To give you a heads up and a head start on your estate plan, we’ve tried to answer the most common of the questions people have about the process. However, if you have a question that you don’t see here, please call us. We’re happy to help.
What is an “estate”?
Simply put, estate is a legal term that refers to anything you own—the total of all of your possessions. The concept of estate should also include everything you manage or have responsibility for such as your minor children, dependents, pets, yourself, and even how you’ll be remembered after you die.
What is an “estate plan”?”
An estate plan is a written set of instructions for others to manage and take care of your estate if you become unable to for any reason. It’s written to not only have legal weight, but to ensure that it will be carried out according to your wishes. The process of writing an estate plan allows you to map the future of your loved ones and avoid court intervention as much as possible. Generally, an estate plan is based on four major documents:
1. Documentation (your will or trust) describing how you wish your assets to be handled
2. Paperwork that determines the guardianship of your minor children
3. Durable power of attorney to designate who can make financial and medical decisions
4. Your Advance Health Care Directive describing clearly your medical intervention guidelines
What happens if I die without a written estate plan?
California has already decided who gets your assets if you die without an estate plan. It’s called the interstate succession statutes. A court will choose the guardian of your minor children in order of priority determined by the California legislature. While these laws attempt to be fair, it’s likely that the state will not carry out your wishes in the same fashion if you had an estate plan.
What are the main options for estate planning?
Essentially, you have three options when it comes to estate planning; you can do nothing, write a will, or establish a living trust. Each option has advantages and disadvantages depending on your life, extent of your assets, dependents, and so on.
What is the difference between a will and a living trust?
A living trust is a flexible, “living” legal entity that owns your assets for you. Since the living trust owns the assets for you, your fiduciaries can bypass going to court to manage your assets if you’re incapacitated or you die. A will is not a legal entity and cannot own assets for you. Therefore, your fiduciaries must go to court in order to get the power to manage your assets for the long-term if you’re alive, but unable to do it yourself; and must go to court to distribute your assets to your beneficiaries if you die.
Should I have a will or living trust?
That depends on your personal situation. We’ll be happy to sort through the factors to explain the pros and cons of wills and living trusts so that you can make a fully informed and educated choice. Some factors to consider are whether you own real estate, own a business, have minor children, are older and single, don’t have family living nearby, own real estate in other states, and how much money you are willing to invest in creating your estate plan.
Who are my beneficiaries?
Beneficiaries are the people you distribute your assets to on your death. They’re the ones who benefit from the estate.
Who are my fiduciaries?
Fiduciaries are people you appoint to act on your behalf to manage your estate if you become unable to for any reason. These fiduciaries are known by different names depending on the document that grants them authority to act. For example, if your fiduciary is acting on your behalf for your minor children, she’s known as the Guardian. If she’s acting on behalf of your living trust, she’s your Successor Trustee. If you die with or without a will, she’s known as your Personal Representative. Because of the nature of certain matters, you should choose a fiduciary you trust to take on the role you’re appointing her to, but also someone with the necessary skills to carry out the job. It’s common to appoint different fiduciaries depending on the job.
What if I have children from a previous marriage; is there a way I can distribute my assets to them while letting my spouse distribute his/her assets differently?
You have the right and several options to distribute assets to whomever you choose upon your death. An AB Trust is a living trust that allows you to create a double trust. Your spouse gets to live off of the assets or income in your half of the trust after you pass away. Then, your separate trusts distribute assets as you determined when you wrote the trust documents. There are other ways to achieve this goal as well that we can share with you.
What is “succession of heirs” and how does it work?
If a named beneficiary in your estate plan passes away before your estate is distributed, the state mandates that assets be passed along a bloodline or adoption line. However, unlike British Monarchy, you have options. You can establish a set of back-up beneficiaries if your primary beneficiaries die before they receive your estate.
What if I don’t think the people I am leaving my estate to will be responsible with the money? Is there a way to save it from poor spending habits?
It’s true, some people are not prepared to handle a lump sum of money. If you’d rather your favorite nephew go to college rather than buy a Ferrari, you can keep assets in trust for many years and have them managed by your successor trustee, or whomever else you choose. Many people who do this set up a deferred distribution plan where assets are doled to beneficiaries over time.
