What is estate planning?

When someone passes away, his or her property must somehow pass to another person.  In the United States, any competent adult 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 that they not.

Why is estate planning important for me?

Sadly, many families don’t do proper estate planning because they don’t believe that they have “a lot of assets” or assume that their kids can just come in and divide their assets by themselves.  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 may result in the wrong people getting your assets, and very often results in much higher estate taxes.
Specifically, if you die intestate, the transfer of your assets is accomplished through a public, court-supervised proceeding called probate that generally takes a minimum of six months, typically a year or more. These public proceedings are generally expensive and time-consuming in nature and tie up your assets for several months. 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.  It is not unusual for bitter family feuds to ensue over modest sums of money or a family heirloom.

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
  • Your tangible personal property
  • Your separate property
  • 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

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 over 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.  However, you should name at least one alternate guardian in case the primary guardian cannot serve or is not appointed by the court.

What estate planning documents should I have?

A comprehensive estate plan should include the following documents, prepared based on in-depth counseling which takes into account your particular family and financial situation:

A revocable inter vivos trust (“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  in case of incapacity or  death. Unlike a Will, a trust usually becomes effective immediately. Your living trust can be “revocable”, which allows you to make changes or even to terminate it.  One of the great benefits of a properly-funded living trust is  that it will avoid or minimize the expense, delays and publicity associated with probate. 

If you have a living-trust-based estate plan, you also need a Pour Over Will.  A Pour Over Will protects against intestacy in the event any of your assets have not been transferred into the trust at the time of your death.  It will also invalidate any previous Wills which you may have executed.  Its function is to “pour” any assets left out of the trust into it so they are ultimately distributed according to the terms of your trust.  It is also used to name a guardian for your minor children.

A stand-alone Will, also referred to as a “Last Will and Testament”, is primarily designed to transfer your assets to your selected beneficiaries according to your wishes after your death.  A Will typically names someone you select to be your Executor, the person you designate to carry out your instructions. If you have minor children, your Will should also name 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.