider whether to make a Durable Power of Attorney.  You also do not need to make a will, but in both cases, you stand to lose a great deal and have your wishes ignored if you do not prepare both.  If you don't make a Durable Power of Attorney for Finance or Personal Care, someone may have to be formally appointed some day to make decisions for you, if the decisions involve matters other than medical treatment.  This could easily be a court appointed stranger who has no knowledge of you, your wishes and can legally ignore your family's requests and needs.

48.  What does "being incapable" mean?

Being incapable means not being able to understand information that is relevant to a decision and not being able to evaluate the likely consequences of making it.

49.  Who will determine that I am incapable?

You can define that in your Durable Power of Attorney.  You might require that two doctors must agree that you are incapable before the Power of Attorney comes into effect.

You must also be capable of granting an attorney at the time that the document is signed.  This generally means that the grantor must show that s/he is aware of the nature and extent of his/her property, that /she understands his obligations to his/her dependents and the nature of the power being granted to the attorney.

50.  What if do not feel I am incapable?

If you are found incapable, you have the right to request a capacity review hearing and be represented by counsel at that hearing.  The person you named to act for you, in your power of attorney has to explain this right to you and cannot try to prevent you from contacting a lawyer or asking for a review hearing.

51.  Does the person I appoint have controls?

When the power of attorney is in effect, the person you have authorized to act for you must act in your best interests and keep a complete record of all transactions made on your behalf.

Your representative can do anything you would do, including selling your house, unless you set up limits or restrictions in either your Durable Power of Attorney for Finance or Personal Care.  They cannot however change your will.

52.  How long does a Durable Power of Attorney last?

A Durable Power of Attorney lasts until you die or recover sufficiently to resume control of your own affairs.

If you feel that someone is using the Durable Power of Attorney to make decisions for you when you are still capable of making them, or have recovered, you can ask for a court hearing to review your situation.

53.  Can a Durable Power of Attorney be revoked after I sign it?

As long as you have capacity, you can revoke any Power of Attorney you have signed.  The procedure for doing so depends on the type of Power of Attorney in question.

54.  What are some of my attorney-in-fact's responsibilities?

  • To act in your best interests.

  • If you also give someone a power of attorney for personal care, act consistently with that person's decisions (if those decisions don't impair your finances).

  • Consult with you, and with those who take care of you, and with your family and friends.

  • Use what you have, first, for your support and care; then if assets are available, for the support of your dependents; then if assets are available, for your other obligations.

  • If there is something left over, your attorney can make gifts or loans to relatives, and gifts to charity based on your previous practice and intentions (you can refer to this in your power of attorney). Gifts to charity cannot be more than 20% of your income unless your power of attorney says otherwise (and you can restrict it to less than 20%).

  • Obtain a copy of your will and information about your assets and liabilities (others who have this information have to provide it to your attorney). If, in your Will, you give a particular asset, for example a personal item or a particular property, to someone, your attorney should not dispose of that item to raise the funds to look after you, unless it is necessary to do so; and in that case the person to whom you give the item in your Will is to receive equivalent value from your estate.

  • Keep all accounts, and give an accounting when called on to do so:

    • this includes lists of your assets as of the date of your attorney's first transaction;

    • of assets acquired and disposed of and the date and particulars of each transaction;

    • of all money receipts and disbursements and the date and particulars of each transaction;

    • of all investments bought and sold and the date and particulars of each transaction;

    • of all your liabilities as of the date of the attorney's first transaction;

    • of liabilities incurred and paid and the date and particulars of each transaction;

    • of all compensation taken by the attorney and how it is calculated.

  • Keep a copy of the continuing power of attorney and of any court orders relating to the attorney's authority.

  • Not disclose any information in the accounts except to you and to your attorney for personal care, if requested by you or such attorney.

  • Keep these records until she or he ceases acting for you and until the attorney receives a release from someone authorized to give it, or until another person acquires authority to manage your property and your attorney gives the records to that person, or if you die, until the attorney gives the records to your executor, or until there is a court order.


55.  How much will my attorney-in-fact cost or be paid?

In your Durable Power of Attorney, you can state how much your attorney-in-fact will be paid.  If you don't, if the attorney-in-fact wants to be paid, the fees will be prescribed by regulation.  Currently fees are 2.5% on capital and income receipts and on capital and income disbursements, and 2/5ths of 1% on the annual average value of the assets under management.


