The fact is most people spend more time planning a vacation than planning their legacy. As Benjamin Franklin said: "Nothing is certain but death and taxes". It is a foregone certainty that we will all die so with that ultimate inevitability in mind, we all need to do some planning for the future.
What is an Estate Plan? An estate plan is simply a plan of how a person's assets will be distributed at the time of their death. It can be as complicated or as simple as the assets require. It is more than writing a simple will or trust. It also involves planning for incapacity, whether temporary or permanent incapacity, caused by an illness or an accident. At such times, documents known as an Advanced Health Care Directive, which gives directions to loved ones and medical personnel about your medical wishes and a Durable Power of Attorney for Assets, which gives authority to an agent you select to handle your financial and business affairs, become necessary.
Do I need as estate plan? Yes, everyone needs an estate plan. Even if you have accumulated low wealth, you need an estate plan, albeit a simple one. However, if you have minor children, own real property, have personal belongings or own real property, such as your home, or are in the process of accumulating wealth and assets you need a more complex estate plan.
Why Do We Need an Estate Plan? Estate plans are necessary in order to pay your debts during incapacity or after your death, to avoid probate of your property upon your death, to minimize estate and gift taxes and to arrange your assets and finances so that your wishes will be carried out after your death. This last item is an orderly distribution of your remaining assets upon your death to your designated beneficiaries.
The 3 Things Everyone Needs to Know OR the "1-2-3s" of Estate Planning. There are three basic documents which need to be included in every estate plan. At the very least, an estate plan should consist of (1) an Advanced Health Care Directive (2) a Durable Power of Attorney for Assets; and (3) a Will. In addition, most people who own real property or have assets of any significant amount will also require a trust.
What is a Will? A Will is a testamentary disposition of your property upon your death. A Will is ineffectual during your lifetime. It takes effect upon your death. You may nominate an executor in your Will who will be appointed and supervised by the Probate Court. The executor's job will be to pay the debts of your estate, manage your estate, and pay any taxes that are due and to distribute your assets in accordance with your wishes stated in your Will. You may also nominate guardians of your minor children in your Will.
What is Probate? Probate is a court supervised procedure which will transfer your assets at the time of your death to the beneficiaries set forth in your Will. If you do not have a will at the time of your death, then the probate court will determine who your heirs at law are and distribute your assets to them. It also provides for a determination of valid claims of creditors who may have claims against your estate at the time of your death. If your assets are in your name alone at the time of your death, do not include an interest in real property and have a total value of less than $100,000, then we may be able to transfer those assets to your beneficiaries under your Will, allowing for your debts and expenses, without a formal court supervised probate administration.
A probate is not necessarily a bad thing. There are certain circumstances where a probate would be advantageous to your estate. For example, if there are disputes regarding the distribution of your assets and you have beneficiaries who are contesting what they are to receive, the court will be able to sort things out according to defined rules and laws. Further, you can be certain that the actions and accountings of your executor will be reviewed and approved by the probate court.
The downside to probate is that since court proceedings are public, your estate and the value of your estate will be of public record.
This means that anyone can examine the court records to see what you have and where it's going. You should also know that attorney's fees and fees of other people involved in administering your estate, such as your executor, are set by statute. The fees are calculated on the gross (not the net) value of the assets being probated. As a general rule, the cost to administer a trust is far less than the cost to administer a probate. Finally, trusts are usually administered much more quickly than probates. In a probate, the estate is at the mercy, discretion and time frame of the probate court.
What is a Revocable Living Trust? A revocable living trust is an agreement between you and the trustee. It takes effect immediately during your lifetime. You will probably be the first trustee of your revocable trust. You may also choose to designate an individual, a bank or a professional fiduciary to act in your place as a successor trustee after your incapacity or death. The terms of your trust become irrevocable upon your death. Since the trust contains provisions providing for the distributions of your assets upon your death, the trust acts as a substitute for your will, and eliminates the need for the probate of your will with respect to those assets which are contained within the trust at the time of your death.