Should I tell my family what’s in my estate plan?
Your estate plan is more than who gets your money when you die. Your estate plan is about making sure your assets are managed and your responsibilities are met if you are unable to do so. You should talk with your fiduciaries about managing your assets and you should speak with your proposed guardians about your wishes for the care of your children. Give them an opportunity to ask you as many questions as needed and to be certain you have their full commitment. You don’t have to tell your children what they might be inheriting. That part is entirely up to you.
Can I leave gifts to charity and how will they affect my estate plan?
One thing to keep in mind when creating your estate plan is what kind of legacy you wish to leave—how you’ll be remembered and what kind of gifts you wish to leave for the world. Charitable gifts can have a powerful effect on your beneficiaries who might not notice the difference between receiving 95% vs. 100% of your estate, but will remember the importance of the charity you benefited. Charitable giving also reduces the size of the estate, hence reducing the amount of estate taxes that you may pay. Lastly, the charity obviously benefits from your generosity as well.
How do I keep people I don’t want to inherit my estate from making a claim on it?
That’s easy, disinherit them. If there are people who may legally make a claim on your estate and you want to protect your estate from them, you should make it explicit in writing.
What are “will substitutes”?
Will substitutes refer to a number of legal mechanisms that people use as estate planning tools. Generally, they are used as a method of transferring ownership outside the probate system not using a will or a living trust. Will substitutes include joint tenancy ownership, payable on death accounts, and beneficiary designations on checking accounts, IRAs, 401(k)s, and other qualified plans.
What is “joint tenancy”?
Joint tenancy is a term that means that you own some property (generally real estate) with another person. By law, if a joint tenant dies, the remaining joint tenants equally, and automatically, inherit the deceased tenant’s ownership interest. If you and your spouse both own your home, you are most likely joint tenants, but since we’re in California, you probably would own it as community property, which has roughly the same outcome of automatic inheritance. In estate planning, joint tenancy usually refers to cases where someone utilizes a will substitute by adding a beneficiary as a joint tenant to their home or bank account so they can transfer the asset to this person outside the probate court after their death. Using joint tenancies or any other will substitutes in your estate planning can have unintended consequences. You should speak with an attorney before doing so.
What is “separate property”?
In some states, when a couple gets married, their assets earned after marriage are not automatically commingled. This means that they retain separate ownership of their property unless they take legal action to share their assets with their spouse. It’s important to account for all separate property as well as community property in your estate plan.
What is “community property”?
Community property is property owned by both you and your partner. In California, when a couple gets married or registers with the state as Domestic Partners, their assets earned after doing so are automatically commingled (unless you sign a pre-nuptial agreement). This means that they automatically own one another’s property unless they take legal action to keep it separate. In most cases, community property will account for the bulk of you and your spouse or domestic partner’s property.
How will my estate be settled and who will settle it?
Your estate will be settled by your personal representative, your successor trustee, or both. If you have a will, your personal representative will take the will through the probate court, who will oversee the entire process. If you have a trust, your successor trustee will settle the estate. If you have a will and a trust, both processes will take place.
What is a will?
A will is a legally binding document that addresses how your assets will be distributed at your death and also names a personal representative who will assist with the administration of your estate. Wills are settled in the probate court.
How difficult is it to change my will?
A will is a flexible document that can be changed at any time, as long as you are alive and competent. Usually, it’s best to seek the help of an attorney to change a will.
Are personal representatives personally liable for debt owed by the estate?
No. Personal representatives are never responsible for debt, the estate is. The probate system protects executors from being treated improperly by creditors.
Can the personal representative take advantage of my will to his or her own ends?
It is possible, however, this rarely happens. Personal Representatives are watched carefully by the probate system. Self-dealing is rarely allowed unless your personal representative is also the beneficiary.
How important is an estate planning attorney?
A good estate planning attorney is one of the most powerful allies you can have, but a bad one can be your worst enemy. It is essential to find a good estate planning attorney if you are going to create an estate plan that meets your needs, is legally executable, and can be properly settled. You’re also going to be spending time talking about your life, your family, and your desired legacy, so choose someone you like and feel comfortable with.