Healthcare Directives

56.  What types of healthcare directives are available?

There are two basic documents that allow you to set out your wishes for medical care, both grouped under the broad label "healthcare directives."  It's wise to prepare both.  First, you need a "declaration," a written statement you make directly to medical personnel that details the type of care you want (or don't want) if you become incapacitated.  You can use your declaration to say as much or as little as you wish about the kind of healthcare you want to receive.

Next, you'll want what's usually called a "durable power of attorney for healthcare."  In this document, you appoint someone you trust to be your healthcare agent (sometimes called an "attorney-in-fact for healthcare" or "healthcare proxy") to see that doctors and other healthcare providers give you the type of care you wish to receive.

In California, as well as some other states, both of these documents are combined into a single form -- often called an "advance healthcare directive."

57.  How old must I be to make out my healthcare directive?

You must be at least 18 years old to make a valid document directing your healthcare. You must also be of sound mind -- that is, able to understand what the document means, what it contains and how it works.

58.  When does my healthcare directive take effect?

Your healthcare documents take effect if your doctor determines that you lack the ability, or capacity, to make your own healthcare decisions.  Lacking capacity usually means that:

  • you can't understand the nature and consequences of the healthcare choices that are available to you, and

  • you are unable to communicate your own wishes for care, either orally, in writing or through gestures.

Practically speaking, this means that if you are so ill or injured that you cannot express your healthcare wishes in any way, your documents will spring immediately into effect.  If, however, there is some question about your ability to understand your treatment choices and communicate clearly, your doctor (with the input of your healthcare agent or close relatives) will decide whether it is time for your healthcare documents to become operative.

In some states, it is possible to give your healthcare agent the authority to manage your medical care immediately.  If your state allows this option, you may prefer to make immediately effective documents for any of several reasons, including:

  • Taking quick action. Your agent will be able to make decisions for you as soon as the agent feels that you need help, without first having a doctor confirm that you are incapacitated. This may be particularly important if you are not under the care of a doctor with whom you have an established, trusting relationship.

  • Keeping control in the hands of your agent. You may feel that your agent, not a doctor, is the best person to decide that you can no longer direct your own medical care.

  • Asking your agent to step in early. If you make your documents effective right away, your agent can start making decisions for you whenever you decide that's what you want, even if you still have the capacity to make your own choices. If illness, exhaustion or any other circumstances have left you feeling that you'd like someone you trust to deal with your doctors and make treatment choices for you, making an immediately effective document gives you that flexibility.

Making your document effective immediately will not give your agent the authority to override what you want in terms of treatment; you will always be able to dictate your own medical care if you have the ability to do so. And even when you are no longer capable of making your own decisions, your healthcare agent must always act in your best interests and diligently try to follow any healthcare wishes you've expressed in your healthcare declaration or otherwise.

59.  When does my healthcare directive end?

Your written wishes for healthcare remain effective as long as you are alive, unless you specifically revoke your documents or a court steps in.  Court involvement is very rare.  Here are a few more specifics about when your healthcare documents are no longer effective:

  • You revoke your document. You can change or revoke your advance directive at any time, as long as you are of sound mind.

  • A court invalidates your document.  Most judges recognize that a court is normally not the right place to make healthcare decisions.  However, if your healthcare is the subject of a dispute and someone questions the validity of your healthcare directives, the matter may end up before a judge.

    If someone doubts that you had the mental capacity to prepare a legally valid healthcare document, that person can ask a court to invalidate your document.  Such lawsuits are rare, but they do sometimes occur.  The burden of proving that you were not of sound mind when you made your advance directive falls on the person who challenges the validity of your document. (In other words, the law presumes that you had the mental capacity to make your healthcare documents.)

    It is also possible that a court could invalidate your document if it wasn't properly completed -- for example, if you did not meet your state's requirements for having the document notarized or witnessed.  If this happens, however, it is still likely that any wishes for healthcare you set out in the document will be followed -- as long as they are clearly expressed and you were of sound mind when you wrote them down.  In the famous case Cruzan v. Director, Missouri Dept. of Health, 497 U.S. 261 (1990), the U.S. Supreme Court said that any strong evidence of someone's wishes for care should be honored.  So your directions won't be ignored simply because of a technical error.