Not everyone needs a trust. If you are young and healthy and have not accumulated many assets, then probably a trust is not right for you just now. However, you still require a Will and a Durable Power of Attorney for Assets and an Advance Health Care Directive.
You should execute a Will in addition to a trust. This Will is usually called a Pour Over Will, which provides for the transfer of any assets held in your name at the time of your death to the trustee of your trust so that those assets may be distributed in accordance with your wishes.
The "Great Trust Myth". In the area of law known as estate planning, practitioners refer to something known as "the great trust myth". The great trust myth is when people think that since they have a trust they don't need to do anything upon their death. This is not true. There are many things that are required upon the death of the first spouse or, in the case of a single person, upon their death, which must be done within the amount of time set forth by law after the death. These include marshaling the assets, which involve an inventory and accounting of the assets within the trust estate, transferring power of the trustee to the successor trustee, accounting for the death of the initial trustee and of the grantor, among other things. So, after your death, even with a trust, the representative of your estate will still need to see an attorney. However, many of the processes can be done quickly and inexpensively, if the proper planning was done before your death.
Funding the Trust. Once your trust is in place, it is essential that you transfer your assets into the trust. The process of transferring assets into a trust is called "Funding the Trust". An empty trust, or one where no assets have been transferred into it, is of little use to anyone. Upon your death, a petition must be filed with the court requesting the court transfer your assets into your trust. The request is not always granted but what is certain is that it will be an expensive and time consuming process which is exactly what you wanted to avoid by creating the estate plan in the first place. Therefore, it is essential that you transfer each asset into your trust immediately after the trust has been signed.
In our office, an attorney always transfers all real property into the trust for you. We will instruct or assist you, if necessary, in the transferring of your remaining assets into your trust.
Guardianships for Minor Children. All children under the age of 18 require a guardian in the State of California. Should both parents become deceased, the court will appoint a guardian of the child. There are two types of guardianships which are required: the guardian of the person and the guardian of the estate. The guardian of the person is the person who will maintain daily care and interaction with the child. This person will "raise" the child. The second guardianship is called the guardian of the estate. The guardian of the estate is the person who is in charge of the child's money and assets. Usually they are the same person, but not necessarily. You may choose a different person for each guardianship.
The importance of nominating a guardian is crucial when there is a divorce with a single parent raising the child. Only a guardian has standing to come into court to challenge the surviving parent's right to raise that child.
A word about blended families. Often in my practice, I counsel blended families. A blended family is one where one or both of the spouses have had a prior marriage with children. They are now in a new marriage, possibly with additional children from the current marriage and, of course, are now building a new community property estate with the current spouse.
The issues are varied and complex. The most common issue involves providing for the children from the first marriage outside of the current community property estate. There are several ways to accomplish this so the children, and sometimes the former spouse, are provided for at the time of the death of the common spouse.
There may be feelings of resentment or jealousy from the children of the first marriage over the new life the common spouse now has with the current spouse. There may be feelings of being excluded from that new life completely. These feelings usually come to the surface at the time of death of the common spouse and can lead to dissension, at best, or contesting of the estate plan, at worst. It is best to know about these feelings and address them now through discussion and planning through the estate planning process.
Registered Domestic Partners. Domestic partners need estate planning unlike any other family. The law does not favor domestic partners in death even with the revised California Domestic Partner Rights and Responsibilities Act of 2003. If you want your domestic partner, whether registered or not, to receive your property after your death, then it is essential that you do appropriate estate planning with an attorney, including a Trust and a Domestic Partner Agreement.
Special Needs Trusts. These trusts are for those people with disabilities who are on government programs which are based upon need. If a disabled person who is on one of these need-based programs receives a gift or inheritance, they could lose their financial need status. The purpose of a special needs trust is to avoid the loss of financial need status by the disabled party, thereby allowing them to continue to receive their government assistance.
Adjusting Your Estate Plan Over Time. Estate planning is based on a complex and ever changing area of law. Therefore, it is necessary to review your estate plan every five years or so. However, if any of the following events occur, you should see an attorney immediately: the birth or, God forbid, the death of a child, the buying or selling of real property, a marriage, a divorce, the buying or selling of a business and, of course, a death.