Estate Planning General Guidelines
Estate Planning is the process by which you establish legal documents that will control what happens to your property after you pass away. This process can also legally establish what you want to happen if you are seriously injured or incapacitated. Both wills and trusts perform the function of allowing you to arrange distribution of your assets upon death, but they operate differently. Deciding which document to use depends on a number of factors, including your goals, assets, your age and health, and family circumstances.
We welcome you to read the following as a basic understanding of how each of these legal documents function, and are available to answer any questions you may have in order to help you choose the right document based on your specific needs and goals.
What Are Living Trusts and Wills?
A will is a legal document that describes your estate and a person, group of people, or an entity that will receive your property. Depending on your specific wishes, you can specify instructions regarding care of minor children, gifts and other legal documents arrangements after your passing.
Trusts, and there are many different types available, are created to be managed by a trustee for the benefit of another person, persons, or entities, who are referred to as ‘beneficiaries’. The two basic types of trusts are ‘revocable’ and ‘irrevocable’. A revocable trust can be changed during the creator’s lifetime, while an irrevocable one cannot. It is important to note that, upon the death of the creator, a revocable trust converts to an irrevocable trust.
General Differences between a Will and a Trust:
Effective Date - A will only becomes legally effective upon the passing of the creator, while a trust can become legally effective immediately upon creation.
Probate Proceedings – A will requires that your assets pass through a court-supervised process called ‘Probate’, which can incur expenses and may take time to process. A trust is not subject to Probate (unless an issue within the trust needs to be addressed), and therefore can become effective immediately upon the passing of the creator.
Privacy – Once before the Probate Court, the content of a will becomes public information, while the contents of a trust remain private unless legal proceedings are filed.
Healthcare Directive – This is a written document that informs others of your wishes about your health care, and allows you to name a person to decide for you if you are unable to decide.
While a will may work for many people, if you hold assets such as real estate, or assets over $150,000, a trust may be the best option for you in order to achieve all of your goals.
Estate Planning FAQ
Many people assume that the law in California will provide guidance to distribute their property to family members. While the state has mechanisms in place to do so, a person gives up many rights if they fail to plan. Having an estate plan can help to ensure that your intentions for your assets are met, prevent disputes, reduce stress for your family at a difficult time and may serve to minimize or possibly eliminate estate taxes.
This is a question that can have multiple answers depending on the person and what is important for them. Do you want to provide for family, friends, or gifts to worthy causes; some of these, or all of them. You will want to identify an agent to ensure that your wishes are given effect after your passing; someone that you know will make decisions based on what you would want to happen. All of these things will be part of the documents we generate in order to carry out your wishes.
Some property automatically passes outside the probate process, such as life insurance policies and/or the proceeds from a retirement plan. In states where fees are minimal, probate is not a bad thing. And a properly drafted Will can help speed the process along the way.
Even though a Living Trust may be able to avoid much of the probate process, a simple Will is still needed to pass over any property that has not been transferred to the trust during your lifetime. Taxes and fees are still administered through probate proceedings.
A Will is a document that details specific directions on who will receive your property after your death. It names a personal representatives or executors to oversee the implementation of your will. It names guardians or conservators who will care for your dependents and any property of your dependents. It can also name trustees, who will manage and property you direct to be held in trust. You can also detail your wishes for the care of other matters that are important to you, such as the continued care of pets.
After your death, your agent is required to file the Will with the Court for possible Probate. Probate, in the most simple of terms, means the need to prove the authenticity of your Will. Your agent is also required to pay legally enforceable claims such as debts and taxes on your estate, as well as take care of the distribution of property.
If you die without a will (referred to as ‘intestate’) the state laws in California go into effect. The Court will determine who receives your property by default, which is typically your spouse or children, or if you have neither, to other family members. Of course, the Courts follow a program on how your assets should be disposed of and that program may not reflect your actual wishes. This is why creating a Will is an important step in ensuring your wishes are honored.
A Will does not govern the transfer of certain types of assets (called non-probate property) which pass to someone other than your estate upon your death. Examples include real estate owned with rights of survivorship, which would pass automatically to the surviving owner, and that person may or may not be a family member or child.