  • A court revokes your agent's authority.  If, after your healthcare documents take effect, someone believes that your healthcare agent is not acting according to your wishes or in your best interests, the concerned person can go to court and ask for an investigation of your agent's behavior.  If a court finds that your agent is acting improperly and revokes his or her authority, the job will go first to an alternate agent you named in your advance directive.  If there is no available alternate -- or if the court invalidates your entire document for one of the reasons discussed just above -- a conservator will be appointed to make healthcare decisions for you.

  • You get a divorce.  Getting divorced has no effect on your written directions for healthcare (your healthcare declaration).  But if you named your spouse as your healthcare agent, his or her authority is automatically revoked in a number of states.  If you named an alternate agent in your advance directive, that person will take over.  If you get a divorce before your healthcare directives take effect, it's wise to eliminate confusion by starting over.  Even if you named an alternate agent in your directives, make a new document and name someone else as your agent.

  • After your death.  Generally, your healthcare documents are no longer necessary when you die.  In some states, however, your healthcare directives remain effective after your death for some very limited purposes.  Your agent may be permitted to supervise the disposition of your body, including authorizing an autopsy or organ donation, unless you specifically withheld these powers when you made your healthcare documents.


Family Limited Partnerships

60.  I'm a "sole proprietorship" how do I create a limited partnership?

Partnerships require more than one person to make it work just as it's name implies; i.e., at least one general and one limited partner.  However, Section 101(9) of the Revised Uniform Partnership Act (RUPA), approved in 1994 by the Conference of Commissioners on Uniform State Laws declare a partner must be a person, defined as "an individual, corporation, business trust, estate, trust, partnership, joint venture, government, governmental subdivision, agency or instrumentality, or any other legal or commercial entity."  Likewise, according to the Uniform Partnership Act (UPA), approved in 1914 by the Conference of Commissioners on Uniform State Laws, in Section 2 a person "includes individuals, partnerships, corporations, and other associations"  Finally, Section 101(11) of the revised Uniform Limited Partnership Act (RUPLA), approved by the Conference of Commissioners on Uniform State Laws in 1976, and revised in 1985, a person "means a natural person, partnership, limited partnership (domestic or foreign), trust estate, association or corporation."  [Underscore for emphasis only.]

61.  I heard that I shouldn't put my home into my family limited partnership.  Why?

Most web sites and informational pamphlets give very generic insights into partnership law across all 50 states.  Most planners take into consideration all taxable events that could happen if you do this or don't do that.  California "homestead laws" provide a $55k exemption for single persons, a $75k exemption for married couples, and a $100k exemption where any of the owners is disabled or over 65 years of age.  Homesteads stay in place unless revoked or the property is sold or transferred; however, California Revenue and Taxation Code 11925(d) succinctly states that any transfer of property into a trust, corporation, etc. where the percentages of the grantors remain the same after the transaction as prior to the exchange, there was no change in ownership.  It was just a change in the way legal and/or equitable title is being held.  Therefore, homestead exemptions are not lost and no documentary transfer taxes are collected.

62.  I'm switching from a sole proprietorship to a business limited partnership with a business trust as the limited partner.  What do I put into the newly formed business trust?

 Since the business trust is a legal entity, it will probably require a business computer, printer, software, desk, filing cabinet, fax machine, telephone, automobile, tools, and miscellaneous other business equipment.  These can be brand new items, items transferred from your existing sole proprietorship, or items that once were on your depreciation schedule but have been fully depreciated and fallen off the account. As long as you place them into the new business with a current fair market value, you can re-depreciate them again.

63.  Do I now get my W-2 wages from the business limited partnership or the business trust?

Either, or both.  The general rule is take your W-2 wages from the business limited partnership.  However, many business person have all their employees paid from the business limited partnership while they and their manager(s) get paid from the business trust.

64.  How much do I pay myself?

If you are receiving a W-2 wage from the partnership, whatever you want to provided it's either what others in your industry are paid or at least 60% of what you got last year as a sole proprietorship.  If you're paid from the business trust;  this is dependent upon what the independent trustee offers and you accept.

