Estate Planning FAQ
What Is Estate Planning?
Estate planning allows you to organize your affairs during your lifetime to provide for yourself and your heirs. Documents including Wills, Trusts, Financial Powers of Attorney and Advanced Health Care Directives are used in the process. An estate plan takes into consideration many issues such as unique family dynamics, income and estate tax reduction and estate liability. When an estate plan is properly executed, it allows for the orderly management of assets in the event of incapacity and the efficient and cost effective disposition of assets following death. An estate plan is best handled by a knowledgeable licensed attorney.
Estate planning attorneys do not sell insurance, annuities, securities or real estate. Estate planning is not financial planning. This means an estate planning attorney will not tell you where or how to invest your money.
Do I need an estate plan?
You should have an estate plan if:
-You care about who inherits your property;
-You care about your health care treatment;
-You are the parent of minor children or disabled children; and/or
-You want to avoid the public proceedings of a possible guardianship and probate and the steep costs associated with those proceedings.
A properly designed estate plan should: (1) provide instructions for your care and that of your loved ones in case of your disability; (2) be effective if you move to or own property in another state; (3) avoid probate; (4) keep your affairs private and confidential; (5) control all your property, including pensions and life insurance; (6) allow you to leave explicit instructions for the care of your loved ones; (7) create protective trusts for your young children, special needs children, adult children, and grandchildren; and (8) provide federal estate tax planning and save professional fees and court costs.
With the help of , you can create an estate plan that will protect you and your family from the time and expense of probate, will allow you to do valuable tax planning, and give you the peace of mind that your wishes will be followed.
If my estate is small and my assets are worth less than the federal estate tax threshold, then why do I need more than a basic will?
Even though you may not have a multi-million dollar estate, you should still protect your loved ones through an estate plan. A properly executed Estate Plan could save your beneficiaries thousands of dollars in probate fees, possible taxes, and attorney’s fees. Family situations in which there is the potential for discord (such as second marriages when there are children by the first marriage) call for the use of more advanced estate planning techniques including trusts. Those techniques are also useful if you desire to have a specific plan that does more than simply divide your assets and leave them outright to each beneficiary.
What happens if I die without a will?
If you die without leaving a will, you risk that your property will not be distributed as you desire. Your assets will be distributed according to the rules of California’s “intestacy” statute, not by how close one was to you. Therefore, longtime friends or caretakers will not receive any of your estate.
Even when the heirs at law are the same as you would have selected yourself, there is no advantage dying without a will. For example, you lose the opportunity to designate a personal representative, trustee, guardian for minor children, and to do valuable tax planning.
With a well-drafted will you can avoid legal pitfalls, name a personal representative of your estate, nominate a guardian for your children, establish trusts, and eliminate probate-related costs by providing for independent administration. Dying without a will may cause unexpected costs and delays and undesired results for the decedent’s family.
When should I start my estate plan?
The only time that you can prepare and implement an estate plan is while you are alive and have the legal capacity to enter into a contract. If you are unable to manage your own affairs or suffer from a disability which affects your legal capacity, your estate plan may be effectively challenged by those who assert that you lacked capacity at the time the documents were created, that you were subjected to fraud, coercion or undue influence during the creation and implementation of your plan.
The best time to start an estate plan is now, while you have the capacity to do so.
What information do I need to provide a lawyer to create a will or trust?
First, you will need to provide your family details, such as your current marital status, the names and ages of your children and the other beneficiaries of your estate, if any. These are the persons or organizations who will inherit your estate. If you plan to leave property to your children, you will need to decide at what ages the children will actually receive the property they inherit. You also must decide the shares of your estate that each beneficiary will receive.
If you have minor children then you may wish to nominate a guardian. This is the person who will take care of your children in case you and your spouse die before your children become adults. The guardian will raise your children and manage their money.
You also need to provide a list of your assets and their approximate values in order to determine the most effective documents, such as the type of trust or trusts, to use in your estate plan. We have provided a questionnaire on this website to cover these matters.
What are some of the decisions that I will have to make in order to set up my estate plan?
An estate plan consists of one or more documents that set forth instructions. Some documents are used to control health care decisions, others control your property in the event of your incapacity, and still other documents will control the distribution of your property in the event of your death.
The first thing that must be decided is who you would like to appoint as your attorney-in-fact to make healthcare decisions and as your attorney-in-fact to handle your financial affairs. They may be the same person or persons, or different people on each document. Two people may be appointed to make decisions together on your behalf, or you may choose to have alternates.