Probating a Will is the formal legal process of proving a Will and appointing an executor or personal representative who will administer the terms of the Will. Administration will include paying taxes, settling debts and distributing assets to the beneficiaries you identify. Most states have streamlined the Probate process, making it much easier that it once was.
A Revocable Living Trust, also called a Revocable Trust, Living Trust or Inter Vivos Trust, is a type of trust that can be changed at any time. For example, if you have second thoughts about a provision in the trust or change your mind about who should be a trust beneficiary or trustee, then you can modify the terms of the trust at any time while you are alive through a document called a ‘Trust Amendment’. If, on the other hand, you decide that you do not like anything about the trust at all, then you can either revoke the entire agreement or change the entire contents through a document called a ‘Trust Amendment and Restatement’.
A Revocable Living Trust functions much like a Will, however it is far more flexible. It allows you to achieve your goals with your assets that you would not otherwise be able to achieve. The most important function of a Revocable Living Trust is that it allows your heirs to avoid probate on almost all property your own.
We HIGHLY recommend that all real estate should be transferred into your Living Trust. Otherwise, upon your death, depending on how you hold the title, there will be a death probate in every state in which you hold real property. When your real property is owned by your Living Trust, there is no probate anywhere.
A Durable Power of Attorney is a document in which you appoint an agent to act on your behalf and make decisions on financial matters. The document needs to clearly state what powers your agent has while you are incapacitated. Some examples of express powers include writing checks, depositing funds, making financial decisions for your business, etc. A Durable Power of Attorney expires upon the death of the person, which means that this is not a substitute for other legal documents that will become ‘active’ after your passing.
A Medical Power of Attorney in California is a legal document that provides another individual of your choosing with the legal right to make medically related decisions on your behalf. This type of document becomes ‘active’ if an event renders you unable to communicate on your own behalf regarding medical decisions.
Federal law protects the privacy of your medical information, but you can expressly permit disclosure to a named representative or family and friends (also known as an HIPAA representative). If you create a Healthcare Power of Attorney, your named agent is automatically deemed a HIPAA representative. However, some states limit this power to a period of your incapacity, so you may want to appoint a HIPAA Representative, who will help you the rest of the time.
A Healthcare Directive is a document which will express your feelings about life-sustaining treatments should be become incapable of communicating with medical professionals regarding such treatments. For instance, it will let your family know if you do or do not want heroic measures to sustain your life. You can also indicate that you are willing to be an organ donor if you wish. You can name an agent or representative to make sure your wishes are carried out.
You have several options for leaving your property and assets to different people.
· You can make an outright gift to the people you name.
· You can make a gift based on certain condition, such as they must be alive at the time you pass
· You can place your gift ‘in trust’, so it will be managed or distributed by a Trustee for the benefit of another or others
In addition, can name alternate beneficiaries should the initial beneficiaries fail to meet the conditions you set.
A Fiduciary is a term for a person you name to perform duties for you if you can’t speak for yourself and upon your death. This person should be someone you trust, who will put your interests ahead of their own and perform their duties with care, attention and loyalty.
· Does the person have the skills, time and commitment to perform the duties required?
· Will this person be discreet with my medical and financial information?
· Will this person truly follow my wishes?
· Is the person willing to take on the tasks?
· Are all my documents in order (powers of attorney, living will, will, trusts, etc.)?
Asset Protection Planning is proactive legal action that sets up mechanisms to protect to the greatest extent possible your assets from future creditors, divorce, lawsuits or judgments. It involves a series of legal techniques that can deter a lawsuit, provide settlement negotiation power and help prevent the seizure of your assets in the event of a judgment. This provides a basis by which your assets can be protected, provided however, that certain limitations apply.
Unfortunately, you would be subject to a conservatorship or guardianship proceeding. If you become mentally disabled before you die, the probate Court will appoint someone to take control of your assets and personal affairs. These “court-appointed agents” must file a strict accounting of your finances with the Court. Appointing people that you know and trust through the appropriate documents can avoid this process, which is often expensive, time-consuming and for many, it can be humiliating as well.
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