65.  Do I have to file income tax returns on my family limited partnership (FLP)?

Depends on whether or not the FLP had any taxable income based on conducting an on-going business or trade to the general public and you receive income and have business expenses.  Most FLPs that only hold assets for asset protection purposes don't file any Form 1065.  The IRS might send you a letter the first year you don't file but all you have to do is explain that this is a family limited partnership.  Each year thereafter the IRS will send you a postcard asking if you need a Partnership Return form for the past year.

66.  Why do you create business limited partnerships in California but family limited partnerships in Arizona?

The California Secretary of State requires a $70 filing fee but the Franchise Tax Board collects a whopping $800 per year renewal (or use) fee.  Considering that we have a $35 Billion budget deficit, it's sure to go up.  On the other hand, the State of Arizona only charges a $13 filing fee and has no annual renewal fees.  If your FLP is not conducting any business or trade, why pay the $800 fee if you don't have to, duh.

67.  My tax preparer told me I didn't have to pay quarterly estimated taxes.  Is that true?

Yes.  However, I'd put the money I would normally pay in estimated quarterly taxes into an interest bearing account and have the money in April the next year when taxes might be due.  We strongly recommend that you purchase the book "Making Partnerships Work" by Holmes F. Crouch.

68.  What is a Registered Agent and Why Do You Need One?

  • Virtually every state requires all limited partnerships (LP), family limited partnerships (FLP), corporations, limited liability companies (LLC) and the like to appoint a Registered Agent. Most states require the Registered Agent to be physically located in the state of incorporation or qualification. If you fail to appoint a Registered Agent, then the state will take steps to prevent you from being able to do business in that state.

  • A Registered Agent is an entity that is responsible for receiving important legal and tax documents for your corporation or LLC, which may include: notice of litigation (service of process), franchise tax forms and annual report notices.

  • Your Registered Agent address is a matter of public record. Each state wants to make sure that its citizens and businesses have a way to contact you in the event they have a potential claim against you. Without a Registered Agent to receive legal process on your behalf, you could be defaulted for failing to answer the claim in a timely fashion.

  • A Registered Agent is like car insurance……. you may never need it, but you are required to have it and you're glad you do when a problem occurs.


California Propositions 58/193

Q. Does the Proposition 58 exclusion apply to sales of property between parents and children?      A. Yes.

Q. Does the Proposition 193 exclusion apply to sales of property from grandparents to grandchildren?     A. Yes.

Q. Does the Proposition 58 exclusion apply to transfers from parents to children by either gift or inheritance?     A. Yes

Q. Does the Proposition 193 exclusion apply to transfers from grandparents to grandchildren by either gift or inheritance?     A. Yes

Q. Are transfers between brothers and sisters excluded from reassessment by either Proposition 58 or Proposition 193?  

 A. No.

Q. Are transfers from grandchildren to grandparents excluded from reassessment by Proposition 193?     A. No. Proposition 193 only provides a 'one-way' exclusion for transfers from the grandparents to the grandchildren.

Q. I just inherited the old family home, but I don't really want to move back to it. Do I have to make it my principal residence to qualify for the Proposition 58 exclusion?     A. No.

Q. I just inherited the old family home which is situated on ten acres. Are you sure that there is no value limit for excluding the principal residence from reassessment in this situation?     A. Not in this situation. Ten acres exceeds the amount of land necessary for a site. Only a reasonable amount of the land would be considered part of the principal residence.

Q. Can a transfer to or from a legal entity (corporation, partnership, etc.) be excluded by Proposition 58 or Proposition 193?      A. No.

Q. I am thinking of giving several properties to my children. Can I decide which child gets the exclusion?      A. Probably, as long as you separately transfer each property to each child. Remember that the first child who acquires property, and is eligible for the exclusion, will probably get the exclusion.

Q. I am thinking of giving several properties to my grandchildren. Can I decide which grandchild gets the exclusion?     A. Probably, as long as you separately transfer each property to each grandchild. Remember that the first grandchild who acquires property, and is eligible for the exclusion, will probably get the exclusion. This assumes that the parents of the grandchildren who would qualify for a Proposition 58 exclusion from the grandparents are deceased. It also assumes that the grandchildren have not already reached the $1,000,000 limit for "other property" transferred to them by their parents under Proposition 58.

