Q: What is estate planning?
When someone passes away, his or her property must somehow pass to another person. In the United States, any adult with legal capacity has the right to choose the manner in which his or her assets are distributed after his or her passing. A proper estate plan also involves strategies to minimize potential estate taxes and settlement costs as well as to coordinate what would happen with your home, your investments, your business, your life insurance, your employee benefits (such as a 401K plan), and other property in the event of death or disability. On the personal side, a good estate plan should include directions to carry out your wishes regarding health care matters, so that if you ever are unable to give the directions yourself, someone you know and trust would do that for you, and know when you would want them to authorize extraordinary measures and when you would prefer they pull the plug.
Q: Why is it important to establish an estate plan?
Sadly, many families don’t do proper estate planning because they don’t believe that they have “a lot of assets” or otherwise believe that their kids can just come in and divide their assets by themselves.
Oftertimes parents will put their children’s names on title to their house, assuming the property will pass to their children without the need for probate. They may not be aware of IRS gift tax implications, or the proper way to title the property for a transfer outside of probate.
If you don’t make proper legal arrangements for the management of your assets and affairs after your passing, California’s intestacy laws will take over upon your death or incapacity. This often results in the wrong people getting your assets as well as higher estate taxes. Even worse, your failure to outline your intentions through proper estate planning can tear apart your family as each person maneuvers to be appointed with the authority to manage your affairs. Further, it is not unusual for bitter family feuds to ensue over modest sums of money or a family heirloom.
If you pass away without establishing a trust, your estate would undergo probate, a public, court-supervised proceeding. Probate can be expensive and tie up the assets of the deceased for a prolonged period before beneficiaries can receive them.
Q: What does my estate include?
Your estate is simply everything that you own, anywhere in the world, including:
- Your home or any other real estate that you own
- Any interests you may have in any business
- Your share of any joint accounts
- The full value of your retirement accounts
- Any life insurance policies that you own
- Any property owned by a trust, over which you have a significant control
- Your automobile, household furnishings, jewelry, art, and other personal property
Q: How do I name a guardian for my children?
If you have children under the age of eighteen, you should designate a person or persons to be appointed guardian(s) over their person and property. Of course, if a surviving parent lives with the minor children (and has custody of them) he or she automatically continues to remain their sole guardian. This is true despite the fact that others may be named as the guardian in your estate planning documents. You should name at least one alternate guardian in case the primary guardian cannot serve or is not appointed by the court.
Q: What estate planning documents should I have?
A comprehensive estate plan should include the following documents, prepared by an attorney based on in-depth counseling which takes into account your particular family and financial situation:
A Living Trust can be used to hold legal title to and provide a mechanism to manage your property. You (and your spouse) are the Trustee(s) and beneficiaries of your trust during your lifetime. You also designate successor Trustees to carry out your instructions as you have provided in case of death or incapacity. Unlike a Will, a Trust usually becomes effective immediately after incapacity or death. Your Living Trust is “revocable” which allows you to make changes and even to terminate it. One of the great benefits of a properly funded Living Trust is the fact that it will avoid or minimize the expense, delays and publicity associated with probate. Read the FAQ section on Living Trust for more information.
If you have a Living Trust-based estate plan, you also need a Pour-Over Will. For those with minor children, the nomination of a guardian must be set forth in a Will. The other major function of a Pour-Over Will is that it allows the executor to transfer any assets owned by the decedent into the decedent’s trust so that they are distributed according to its terms.
A Will, also referred to as a “Last Will and Testament,” is primarily designed to transfer your assets according to your wishes. A Will also typically names someone you select to be your Executor, who is the person you designate to carry out your instructions. If you have minor children, you should also designate a Guardian, as well as alternate Guardians, in case your first choice is unable or unwilling to serve. A Will only becomes effective upon your death, and after it is admitted by a probate court.
A Durable Power of Attorney for Property allows the person you choose to carry on your financial affairs in the event that you become disabled. Unless you have a properly drafted power of attorney, it may be necessary to apply to a court to have a conservator appointed to make decisions for you when you are disabled. This conservatorship process is time-consuming, expensive, emotionally draining and often costs thousands of dollars.
There are generally two types of durable powers of attorney: a “present” durable power of attorney in which the power is immediately transferred to your attorney in fact; and a “springing” or future durable power of attorney that only comes into effect upon your subsequent disability as determined by a doctor.
When you appoint another individual to make financial decisions on your behalf, that individual is called an “attorney in fact” or “agent.” Anyone can be designated, most commonly your spouse or domestic partner, a trusted family member, or friend.
Appointing a power of attorney assures that your wishes are carried out exactly as you want them and allows you to decide who will make decisions for you. Using a “present” durable power of attorney allows your attorney-in-fact’s authority to become effective immediately upon subsequent disability without having to find a doctor who is willing make a declaration regarding your incapacity.
The law allows you to appoint someone you trust – for example, a family member or close friend to decide about medical treatment options if you lose the ability to decide for yourself. You can do this by using a Advance Health Care Directive (Durable Power of Attorney for Health Care) where you designate the person or persons to make such decisions on your behalf. You can allow your health care agent to decide about all health care or only about certain treatments. You may also give your agent instructions that he or she has to follow. Your agent can then ensure that health care professionals follow your wishes. Hospitals, doctors and other health care providers must follow your agent’s decisions as if they were your own.
Some medical providers have refused to release information, even to spouses and adult children authorized by Advance Health Care Directives on the grounds that the 1996 Health Insurance Portability and Accountability Act, or HIPAA, prohibits such releases. In addition to the above documents, you should also sign a HIPAA Authorization Form that allows the release of medical information to your Agents, your Successor Trustees, your family and other people whom you designate.
The Law Office of Gretchen J. Kenney assists clients with Elder Law, including Long-Term Care Planning for Medi-Cal and Veterans’ Pension (Aid & Attendance) Benefits, Estate Planning, Probate, Trust Administration, and Conservatorships in the San Francisco Bay Area.