What is estate planning?
Estate planning is a process. It involves other people, such as your family, other individuals and, in many cases, charitable organizations of your choice. It also involves your assets (your property) and the various forms of ownership and title that those assets may take. And it addresses your future needs in case you ever become unable to care for yourself.
What can I accomplish with an estate plan?
Through estate planning, you can determine:
- How and by whom your assets will be managed for your benefit during your lifetime if you ever become unable to manage them yourself.
- When and under what circumstances it makes sense to distribute your assets during your lifetime.
- How and to whom your assets will be distributed after your death.
- How and by whom your personal care will be managed and how health care decisions will be made during your lifetime if you become unable to care for yourself.
Many people mistakenly think that estate planning applies only to individuals with a large net worth. However a proper estate plan is not only important for those with large wealth, but for those with moderate and smaller estates. An estate plan ensures what you do have passes to those you intend, in the way you intend while incurring the least amount of expense possible.
Who needs estate planning?
Everyone, whether their estate is large, moderate or small. Either way, you should designate someone to manage your assets and make health care and personal care decisions for you if you ever become unable to do so for yourself.
If your estate is small, you may simply focus on who will receive your assets after your death, and who should manage your estate, pay your last debts and handle the distribution of your assets.
What is included in my estate?
All of your assets. This could include assets held in your name alone or jointly with others, assets such as bank accounts, real estate, stocks and bonds, and furniture, cars and jewelry.
Your assets include life insurance proceeds, retirement accounts and payments that are due to you (such as a tax refund, outstanding loan or inheritance).
The value of your estate is equal to the fair market value of all of your various types of property after you have deducted your debts (your car loan, for example, and any mortgage on your home.)
The value of your estate is important in determining whether your estate will be subject to estate taxes after your death. Ensuring that there will be sufficient resources to pay such taxes is another important part of the estate planning process.
What is probate?
The process by which the provisions in your Last Will & Testament are carried out following your death is known as "Probate."
Probate is the court-supervised process developed under California law which has as its goal the transfer of your assets at your death to the beneficiaries set forth in your will, and in the manner prescribed by your Will, or if no Will then by State law.
The Probate court is accustomed to resolving disputes about the distribution of your assets in accordance with defined rules. However, Probate is public in nature, meaning that the provisions of your Will and the value of your assets become public record. Also, because lawyer's fees and executor's commissions are based upon a statutory fee schedule, the expenses may be greater than the expenses incurred by a comparable estate managed and distributed under a living trust. Time can also be a factor; often distributions to beneficiaries can be made pursuant to a living trust more quickly than in a probate proceeding.
What is included in my estate?
Yes. You should review your estate plan periodically because, if it is not up to date when you die, your estate may not be distributed as you wish.
Your trust can be changed by a simple amendment. Your Will can be changed through a "codicil" which is an amendment to your Will.
Your Trust or Will must not be changed by crossing out words or sentences or making any notes or written corrections on it. You should seek the advice of a lawyer when you marry or divorce. You should also review your Trust when there are any major changes in your family (such as births and deaths), when the value of your assets significantly increases or decreases, and when it is no longer appropriate for the persons named as Trustee, guardian or executor to act in that capacity.
Can I name alternative beneficiaries?
Yes. You should consider alternative beneficiaries in the event that your primary beneficiary does not survive you.
Who should be my executor or trustee?
That is your decision. You could name your spouse, choose an adult child, another relative, a family friend, a business associate or a professional fiduciary such as a bank. Your trustee does not need any special training. What is most important is that your chosen executor or trustee is organized, prudent, responsible and honest.
The Trustee of your living trust may assume responsibilities under the trust agreement while you are still living (if you ever become unable or unwilling to continue serving as trustee yourself).
Discuss your choice of trustee with your estate planning lawyer. There are many issues to consider. For example, will the appointment of one of your adult children hurt his or her relationship with any other siblings? And will the person named as Successor Trustee have the time, organizational ability and experience to do the job effectively?
How should I provide for my minor children?
Most important is to nominate a guardian or guardians to raise your child or children until he or she is 18 years old. This nomination is made in your Last Will & Testament.
Your nomination of a guardian could avoid a tug of war between well-meaning family members and others.
You should also consider setting up a Trust to be held, administered and distributed for the child or children's benefit at the age of your choosing. A Trust can be set up no matter how large or small your estate. For example, many individuals set up Trusts using only life insurance as the Trust Property.
What happens if I become unable to care for myself?
You can help determine what will happen by making your own arrangements in advance. Through estate planning, you can choose those who will care for you and your estate if you ever become unable to do so for yourself.
If you have not made any such arrangements in advance and you become unable to make sound decisions or care for yourself, a court could appoint a court-supervised conservator to manage your affairs and be responsible for your care.
Who Should Know About My Trust?
Other than your lawyer, no one needs to know what your Trust says. But the location of your original documents should be known by your Trustee and other close friends or relatives.
Will My Beneficiaries Have to Pay Estate Taxes?
Assets that are transferred to either your spouse (if he or she is a US citizen) or to charitable organizations are not subject to estate taxes. Assets passing to other individuals will be taxed if the net value of those assets exceeds a specific amount (ask us about amounts). That planning must usually be accomplished before death and, in the case of married couples, before the death of the first spouse.
What Other Planning Should I Do?
DURABLE POWER OF ATTORNEY FOR PROPERTY MANAGEMENT. In this document you appoint another individual (the "attorney-in-fact") to make property management decisions on your behalf if you are incapacitated. The attorney-in-fact manages your assets and must do so in a prudent manner accountable to you and solely in your best interests.
DURABLE POWER OF ATTORNEY FOR HEALTH CARE ("Advance Health Care Directive"). This document allows the appointed person or persons to make health care decisions for you when you can no longer make them for yourself. It may also contain statements of wishes concerning such matters as life sustaining treatment and other health care issues, and instructions concerning organ donation.
By considering your options early, you can ensure the quality of life that is important to you and avoid having your family "guess" your wishes or having to make critical medical care decisions for you under stress or in emotional turmoil.
Can I create my own estate planning documents?
Yes. It is possible for a person to do his or her own estate planning with forms or books obtained at a stationery store or bookstore. However, keep in mind that Trusts, Wills and related documents are legal documents and can have serious legal and tax ramifications if not completed properly.