Q. My two sisters and I recently inherited several properties from our parents. Which one is entitled to the exclusion?      A. You must decide that among yourselves. Remember that the first eligible person, who claims the exclusion in a timely manner, will probably get the exclusion.

Q. I recently inherited seven commercial properties, other than the principal residence, in Sacramento County. How do you decide which properties will get the $1,000,000 exclusion if I qualify?     A. You must make that decision.

Q. My mother recently died and left me with about $4,500,000 worth of property in Arizona. She also left me an apartment house in Long Beach, which is currently assessed for $306,000.  Does inheriting the Arizona property put me over the $1,000,000 limit, and make me ineligible for the Proposition 58 exclusion on the apartment house?     A. No. You should be eligible if you meet all of the other requirements. The $1,000,000 limit applies only to transfers of properties within the State of California.

Q. I recently inherited four large warehouses on one parcel from my mother. Currently, the assessed value is $1,428,400. The property is actually worth about $2,900,000, however. Am I eligible for the Proposition 58 exclusion?     A. If you meet all of the other eligibility requirements, you are probably entitled to the Proposition 58 exclusion for a portion of the value. We will reappraise the property at its actual current market value. $1,000,000 of the old assessment will be excluded from reappraisal, except for the 2% annual trending. The amount of the old assessment which exceeds $1,000,000 ( $428,400 / $1,428,400 = 30%) will be reassessed at the actual market value, and added to the excluded $1,000,000 value.

Q. Isn't the Assessor precluded, under Proposition 58 and Proposition 193, from issuing a supplemental assessment when the applicable (Proposition 58 or Proposition 193) exclusion applies?     A. Ordinarily this is true, unless a portion of the old assessment(s) exceeds $1,000,000. If a person qualifies for the exclusion, and a supplemental assessment has been issued, it will be deleted. If the supplemental tax has already been paid, a refund will be issued.

Q. My father died on December 1, 2001, and the property was sold out of probate to a third party on November 20, 2002. Do I still have (3) years from the date of death to file a Proposition 58 claim?     A. No. You must file prior to the sale to the third party.


Business Trusts

         Q: What makes the UBO legal?              

            A:     The constitutionally protected right to con­tract, and hundreds of Supreme Court decisions that uphold the validity of the UBO. 

          Q:     How does it work?

               A:     The parties create their own agreement, which provides certificates as evidence of limited rights of the beneficiaries.  The certificates convey no interest in the UBO corpus (property), nor authorizes any voice in management or control.  All business is conducted by the Trustee(s) and recorded in the minutes.  The UBO is a legal entity and person in the eyes of the law, with rights comparable to a natural-born individual.  The UBO is irrevocable and can own property or conduct business like any person.

          Q:     What are the benefits of creating a UBO?

               A:     A UBO contract is usually set up for a term of twenty-five years and can be renewed indefinitely by the Trustee(s).  Because the UBO never expires, there is no gift or estate taxes, nor is any property held therein subject to the vulture courts or lawyers thru probate.

          Q:     Who can hold title to the certificates of the UBO?

               A:     They can be held by the Exchanger, distributed among family members and others, free from any gift tax, being that no vested interest is being transferred, only the right to receive distributions as directed by the Trustee(s).

          Q:     Can the Trustee be a relative or spouse?

               A:     This would depend on the purpose and structure of the UBO.  Every need is different - what would be acceptable in one case may not be in yours.

          Q:     What control would I have over the Trust­ee?

               A:     The Trustee must be someone whom you have complete trust in, because no one has control over him.  However, a Protector may be assigned to oversee the actions of the Trustee, and even have the power to replace him for cause, or when petitioned by an interest­ed party.  A successor Trustee would be previously named in the minutes.

          Q:     Can I place my business in a UBO?

               A:     YES! The UBO offers much more protection than a corporation, so much in fact, that many States will not allow certain professionals, such as Doctors and Contrac­tors, to operate their business thru a UBO because they want them to be liable. But a high risk person may place all of their other assets into UBO's and even reduce the net worth of their business using a series of UBO's.

          Q:     Does the UBO have to register anywhere?

