C&D llp - Certified Public Accountants & Advisors

One of our greatest strengths is assisting families, executors and trustees work through the process of estate or trust administration. Sometimes it is during a lifetime, when conservatorship is established, or when someone needs to step in for you as a successor trustee. And often, it is at the time of death. It's a confusing time. Not only is a family dealing with the loss of a loved one, they are confronted with a lot of new responsibilities outlined in the will or trust. Assets need to be valued, legal documents need to be reviewed, new accounts may need to be established, and tax return filings may be required. Often times, accountings need to be maintained so that the executor or trustee can provide all the heirs with information regarding the administration. And even when no estate tax is due at the first death, we know the complicated rules and we know how to use them to your advantage. With careful planning we've saved our clients hundreds of thousands of dollars in eventual estate tax.

Here are some of the estate administration solutions we're providing for our clients.

ESTATE PLANNING
When most people mention taxes, they're talking about income taxes. But for many of us, estate taxes may be the largest tax we'll ever pay. With the potential of Federal and state taxes taking as much as 50% of your assets upon death, transferring family wealth has become a major consideration. After working all your life and saving for a rainy day or to pass your assets to your kids, your net worth may be cut in half by estate taxes.

Sadly, it's like having Uncle Sam as your silent partner in all your assets. And even if any of the laws to reduce or eliminate estate tax are permanently implemented, there's plenty of other reasons to have a good plan in place.

• Who will inherit your assets when you die?
• Who has the skill to manage your affairs if you can't do it yourself?
• When will your kids be able to handle the financial assets you would leave to them?
• How do you handle the real issues facing second marriage couples to provide for the surviving spouse during a lifetime and make sure the assets go to your kids in the end?

These are just some of the tough questions and can be a complex problem for you. You need to seek out advisors who have the technical skill to find the right solutions for you. Although we're not attorneys, and we don't draft wills and trusts, we work with these documents every day and can point out options and suggestions to improve your plan. Equally important, we can explain what the documents mean in the context of your overall financial situation.

The right trust could very well lead to major savings of time and money for your loved ones, in the event the unthinkable should happen, that is, upon the death of either spouse. There are two widely recognized estate planning tools we feel you should be familiar with.
Planning Documents

To ensure that your wishes are carried out we use a number of tools and documents. In this section we'll take a look and discuss some of the most important ones.

WILLS
No matter what your level of wealth, you need to have a will to outline your intentions regarding your assets. If you die without one, the state laws control where your assets will go. And this may be far different than you would want.

We've seen too many cases where the lifetime delay in establishing a will has reached a bad result. When there are no instructions, family members are left without direction and assets are often distributed in ways far different than the original intention. You'll need to choose an executor and possibly, a guardian for your children. If you don't want your assets distributed right away you'll also need to choose a trustee.

Although we help many of our clients work through all these questions, we recommend that you have a lawyer, experienced in estate law, draft your will to ensure that your wishes will be carried out. The cost is small in comparison to the security of having them done correctly. We work with a number of skilled attorneys and will be happy to make some recommendations in the event you don't have one.

LIVING TRUSTS
A living trust is a legal document that resembles a will. In it, you outline your instructions for the management of your assets during your lifetime and their ultimate distribution after your death. A standard will has no effect until you die. Though a bit more complex than a will, living trusts have a couple of distinct advantages. All assets transferred to the control of the trust avoid the court supervised "probate" process after your death. This simplifies the administration and maintains privacy for your estate and your heirs. Another important advantage is that someone else can manage your affairs in the event of a disability.

To give you some idea of the costs that are related to probate, the schedule summarizes the minimum probate fees that are set by law in California. These are the minimum fees and do not include any special charges for the sale of assets, tax preparation, or litigation, if necessary.	GROSS VALUE OF ASSETS	MINIMUM PROBATE FEES
	$200,000	$10,300
	$300,000	$14,300
	$500,000	$18,300
	$750,000	$22,300
	$1,000,000	$42,300
	$2,000,000	$62,300
	$5,000,000	$122,300

Only assets titled in the name of the trust avoid probate and allow for management of your estate when you die. If you establish a living trust, you must change the title of your assets to the name of the trust. You will be acting as trustee so you will still have the same control and flexibility, with some added benefits.

