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Estate Planning: Which is better, a Will or a Trust?

3/29/2016

One of the most common questions I’m asked is “Should I have a Will or a Trust?”

An old adage states that the only certainties in life are death and taxes. When a person dies in the State of California, his or her estate is valuated, and if he or she owns any real estate appraised above $20,000 or has liquid assets in excess of $100,000, their estate must go through the probate process. This process is a court proceeding that looks at their will, determines their assets, and their creditors (debts owed at time of death), settles the debts through the liquidation of their property, and distributes the remaining assets to the named heirs according to the provisions of the will. This is a lengthy process, taking in excess of 20 months on average, costly to the estate, the statutory attorney and executor fees alone start at 8%, and do not include the actual court fees. Many times the total cost is between 8 and 10% of their entire estate. For example, in California, a person who owns a house appraised at $500,000 with additional assets of $100,000 (total estate of $600,000) dies, the cost to probate his/her estate would exceed $50,000, take nearly two years to finalize, and be public record. Wills are also used to name custodians of minor children if any, but the final determination is subject to approval of the probate court.

Everyone in California has a will! Either, an individual has written one (usually through the help of an attorney), or, the State of California has written one for you. In the latter case, you may or may not like the provisions stated in the California statues regarding persons who die “intestate”. This simply means people who have not written their own wills. Luckily, there is an alternative. An individual, or husband and wife, may through an Attorney, create a living trust.

According to the California State Bar Association, “A living trust is a written legal document, that partially substitutes for a will. With a living trust, your assets (your home, bank accounts and stocks, for example) are put into the trust, administered for your benefit during your lifetime, and then transferred to your beneficiaries when you die."

Most people name themselves as the trustee in charge of managing their trust’s assets. This way, even though your assets have been put into the trust, you can remain in control of your assets during your lifetime. You can also name a successor trustee (a person or an institution) who will manage the trust’s assets if you ever become unable or unwilling to do so yourself.

“The living trust is a revocable .trust (sometimes referred to as a revocable inter vivos trust, revocable trust or a grantor trust). Such a trust may be amended or revoked at any time by the person or persons who created it (commonly known as the trustor(s), grantor(s) or settlor(s)) as long as he, she, or they are still competent.

Your living trust agreement:

Gives the trustee the legal right to manage and control the assets held in your trust.
Instructs the trustee to manage the trust’s assets for your benefit during your lifetime.
Names the beneficiaries (persons or charitable organizations) who are to receive your trust’s assets when you die.
Gives guidance and certain powers and authority to the trustee to manage and distribute your trust’s assets. The trustee is a fiduciary, which means he or she holds a position of trust and confidence and is subject to strict responsibilities and very high standards. For example, the trustee cannot use your trust’s assets for his or her own personal use or benefit without your explicit permission. Instead, the trustee must hold and use trust assets solely for the benefit of the trust’s beneficiaries.

“At the death of the person or persons who made the trust, the ‘successor trustee’ simply liquidates the assets of the trust, pays the debts of the deceased, and distributes the remaining proceeds to the named heirs according to the terms listed in the trust. This can be accomplished as quickly as the successor trustee is able to do so, and the terms of the trust, assets of the estate, and distribution remain private information to those involved (not public record). A trust may also give guidance as to who will be responsible for surviving minor children.”

For more information on estate planning, please contact Russ Morris.

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The Types of Life Insurance

3/17/2016

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There are many types of life insurance being sold today, and what is appropriate for you and your family is dependent on your specific situation. There is no right type of policy that fits everyone’s needs. The following is a brief description of some of the types currently available and their pros and cons.

Group Life Insurance
These policies are quite often offered by an employer or union for the benefit of the employee. At entry level they often provide one or two year’s annual salary as the death benefit, with an option to purchase additional coverage to a specified limit.

Pros:

The employer may pay for the “basic” benefit with the employee paying for the optional insurance.
The premiums are typically low when the employee is in his/her 20s, 30s, and even into their 40s.
There is no underwriting. The only qualification is employment or membership with the sponsoring organization.

Cons:

The amount of insurance available may not be adequate for a family’s needs.
The policy terminates when you leave employment or membership with the sponsoring group. Or, in some cases remains in force during retirement with a drastic reduction in death benefit.
Since the policy is not medically underwritten, if you are a healthy, non-smoker, you may be paying higher premiums than getting your own medically underwritten policy.
Premiums usually increase every five years.

Term (or Temporary) Insurance
Term policies as their name describes, is meant to protect your life for a specific length of time. It may be for a single year, five years, ten years, 20 years, or even 30 years. Most term policies today are renewable at the end of the term, but the premiums increase significantly. With some variation by insurance carriers, most term policy’s “term” ends around age 75. And, even though the policies may be renewable, the increase in premium makes the continuation of the policy prohibitive.

Pros

Usually the least expensive type of life insurance available.
Most life insurance companies allow policy holders to “convert” their term policies to one of their permanent policies without additional underwriting.
May be used as a guarantee for a debt with the death benefit assigned to the creditor to the limit of the loan.

Cons

The “term” allowed by most insurance companies can cover you for the least likely time you may die, and become cost prohibitive when you are most likely to die (according to current life expectancy values).
Insurance companies only have to pay a death benefit on less than 2% of all term policies written.

Permanent Life Insurance
The final category are permanent policies. They have several variations including; Whole Life Insurance, Universal Life, Indexed Universal Life, and Variable Universal Life. These products remain in effect as long as the premiums are paid, usually with the same premium throughout the entire contract. Since they continue for one’s entire lifetime the insurance company will pay a death benefit 100% of the time. In many cases they generate a cash value that may be accessed during the policy owner’s lifetime.

Pros

Cash value may be used to help with various expenses during one’s lifetime, such as, house repairs, college expenses, or as a supplement to their retirement income.
If taken out early in one’s life, premiums are affordable and in many cases less expensive that equivalent term policies taken out later in life.
Premium remains constant for entire life.

Cons

Most expensive initially of the three categories.
Cash value may be taxable if policy is terminated before death.

There are also many “hybrid” policies marketed by various companies. These will combine the features of two or more types listed above.

When you are setting up a financial plan for you and your family, or specifically in the market for life insurance, the first step is to find a trusted financial advisor who can explain your options in regards to your specific needs.

For more information on the different types of life insurance or for help determining which option is best for you, please contact Russ Morris.

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Russ Morris, LUTCF

In 1995, I became a licensed financial advisor and Life Underwriter Training Council Fellow (LUTCF) because I believe that next to our physical health, our financial health is the most important factor in our lives. For over twenty years, my goal has been to be a "financial doctor" that my clients can trust.

As a financial doctor, I take the time to listen, assess and understand each of my clients’ unique situations, goals, and concerns. I help grow assets for retirement and protect families from the financial loss that can occur after a premature death. I truly enjoy helping my clients develop financially healthy lives.

Along with my passion for helping all clients achieve strong financial health, I enjoy tennis, hanging out at Rancho Cucamonga's Bad Ass Coffee and meeting new people.

Estate Planning: Which is better, a Will or a Trust?

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The Types of Life Insurance

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Russ Morris, LUTCF

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