               A:     No! However it may need to obtain an EIN from the IRS in order to open a bank account, and may even have to file a fictitious business name statement with the county.  But, the contract document and minutes are protected by a right of privacy and would require a court order to be surrendered.

          Q:     Can a UBO be used to avoid taxes?

               A:     Justice George Southerland said, "The legal right of a taxpayer is to decrease the amount of what would otherwise be his taxes, or altogether avoid them, by means which the law permits, this cannot be doubted."

          Q:     How do I transfer my assets into the UBO?

               A:     That is part of the service provided by Baldwin Trust Group.  You never transfer assets directly into the UBO corpus.  There are specific ways which your assets must be transferred.  By transferring assets directly into the UBO, you would then in fact have a GRANTOR TRUST which would not afford the desired benefits of the UBO.


Charitable Organizations

What does it mean to be a 501(c)(3) organization?
For charities, this means that they can accept contributions and offer donors a tax deduction for their gifts. For donors like you, this means your contributions are fully tax-deductible to the amount allowed by law. The email receipt you receive from does indeed meet all the IRS requirements as a record of donation.

What is my tax benefit for charitable contributions?
The chart below gives the deduction for a single person in each tax bracket making a cash donation of $100. The instructions for the 1040 Form will help determine the exact amount of your deduction, which will vary depending on your tax bracket and whether you file as a single person or jointly.

Tax Bracket

Donation Amount


Out-of-Pocket Cost


What counts as a charitable organization? A charitable organization is generally defined as any nonprofit organization that is incorporated and identified by the IRS as a 501(c)(3) organization. These organizations have been given tax-exempt status and can accept contributions. itself is a registered 501(c)(3) organization, as well as all of its 850,000 charities.

NOTE: Not all donations to nonprofits can be claimed as charitable deductions, even if the organization is registered as a nonprofit. Check with the IRS on whether or not an organization can receive charitable deductions.

CHARITABLE EVENTS: For a charitable event, only a portion of the ticket value is deductible. The portion that is NOT deductible is the value of the goods or services that you receive (e.g. dinner, entertainment, etc.). The rest is deductible. For example, if you pay $150 for an event, and the benefits received are worth $60, the tax-deductible amount is $90. The charity hosting the event will be able to identify the exact value of the benefits for each event.


How can I take a deduction for my donation? To claim a deduction, you will need to fill out a 1040 Form, which is available through the IRS website, and itemize your deductions on Schedule A. If you fill out the short form or take standard deductions, you cannot claim your contributions.

Do I need a receipt for donations I make? The IRS doesn't require receipts for cash donations under $250, but you should keep donation information on file. Cash contributions of $250 and over require an acknowledgement that must be sent to the IRS with your tax returns. Every time you make a donation through, that donation is recorded in your Giving History by the year, a feature that makes itemizing your taxes simple and convenient.

Do I need any acknowledgement for donations under $250? Though the IRS doesn’t require receipts for donations under $250, it is a good idea to keep this information on file. Be sure to keep the canceled check, credit card statement, or email receipt from the organization to which you donate. Always note the donation amount, the date of the contribution, and the name of the charity.

For donations over $250, what information does the receipt need? The receipt needs to record the donation amount, the date the donation was made, and the name of the charity, as well as a written acknowledgement from the organization of any property or services that you may have received in return for your donation and an estimate of their value. The IRS should acknowledge an email receipt as an acceptable record of donation, but to be certain, always consult your tax advisor.

Can I receive a tax deduction for a donation to an overseas nonprofit organization?  If you want to take a deduction for your donation, be sure to donate to a charity registered in the United States. That doesn't mean you can't give to an organization that has an international scope, such as CARE or Save the Children. You just have to make sure the charity is registered in the U.S. – as both of these charities are – if you want to take the deduction.

Can I take a deduction for volunteering my time and services?
You cannot deduct the value of time or services to a charitable organization, but you can deduct any hard costs associated with that volunteering, such as the gas or bus fare it costs to get there. For example, if you volunteer in a charitable hospital and have to wear a uniform, you can deduct the cost of buying and cleaning the uniform. Your friends at the IRS will let you deduct any out-of-pocket expenses you acquire in the course of volunteering.

bottom of page