Next, it must be decided who you would like to inherit your estate, also called beneficiaries, and in what shares under your Last Will and Testament or Trust. Consideration should also be given as to how the beneficiaries receive their inheritance. Should everyone receive his or her entire bequest in one sum, or should some individuals receive distributions over time? Also, if you have concerns about creditors or saving estate taxes for a beneficiary, it may be beneficial to leave bequests in further trusts for beneficiaries.
As part of your Last Will and Testament (If you have assets not in Trust at the time of your death) you must also appoint an Executor or Co-Executors who will administer your estate. Their duties include hiring an attorney to represent the estate, collecting your assets, paying your debts and taxes, and distributing your assets to the beneficiaries. If you create a Trust then you must appoint a trustee or co-trustees who will make discretionary distributions of income and principal to your loved ones.
What are some of the common estate planning documents?
Several of the following documents are typically used as part of the estate planning process:
Simple and Complex Will Creation
: A will declares who shall inherit an individual’s assets (the beneficiaries) and who shall be responsible for distributing them to such beneficiaries (the personal representative). For young parents and couples, a will can also be used to nominate a guardian for their minor children and a trustee to manage the children’s money until they are old enough to handle it themselves. A Will only becomes effective upon your death, and after it is admitted to probate.
Pour-Over Will:A Will used in conjunction with a Revocable Living Trust to dispose of any property titled in the decedent’s name alone at the time of death which was not transferred to the Trust. The Pour-Over Will also revokes all prior wills, but unlike traditional wills it does not contain detailed dispositive provisions; rather it directs distribution of all individually owned property to the Trustee of his or her Trust. The Trust instrument contains detailed instructions relating to the distribution of the property.
Establishment of Trusts, such as:
Disclaimer Trusts and A-B Trusts: Trust options for married couples. They are both Revocable until the first spouse’s death and both can create two “sub-trusts” when the first spouse dies. A Disclaimer Trust allows for a voluntary split into two sub-trusts (the same as A-B) if the surviving spouse deems it in the beneficiaries best interest while an A-B Trust usually has mandatory language for the split. The “A” Trust, often referred to as the “Marital Trust”, will be maintained for the benefit of the surviving spouse. The “B” Trust will contain assets of a value equal to the deceased spouse’s remaining estate tax exclusion amount. The B-Trust, also referred to as the “By-Pass Trust”, “Credit Shelter Trust” or “Family Trust”, will also be held for the benefit of the surviving spouse during his or her lifetime, but upon the death of the surviving spouse, the trust assets will pass to the children (or other beneficiaries) without any additional estate tax, irrespective of the value of the B-Trust at that point.
Revocable Living Trust:A trust established by an individual or a married couple that becomes effective immediately upon establishment while the Trustor (also referred to as Settlor or Grantor) is still alive (thus “Living”), remains revocable and amendable during the lifetime of the Trustors (thus “Revocable”), and is used to avoid probate; facilitate tax planning; provide for management during periods of incapacity without need for a conservatorship; address family circumstances; and provide for ultimate distribution of the estate.
Irrevocable Trust:A trust that cannot be revoked, modified or amended once it has been established. Irrevocable trusts are often used in tax planning to get property “out” of an individual’s estate so that it will not be subject to estate tax upon his or her death.
Insurance Trust:An irrevocable trust established to own life insurance on a person, so designed to exclude the proceeds of the policy – the death benefit – from the insured person’s taxable estate at death.
Special Needs Trust/Supplemental Needs Trust:A trust established for a disabled person to provide supplemental support without disqualifying the beneficiary from eligibility for governmental assistance programs. They may be created with the proceeds from a judgment or settlement or by a loved one with concerns for a disabled beneficiary.
Charitable Trust: A trust created for the purpose of performing charity or providing social benefits, and achieve income and estate tax savings for the person who created the trust. Unlike most trusts, a charitable trust does not require definite beneficiaries and may exist in perpetuity.
Gift Trust:An Irrevocable Trust established to act as the repository of gifts to its beneficiaries, drafted such that the gifts to the trust will be excluded from the donor’s taxable estate at death.
Spendthrift Trust: A trust that is created for a beneficiary who is paid income therefrom and whose principal cannot be reached by creditors to satisfy the beneficiary’s debts.
Durable Powers of Attorney: A legal instrument whereby one appoints and empowers another person as agent to deal with one’s property and personal and legal affairs. It remains effective even after the maker becomes incapacitated. California law authorizes both immediate and springing (effective upon the incapacity of the person) durable powers of attorney.
Health Care Directives and Living Wills: A document appointing a health care agent and giving instructions to health care providers about the person’s wishes during the final stages of an illness, generally instructing providers not to interfere with the process of dying by using machines or other heroic measures to delay the natural course of a terminal illness. (Also called a Durable Power of Attorney for Health Care)
Family Limited Partnerships: created to own and manage your property, in a similar manner to a Trust, but allowing additional tax planning techniques to be employed. Family Limited Partnerships are generally used for those who have large estates and who face potential heavy federal and state taxes, death, and inheritance taxes.
