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Estate Planning and Why You May Want it

Last edited 107 days ago by Ted Broomfield

SUMMARY

This blog is aimed at you, if you are considering how to plan or modify existing plans for their property, their remains after death, as well as appointing someone to be responsible to make decisions for you if you become incapacitated.

This blog explains what happens to your property if you don’t leave a plan and how who will be the guardian of your minor children will be decided if you pass away when there is no other living legal guardian for your child or children.

This blog defines the terms, intestacy, probate, trust [revocable and irrevocable], will, advance healthcare directive and financial power of attorney.

This blog explains the process of probate, when the probate process will apply, and why you may want to avoid probate.

This blog is a great place for prospective estate planning clients to start to learn the basics, specifically what will happen after they die if they do not create an estate plan, and why they may want to avoid probate.

If you already know the basics, and you are looking for a blog on a fairly common generalized estate plan that may be suitable for a large number of individuals and families that live in California, please read my blog called

Why the California Affluent Estate Plan May Be Right For You⁠

DETAILS

Why a person may be interested in an Estate Plan?

The primary reasons that a person may be interested in an estate plan is to distribute a person’s property according to one’s wishes, minimize the burden and expense of the property distribution process called probate, and delegate a loved one to make critical healthcare and financial decisions if one becomes incapacitated.

It is also critical that people with minor children have an estate plan to issue directions to the Court as to who will care for those minor children in the even you and any other current legal guardian pass away before those children reach adulthood.

What is an Estate?

An Estate is a temporary entity whose purpose is to collect and manage the assets of a deceased person, known as the decedent, ascertain and pay all the decedent’s bona fide debts, and distribute the remaining assets according to law. An Estate of a material size is managed by either a Personal Representative or an Executor/Executrix.

What happens if a person dies and does not have an Estate Plan?

The answer to what happens if you do not have an estate plan, also known as being intestate, depends.

With respect to what happens to your minor children if you and any other legal guardian pass away for that child or children becomes and adult, and you do not have an estate plan is who knows? The Court will decided who will be the guardian, which, in turn will dictate literally everything in that child’s or those children’s lives.

As to property, if your California Real Estate is valued at less than $60,000, and your total probate assets are valued less than about $184,500, most likely your closest relative can use the

Small Probate Estate⁠

procedure to transfer title to your property.

If your real estate in California is worth more than $60,000 and your probate assets exceed $184,500, then your assets will need to be distributed through the California judicial process called Probate

What is Probate?

Probate is a judicial process. A judicial process means that it is a process that is dictated by the probate code and is managed by the Probate Court of the California Superior Court. Virtually every major decision in probate, such as who makes decisions and who gets what property must be made by Court Order, after a hearing. The Probate Process is generally public record, though can be masked.

In general, an estate is managed by an Executor [male] or Executrix [female], if the person named as such in the Will is accepted by the Court, or by a Personal Representative, if the Court names the person to make the decisions. Sometimes an attorney represents the estate to prepare and file important paperwork associated with the Probate.

What types of Estates go through the Probate Process

Two types of Estates go through the probate process. Estates to the extent that orders regarding the guardianship of minor children is at issue. Estates where material property is passed by will. Estates where no Trust, will or other means of passing property has been established, the latter, roughly called intestacy.

Why might Probate be undesirable?

Probate is long, complicated, time-consuming and expensive. The survivors need to go to the Court to get an order for literally everything important. The Court is not necessarily fair. The process is most definitely expensive. If Probate is managing the process of intestacy, the distribution plan of assets goes according to law, and may not reflect the decedent’s desires.

Is it possible to avoid Probate?

Except as to the guardianship of children, it is very possible to totally avoid probate. The California Court almost always must make orders regarding who will be the guardian of minor children who have no legal guardians after the death of the only legal guardian or guardians.

How can I avoid Probate?

In order to avoid Probate as to the distribution of assets, there are generally three tried and true processes.

The first is obvious, though little considered in estate planning - make gifts of property during the lifetime. Property given away during life is totally excluded from Probate or any other post-mortem distribution process.

The second two procedures to distribute property are: (1) Transfer on Death; and (2) Trusts.

What is Transfer on Death?

Transfer on Death is a series of laws and rules that enable property to transfer from a decedent to other people that the decedent named and identified as beneficiaries during life.

The most common forms of Transfer on Death are naming a beneficiary on a bank account or on a brokerage account. Transfer on Death for these type of financial assets often allows for simple transfer to any number or people, or even entities after the decedent’s death.

Establishing Transfer on Death generally involves completing a beneficiary form that names the individual beneficiaries and what percentage of the assets in the account each is to receive. Many institutions allow for naming of backup, or alternative beneficiaries, if the original beneficiary or beneficiary is not available or does not want the gift.

Obtaining the property post-mortem is fairly easy. The beneficiary contacts the financial institution, requests a claim form. The beneficiary often needs to prove death with a Death Certificate and needs to prove his or her identity with a Notary acknowledge copy of an official government identification. Shortly after that, the institution should transfer the funds according to the instructions.

Transfer on Death also exists for Automobiles and for Real Property.

You can read my blog on Transfer on Death for Vehicles at the following link:

⁠

Transfer on Death for Vehicles in California⁠

⁠

Transfer on Death for Real Property is relatively new, and more risky. You can read the risks of transfer on death at my blog at the following link:

⁠

Risks with Transfer of Death Deed⁠

⁠

What is a Trust?

A Trust is a legal entity that exists to separate the title of property between two distinct parties, a legal title holder, who is responsible for collecting, safeguarding, accounting for and distributing property, and a equitable title holder, who the legal title holder works for the benefit of.