Is a living trust right for you?
To understand whether estate taxes will be a problem in your case, you must first determine what you are worth. You need to add up the current value of your real estate and other investments, as well as the often forgotten assets like loans to family members, personal property and retirement benefits. If you own life insurance policies on your life, the face amount of the policy will be included as an asset at your death. It could be subject to up to 55% of it being lost to estate taxes.

If your net worth exceeds $675,000 in the year 2000, your estate could have to pay estate tax upon your death unless you have planned carefully. The amount is rising to $1,000,000 by 2006, unless the laws change again. Even if you aren't at the threshold today, the effects of appreciation of your assets could push you over the limit within a few years.

Furthermore, the fees are based on the gross value of your estate. For example, if you own your own home or other real estate, the fee would be calculated on the total value of the property including the mortgage, not on your equity (the value minus loans). In addition, the length of time it generally takes to complete probate is often a major problem for the family. A study conducted by The American Association of Retired Persons in 1990 found that the average time it took to complete the probate of a will was 15 months and the average cost was 10 to 15 percent of the gross value of the estate. It is not uncommon for the probate process to take as long as two or three years to complete. Federal estate taxes of up to 55% are also levied, in addition to the costs of settling an estate.

A Living Trust can be used to avoid not only probate fees and the extensive delays involved in settling an estate through the probate process, but may also substantially reduce or eliminate estate taxes.

CHARITABLE REMAINDER TRUST
The other method of eliminating or minimizing such costs is a Charitable Remainder Trust. These trusts have been around a long time and are widely used, yet they are largely unknown to the general public. The Charitable Remainder Trust is particularly useful when you own assets that have increased considerably in value. It is method of donating assets to a nonprofit organization, such as your church or other favorite charity, avoiding taxes on the gain, and yet continuing to maintain control of the assets while retaining the income they produce during your lifetime.

It is easy to see what the financial impacts on your assets can be if you do not plan in advance to avoid the consequences of poor planning, or no planning. Fortunately, there is a lot you can do. Remember, if you do not plan properly now, the government and the legal system will do it for you. And they will do it to their advantage, not yours or your family's.

	WITHOUT CRT	WITH CRT
Cost of Asset (let's say 1960)	$ 100,000	$ 100,000
Current Market Value	$ 2,000,000	$ 2,000,000
Taxable Gain	$ 1,900,000	$ 1,900,000
Potential tax (20% Federal + 9.3% CA)	$ 556,700	$ -0-
Net Proceeds available to reinvest	$ 1,443,300	$ 2,000,000
Annual Income (assuming 6% yield)	$ 86,598	$ 120,000

Depending on life expectancy, the difference in annual yield on the invested funds can be very significant. For example:

	WITHOUT CRT	WITH CRT
Total Earnings - 10 Years	$ 865,980	$ 1,200,000
Total Earnings - 10 Years	$ 1,731,960	$ 2,400,000
Total Earnings - 10 Years	$ 2,597,940	$ 3,600,000

By using the CRT, the annual return on investment is increased fro $86,598 to $120,000 – a difference of $33,402. That's equivalent of earning an additional 2.3% return. In other words, the yield that would have to be earned if the assets were sold without forming a CRT, the taxes paid, and the net proceeds were invested, would have to be 8.3% to produce the same income as the CRT. In effect, by using a Charitable Remainder Trust, in this example the annual yield is increased from 6% to 8.3%, which is more than a one-third increase. Two and three-tenths percent may not seem like much, but as the chart shows, that is can add up to a lot of money: $334,020 over 10 years, $668,040 over 20 years and $1,002,060 over 30 years.