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Why the California Affluent Estate Plan May be Right for You

Last edited 17 minutes ago by Ted Broomfield

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SUMMARY

For many people who live in California and who want to take control of the distribution of their property after death, what I call the California Affluent Estate Plan may be a good choice.

The California Affluent Estate Plan uses 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 to give a trusted loved one the power to make important healthcare and financial decisions, in case the person is incapacitated.

I generally recommend that the person use the Transfer on Death as much as possible, where simply naming a beneficiary and possibly back up beneficiaries, without post-mortem control over assets is not a major concern.

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.

This blog presumes that the reader understands the basics of property distribution and guardianship of minor children after death. If the basics of these concepts are confusing to you, you may want to read by blog titled

Estate Planning and Why You May Want It⁠

DETAILS

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.

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:

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Transfer on Death for Vehicles in California⁠

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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:

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Risks with Transfer of Death Deed⁠

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Revocable Trust for All Property, but Particularly Real Property

A Trust is an entity whose purpose is to collect, manage and distribute property for the benefit of one of more beneficiary. The person who makes the trust is called the Settlor or Trustor. The person who administers the trust and manages the property is the Trustee. The person, people and/or entities that will get the benefits of the property are called the beneficiaries.

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.

Irrevocable Trusts are beyond the scope of this blog.

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.

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.

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