In California, Trusts are almost always required to be in writing. They require a legal purpose, a Trustee, who is the person who has legal title, and ascertainable Beneficiaries, who are the people for whom the property is managed and eventually who will be distributed the property. There is also the Settlor, who is the person who originally had the property in the first place.

Revocable Trust vs. Irrevocable Trust

Trusts can be characterized in numerous ways.

One of the most important classification on which to characterize trusts is whether the Trust is Revocable or Irrevocable. A Revocable Trust is a Trust that may be revoked or modified at any time, with no Court intervention.

As a practical matter, as Revocable Trusts are used in the California Affluent Estate Plan, a Revocable Trust is really a “disregarded entity,” in that it only exists in theory, until the person who established a Revocable Trust passes away.

From a practical standpoint, a person who creates a Revocable Trust has the exact same rights and control over their property as they did before creating the Revocable Trust. The person can still borrow against that property, rent, sell or give away that property. The Revocable Trust simply does not impair in any way the benefits of owning property.

Conversely, Irrevocable Trusts are trusts that once formed may not be changed, without Court order, and even then, it is difficult to change. Once a person puts property in an Irrevocable Trust, as a practical matter, that person loses control of that Property, forever. There are many good reasons to use irrevocable trusts, and many are driven by tax and asset protection reasons. However, for purposes of this article these reasons are beyond the scope.

What is a Survivor’s Trust?

Even relatively simple estate plans call for some kind of control of assets after death. Common reasons to want to control assets after the death of a person is that the person or people who are supposed to get the assets are minors or have special needs.

Additionally, there are many common circumstances, where the minors are merely potential beneficiaries, and the primary beneficiary is a spouse, domestic partner, or other life partner. Many times, this person, the survivor has custody of any minor children, and the property is passed, without restriction to that life partner with the expectation that that surviving life partner will act for the best interests of the minor children.

However, a properly drafted Trust allows for the decedent to control the assets post-mortem, and pass legal title of the assets to that life partner as Trustee, with the ultimate beneficiary or beneficiaries to be the children at some point in the future, often upon the occurrence of some contingency, like reaching a certain age, graduation from high school or college, becoming married, etc.

This type of trust that by its operation, creates another trust, or a sub-trust where the surviving beneficiary is the Trustee for other beneficiaries is called the Survivor’s Trust.

What is a Will?

A will is a document that is written, signed and witnesses and states the person’s intentions as to the guardianship of any minor children and a post-mortem distribution plan for the assets, if any, that must pass through Probate.

Why have a Will, if I want an Estate Plan for the purpose of avoiding Probate?

Within the California Affluent Estate Plan, the type of will used is a very specific type of will called a Pour Over Will. A Pour Over Will is created with the hope of never using it. It has one plan of distribution, which is to distribute, or Pour Over, all assets to the Trust.

The obvious question is, why have a Pour Over Will, anyway, if the point of the trust is to avoid probate.

The simple answer is that things change and a Pour Over Will ensures that assets go to the Trust where your wishes are memorialized, rather than leave the plan of distribution to intestacy, which may not match your wishes.

What is an Advance Healthcare Directive?

An Advance Healthcare Directive is a document that names a person, and possibly names alternatives, in case the named person is unavailable, to make health care decisions if you become incapacitated. The Advanced Health Care Directive can provide instructions for those difficult situations where a decision is called for, like do no resuscitate, brain death, mechanical respiration. The Advanced Health Care Directive also directs how to handle a person’s remains.

What is a Springing Financial Power of Attorney?

A Springing Financial Power of Attorney is a document that names a person, and possibly names backups in case that person is unavailable, to make financial decisions if you become incapacitated. The term Springing means that the power of attorney is not effective, until some condition is met. That condition is your incapacity. Generally, incapacity must be documented by a medical doctor.

Why do you call this the California Affluent Estate Plan?

I call this combination of a Revocable Living Trust to manage a distribute real estate assets, after death, a Pour Over Will, to ensure that the person’s wishes are fulfilled despite changed circumstances, as well as an Advance Healthcare Directive and Springing Financial Power of Attorney a California Affluent Estate Plan for lack of a better term or phrase.

The California Affluent Estate Plan typically may work for those with assets valued in excess of $250,000 but less than $7.0 million, in the following situations: single or coupled people, meaning married, domestic partner or committed relationship people, who either have no children, are planning plan to have children, or have children with the same partner, or non-complicated blended families.

The California Affluent Estate Plan may not be enough for those who need to protect their assets, plan to pay U.S. Federal Estate Tax or have significant property holdings outside California.

Do I need an Estate Plan?

Only you can answer that.

One thing is for certain, if you have minor children, but you don’t have a valid guardianship document that instructs the Court who will be your children’s guardian if you and any other current legal guardian die, the Court, and not you will determine who your child’s of children’s guardian is.

Another thing is for certain. If you own real property worth more than $60,000 in California and do not have a valid Trust or a properly recorded Transfer on Death Deed recorded, that property will need to go through the probate process to be transferred after your death. In addition, without a will, trust, or transfer on death, the Court will decide who gets the property according to the probate code, and not your wishes.

If you are concerned for who will manage your finances and health care decisions if you become incapacitated, then you may want to consider an estate plan, or at least an advance health care directive and springing financial power of attorney.

If your only assets are financial assets like bank accounts, retirement accounts and brokerage accounts and your beneficiary forms are updated, and that satisfies you, you may not need an estate plan.

Feel free to contact my office for a consultation.