Charitable Planning and Private Foundations: In conjunction with your CPA, the creation of these estate plans can significantly reduce your present tax burden, but often require that you create irrevocable plans. These can be very advantageous to some.
Deeds: Title to real property can pass to beneficiaries and spouses via a “Joint Tenancy” deed. However, use of this deed restricts the ability of a beneficiary to avoid capital gains taxes which are otherwise avoidable at death.
Beneficiary Designations under retirement accounts and insurance policies: These designations allow banks and insurers to transfer funds directly to the named individuals or entities.
When should I change my estate plan?
An estate plan should be updated when there are changes in the your beneficiaries, property, or family status (i.e. marriage, divorce, birth or adoption of a child, etc.). You may also wish simply change your designation of beneficiaries to include new or different individuals.
Be aware that a will may also be automatically canceled to some extent if the testator is divorced after executing the will. In such a case, gifts to the ex-spouse in the will, as well as appointments of the ex-spouse as executor or trustee, are void and will not be recognized. However, an ex-spouse who was designated during marriage as a beneficiary under the decedent’s life insurance policies may be entitled to the life insurance proceeds upon the decedent’s death.
The subsequent marriage of a single testator will not cancel his or her will. If a person who signs a will before marriage wishes to give all or any portion of his or her property to the new spouse, he or she should sign a new will. Otherwise, the property will pass according to the state law and provisions contained in the will that was signed before marriage, and the new spouse may receive less than the deceased spouse intended.
How can you change your will or trust?
The following are valid ways you can change your will:
Execute a new will. The law presumes that by writing a new will, the Testator wants to revoke the previous will. However, it is advisable to include a phrase similar to “I revoke all previous wills” to ensure that the state recognizes that the new will supercedes any previous wills.
Execute an amendment, called a codicil. A codicil should make specific reference to the existing and still effective will, and makes additions, deletions, or amendments. To properly execute a codicil, it must be signed in the presence of witnesses and notarized.
A revocable living trust can be amended under its own terms as written in the initial document creating the Trust. Usually, a simple amendment to the terms of the trust is all that is necessary.
It is never advisable to update a will by writing or making changes on it because such revisions may be totally ineffective sue to the laws governing execution requirements in California. If you need to make changes to your will, please consult an estate planning attorney. Crossing out words or sections and writing in the margin of the original will invites potential ambiguity, confusion, and potential will contests.
What if I have a will or trust that was made in another state?
Wills and trusts are governed by state law. You should have your out-of-state will reviewed by a California estate planning attorney to be sure it will operate effectively in California.
What can be done to minimize estate and gift taxes?
Numerous advanced estate planning strategies are employed to minimize estate and gift taxes. There are many factors that must be considered when tailoring a plan that will work best in each client’s situation. However, techniques that work exceptionally well for one client may be totally inappropriate for another client. The only constant is that clients with estate and gift tax concerns who are willing to invest in estate planning can expect to save much more in estate and gift taxes than they will spend in developing and implementing an appropriate plan.
How can an estate plan prevent a conservatorship proceeding?
An estate plan uses several tools which can prevent the court from gaining jurisdiction over your affairs.
A Durable Power of Attorney allows you to authorize a person to act in your place in the event of your incapacity; this attorney-in-fact can manage your financial affairs without the need of court intervention.
A Living Will (Physician’s Directive) is used to determine if artificial life support systems are to be used or withheld.
A Durable Power of Attorney for Health Care is used to appoint a person, in whom you have the utmost trust and confidence, to make decisions regarding health care treatment when you are unable to provide informed consent.
A Trust or a Family Limited Partnership is used to hold property; the Trustees or Partners manage the property held by these entities. The Trust or the Family Limited Partnership continue to manage the property even if you are incapacitated.
Even a basic estate plan can help you prevent the high cost of a conservatorship proceeding.
Do I have to use an attorney for my estate plan? How much does it cost?
Only an attorney who regularly practices in the fields of wills, trusts and estate planning is able to provide you with sound legal advice and analysis as you put your estate plan into place.
Often the expense incurred in retaining an attorney to prepare and help you put an estate plan into place is worth hundreds of times what you and your family would pay with no planning or poor planning. It would also avoid the financial and emotional nightmares that can occur with a poorly drafted (or improper) plan.
Please contact the Law Office of John J. Stanton when you are ready to create an estate plan that is customized for you and the needs of your loved ones.