While nobody wants to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones. Proper estate planning not only puts you in charge of your finances, it can also spare your loved ones of the expense, delay and frustration associated with managing your affairs when you pass away or become disabled.
Providing for Incapacity
If you become incapacitated, you won’t be able to manage your own financial affairs. Many are under the mistaken impression that their spouse or adult children can automatically take over for them in case they become incapacitated. The truth is that in order for others to be able to manage your finances, they must petition a court to declare you legally incompetent. This process can be lengthy, costly and stressful. Even if the court appoints the person you would have chosen, they may have to come back to the court every year and show how they are spending and investing each and every penny. If you want your family to be able to immediately take over for you, you must designate a person or persons that you trust in proper legal documents so that they will have the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, and refinance your home. A will does not take effect until you die and a power of attorney may be insufficient.
n addition to planning for the financial aspect of your affairs during incapacity, you should establish a plan for your medical care. The law allows you to appoint someone you trust – for example, a family member or close friend to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself. You can do this by using a durable power of attorney for health care where you designate the person to make such decisions. In addition to a power of attorney for heath care, you should also have a living will which informs others of your preferred medical treatments such as the use of extraordinary measures should you become permanently unconscious or terminally ill.
What is Probate?
Probate is the legal name for the process through which most people’s estates must go after their deaths. If a person dies without a will (the legal term is dying “intestate”), then the individual’s assets will be distributed according to California law via a proceeding in California probate court.
If the individual has left a complete estate plan, including a last will and testament and properly executed trusts, it may or may not be necessary for the estate to go through probate before distribution, depending on the exact circumstances and legal documents that comprise the estate plan.
An experienced estate administration lawyer can provide advice and counsel to the named executor (or personal representative) of the deceased on all issues relating to settling the person’s estate:
- Does the estate have to go through probate?
- When will the estate’s assets be distributed?
- If the person did not have a will, who will inherit?
- Is the house safe during the probate process?
- Are there taxes to be paid?
- How do the deceased’s debts get paid?
- What are the responsibilities of the executor, or personal representative?
- Is this will valid?
The Duties of the Executor or Personal Representative
In basic terms, the duties of the executor of an estate are to:
- Gather all assets and debts belonging to the deceased.
- Pay all legitimate debts.
- Distribute remaining assets to named beneficiaries.
- Consider tax issues and resolve them according to law.
The job of your estate administration attorney is to walk you through this process step by step, make any necessary probate court appearances, and ensure compliance with all relevant California probate laws. Your probate lawyer will track all assets and debts, collect and organize all necessary paperwork, manage the payment of debts and bequests to beneficiaries, and provide advice about estate tax issues.
It is important to select an estate administration lawyer whom you trust and who has significant experience in California probate to best ensure that you receive timely and correct information about your obligations under California probate laws.
If you leave your estate to your loved ones using a will, everything you own will pass through probate. The process is expensive, time-consuming and open to the public. The probate court is in control of the process until the estate has been settled and distributed. If you are married and have children, you want to make certain that your surviving family has immediate access to cash to pay for living expenses while your estate is being settled. It is not unusual for the probate courts to freeze assets for weeks or even months while trying to determine the proper disposition of the estate. Your surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses. You can imagine how stressful this process can be. With proper planning, your assets can pass on to your loved ones without undergoing probate, in a manner that is quick, inexpensive and private.
Providing for Minor Children
It is important that your estate plan address issues regarding the upbringing of your children. If your children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations. You may also want to provide for special counseling and resources for your spouse if you believe they lack the experience or ability to handle financial and legal matters. You should also discuss with your attorney the possibility of both you and your spouse dying simultaneously, or within a short duration of time. A contingency plan should provide for persons you’d like to manage your assets as well as the guardian you’d like to nominate for the upbringing of your children. The person, or trustee in charge of the finances need not be the same person as the guardian. In fact, in many situations, you may want to purposely designate different persons to maintain a system of checks and balances. Otherwise, the decision as to who will manage your finances and raise your children will be left to a court of law. Even if you are lucky enough to have the person or persons you would have wanted selected by the court, they may have undue burdens and restrictions placed on them by the court, such as having to provide annual accounting.
Other issues to consider in this respect is whether you’d like your beneficiaries to receive your assets directly, or whether you’d prefer to have the assets placed in trust and distributed based a number of factors which you designate, such as age, need and even incentives based on behavior and education. All too often, children receive substantial assets before they are mature enough to handle them properly, with devastating results.
You should give careful thought to your choice of guardian, ensuring that he or she shares the values you want instilled in your children. You will also want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack child-rearing skills you feel are necessary. Make sure that your plan does not create an additional financial burden for the guardian.
Planning for Death Taxes
The IRS will want to review your estate at death to ensure you don’t owe them that one final tax: the federal estate tax. Whether there will be any tax to pay depends on the size of your estate and how your estate plan works. Many states have their own separate estate and inheritance taxes that you need to be aware of. There are many effective strategies that can be implemented to reduce or eliminate death taxes, but you must start the planning process early in order to implement many of these plans.
Charitable Bequests – Planned Giving
Do you want to benefit a charitable organization or cause? Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death. Depending on how your planned giving plan is set up, it may also let you receive a stream of income for life, earn higher investment yield, or reduce your capital gains or estate taxes.
A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding guardianship during your lifetime, probate at death, estate taxes and unnecessary delays. You should consult a qualified estate planning attorney to review your family and financial situation, your goals and explain the various options available to you. Once your estate plan is in place, you will have peace of mind knowing that you have provided for yourself and your family in case the worst happens.
Most people know about wills and their basic purpose – to ensure that one’s hard earned assets go to the right beneficiaries when they pass away. However, wills can be used for a lot more than simply dictating who gets a person’s antique lamp collection. Here’s a list of some of the very valuable things a will can do:
- List who gets what. The most common purpose for a will is to name which individual, or group of individuals, will receive particular property belonging to a person when he or she passes away.
- Name guardians for children. Typically, a will is the document that states who should raise a person’s children if something happens to him or her. The will also usually contains at least one alternate in the event the first choice cannot serve.
- Establish trusts. In many cases, a person may not want someone to receive all the property that they are inheriting at once. Or a person may want the beneficiary to be able to use the property for a while, and then for it to pass on to someone else. In that situation, an individual may choose to use a trust. A trust holds property on someone else’s behalf. In wills, trusts are commonly established for minor children, so that someone else can manage the children’s money until they reach a certain age when their parents believe they will be able to manage it. Trusts are also commonly used in second marriage situations – a person may want to allow a spouse to have access to certain property while the spouse is living, but for that property to ultimately pass to the decedent’s children. Trusts can help accomplish that goal.
- List funeral wishes. Although this is also done in other documents too, a will commonly states whether an individual wants to be buried or cremated, and where the body should be buried or the ashes should be spread. Sometimes, wills contain other information about funeral wishes too like where it should take place and even what readings might be recited.
- Tax planning. Wills can be great tools for tax planning in order to avoid federal or state estate or inheritance taxes. This can sometimes be accomplished through setting up various trusts.
- Naming executors and trustees. A will usually states who will be the executor of an estate, which is the person who will carry out a deceased individual’s wishes listed in the will. Wills can also name the trustees of any trusts established in a will, which is the person who will be in charge of carrying out the instructions of the trusts.
While wills can serve as a powerful estate planning tool, they are only effective if they are properly drafted to suit the needs of each individual. An estate planning attorney can review all your options with you and establish a will in a manner that ensures your wishes will be honored.
Please contact our offices to request a free consultation and receive more information.