Your estate is consisted of everything you own – your home, business, cars, bank accounts, stocks, furniture, and other personal possession and valuables.
Because you can’t take it with you when you die, you probably want to give instructions as to how these things are distributed. You probably are also concerned about how much taxes, legal fees and costs are associates with them when you pass them to heirs.
Making a plan in advance and providing instructions as to who and how you want things distributed after you die is called ESTATE PLANNING. However, good estate planning is much more than that. It should also:
- Appoint someone you trust to manage your estate if you become disabled, by way of Durable Power of Attorney.
- Provide Healthcare Directives – appoint someone to make medical decisions for you when you become too ill to do so yourself, and decide in advance whether you want to donate your organs and whether you want to prolong your life by any means possible, etc.
- Protect your home after you die, if you receive government benefits, such as Medi-Cal. New law just passed may allow you to do so, if a living trust is first established.
- Provide for family members with special needs without disrupting government benefits, by setting up a Special Needs Trust.
- Provide for the transfer of your home, real estate and business at your death, by way of living trust or will.
- Minimize taxes, court costs, and unnecessary legal fees, by avoiding probate.
If you do not have a Durable Power of Attorney.
At disability: If your name is on the title of your assets and you can’t conduct financial and business affairs due to mental or physical incapacity, only a court appointee can do it for you. A conservator selected by your spouse or relatives, applied for and approved by the court, and an attorney assigned for you (conservatee) by the court, will control how your assets are used to care for you through a conservatorship. It can become expensive and time consuming.
If you do not have a Healthcare Directives.
Your family or relatives will not be able to make crucial medical decisions on your behalf unless you first appoint someone as agent and instruct the agent to make the important decisions for you.
If you do not have a will or living trust.
At your death: If you die without an intentional estate plan, your assets will be distributed according to the probate laws of the state. You may not like how your assets are distributed according to the law. For example, if you are married and have children, your spouse and children will each receive a share. That means your spouse could receive only a fraction of your estate, which may not be enough to live on. If you have minor children, the court will control their inheritance. If both parents die (i.e., in a car accident), the court will appoint a guardian without knowing whom you would have chosen.
An estate plan begins with a will or living trust.
A will provides your instructions, but it does not avoid probate. Any assets titled in your name or directed by your will must go through your state’s probate process before they can be distributed to your heirs. (If you own property in other states, your family will probably face multiple probates, each one according to the laws in that state.) The process varies greatly from state to state, but it can become expensive with legal fees, executor fees, and court costs. It can also take anywhere from one to two years or longer. With rare exception, probate files are open to the public and excluded heirs are encouraged to come forward and seek a share of your estate. In short, the court system, not your family, controls the process.
Not everything you own will go through probate. Jointly-owned property and assets that let you name a beneficiary (for example, life insurance, IRAs, 401(k)s, annuities, etc.) are not controlled by your will and usually will transfer to the new owner or beneficiary without probate. But there are many problems with joint ownership, and avoidance of probate is not guaranteed. For example, if a valid beneficiary is not named, the assets will have to go through probate and will be distributed along with the rest of your estate. If you name a minor as a beneficiary, the court will probably insist on a guardianship until the child legally becomes an adult.
For these reasons a revocable living trust is preferred by many families and professionals. It can avoid probate at death (including multiple probates if you own property in other states), prevent court control of assets at incapacity, bring all of your assets (even those with beneficiary designations) together into one plan, provide maximum privacy, is valid in every state, and can be changed by you at any time. It can also reflect your love and values to your family and future generations.
Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the trustee you selected, until your beneficiaries reach the age you want them to inherit. Your trust can continue longer to provide for a loved one with special needs, or to protect the assets from beneficiaries’ creditors, spouses, and irresponsible spending.
A living trust may be a bit more expensive initially than a will, but considering it can avoid court interference at incapacity and death, many people consider it to be a bargain.
Estate planning is not as expensive as you think.
If your estate is simple, for most people, a revocable trust, a pour over will, together with durable power of attorney and a healthcare directive, may be all you need for estate planning purpose.
Don’t wait. The best time to plan your estate is now.
None of us really likes to think about our own mortality or the possibility of being unable to make decisions for ourselves. This is exactly why so many families are caught off-guard and unprepared when incapacity or death does strike. Don’t wait. You can put something in place now and change it later…which is exactly the way estate planning should be done.
You want a peace of mind.
Knowing you have a properly prepared plan in place - one that contains your instructions and will protect your family - will give you and your family peace of mind. This is one of the most thoughtful and considerate things you can do for yourself and for those you love.