Answering the most common estate planning questions to help you plan smarter.


Estate Planning

What is estate planning?

When an individual passes away, his or her property must be distributed to another person. There are two main ways this distribution will occur: probate or an estate plan created by the decedent. Every individual has the right to determine how his or her assets are distributed upon his or her death. If an individual fails to create an estate plan, their assets will be distributed as determined by the probate process. An estate plan allows an individual to determine how and to whom their assets will be distributed as well as the creation of strategies to minimize potential estate taxes and other costs. A comprehensive estate plan allows an individual to coordinate the distribution of his or her assets such as: what happens with real property, investments, any business interest, life insurance and any other benefits (such as a 401K plan) or personal property (car, jewelry, etc.) in the event of death or disability. A well thought out estate plan also includes: directions on how to handle health care decisions in the event of incapacity, appointment of guardians for minor children and the ability to control how and when assets are distributed.

Why is it important to have an estate plan?

About 55 percent of adults in the United States do not have an estate plan in place. For many individuals the reasons are as simple as a belief they do not have enough assets or that their assets will be automatically distributed to their children upon their passing. If you don’t create a plan for the management of your assets and affairs after your passing, the state of California will create a plan for you. Without proper estate planning, the California Probate Court will determine how your assets are distributed.

If you pass away without an estate plan, your estate must go through the probate process. Probate is a public, court-supervised proceeding that can be expensive may cause long delays before your beneficiaries can access your assets. Although it does not happen in every instance, the failure to clearly outline your desires for the distribution of your assets can lead to serious disagreements amongst your beneficiaries. Individuals who have gotten along well during your lifetime may not see eye to eye when it comes to who should get your assets after your death. This potential pitfall is easily avoided with a comprehensive estate plan because your assets are distributed according to your well thought out wishes.

Shouldn't I wait until I have a nest egg to make a plan?

In short, no. We all need estate planning, whether your estate is large or small. Either way, you should designate someone to manage your assets and make health care and personal care decisions for you if you ever become unable to do so for yourself. For many, such “life planning” is the most important aspect of an estate plan.

If your estate is small, your plan may simply focus on who will receive your assets after your death, and who should manage your estate, pay your last debts and handle the distribution of your assets. If your estate is large, your lawyer will also discuss various ways of preserving your assets for your beneficiaries and of reducing or postponing the amount of taxes which otherwise might be payable after your death.

If you fail to plan ahead, a judge will appoint someone to handle your assets and personal care. And your assets will be distributed to your heirs according to a set of rules known as intestate succession. Contrary to popular myth, everything does not automatically go to the state if you die without a will. Your relatives, no matter how remote, and, in some cases, the relatives of your spouse, have priority in inheritance ahead of the state. Still, they may not be your choice of heirs; an estate plan gives you much greater control over who will inherit your assets after your death.

What is joint tenancy with right of survivorship?

Joint tenancy with right of survivorship is a form of ownership where two (or more) people can own an equal, undivided interest in an asset. Married couples commonly hold property this way. In order to sell, give away or dispose of the asset, all tenants must consent.

My only asset is my home. Isn't holding title as a joint tenant with right of survivorship with my spouse enough?

While holding title as a joint tenant with right of survivorship will avoid probate for the first tenant, it does nothing for the last and remaining tenant at their death. The asset will have to go through probate. Holding title this way and failing to conduct estate planning has drawbacks. First, holding title as a joint tenant with right of survivorship without any additional estate planning in place means that in the event you or your spouse becomes incapcitated from illness, injury or otherwise, the asset cannot be sold, given away or disposed of without a probate court naming a guardian. This is especially important for real estate assets. Second, you do not maintain control of the asset in life or at death since you are not leaving specific instructions regarding the the handling and disposition of the asset during incapacity and at death.

What does my estate include?

Your estate is everything that you own, including:

Real Estate

Business Interests

Bank Accounts (including your share of any joint accounts)

Retirement accounts

Life insurance policies

Personal Property (Car, Jewelry, etc.)

Any property owned by a trust, over which you have a significant control

What estate planning documents should I have?

A comprehensive estate plan should include a Living Trust, a Pour-Over Will, a Durable Power of Attorney, an Advance Healthcare Directive, a Living Will, and a HIPAA Release at a minimum.

What is a Living Trust?

A living trust is a property interest created during a person's life that allows easy transfer of assets without going through the process of probate. A living trust is an agreement where the trustee holds the legal possession of assets that belong to another person, the beneficiary, and it is created while the person is alive. 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 death or incapacity. Some of the benefits of a revocable living trust are that you can make changes if your circumstances or wishes change and you have the ability to terminate the trust at any point before your death or incapacity. One advantage of establishing a living trust is that assets do not have to go through probate, which can be a costly, public and time consuming process.

What is a Pour-Over Will?

If you have a Living Trust-based estate plan, you also need a pour-over will. The major function of a pour-over will is to allow the executor to transfer any assets owned by the decedent into the decedent's trust so that the assets are distributed according to the terms of the trust.

A Will is primarily designed to transfer your assets according to your wishes. A Will allows you to name your Executor, who will carry out your instructions. If you have minor children, you can appoint 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.

What is a Durable Power of Attorney?

A power of attorney is a document that gives you the power to appoint someone to act on your behalf in legal or financial matters. The authority granted by the document can be broad or limited depending upon your wishes. Unless you have a properly drafted power of attorney, it may be necessary to apply to a court to have a guardian or conservator appointed to make decisions for you during a period of incapacity. Granting a power of attorney ensures that someone you trust will handle your financial affairs in the event you become incapacitated. The appointment can be effective immediately or can become effective only if you are unable to make decisions on your own.

What is an Advance Healthcare Directive?

An Advance Health Care Directive allows you to appoint someone you trust to make medical treatment decisions for you in the event you lose the ability to decide for yourself. You can grant your agent the power to make all medical decisions for you or limit his or her power to certain medical treatments. Through the AHCD, you can give your agent specific instructions on how to act on your behalf and all health care providers must follow your agent’s decisions as if they were your own.

What is a Living Will?

A Living Will informs others of your preferred medical treatment should you become permanently unconscious, terminally ill, or otherwise unable to make or communicate decisions regarding treatment. Along with the other estate planning documents, the Living Will helps create peace of mind for you and your agent when it comes to ensuring your wishes are followed.

What is a HIPAA Release?

Some medical providers have refused to release information, even to spouses and adult children authorized for you and your agent by durable medical powers of attorney, on the grounds that the 1996 Health Insurance Portability and Accountability Act, or HIPAA, prohibits such releases. A HIPAA authorization form allows medical providers to release your medical information to your agents, your successor trustees, your family and other people whom you designate.

How do I name a guardian for my children?

If you have children under the age of eighteen, you should select someone you trust to be appointed guardian(s) over their person and property, in the event of your death or incapacity. In the event of the death of one parent, the surviving parent, provided he or she has custody of the minor children, automatically continues to remain their sole guardian. Through a provision in your Will, you can appoint an individual to serve as guardian of your children and you can create a plan of succession, should your appointed guardian be unable to serve due to death or incapacity. If you do not create the proper estate planning documents, the Court will likely determine the guardian of your minor children if you are incapacitated.

What is a Bypass Trust?

Bypass Trusts are commonly referred to as Credit Shelter Trusts, Family Trusts, or B Trusts. Bypass Trusts do just that: bypass the surviving spouse’s estate to take advantage of tax exclusions and provide asset protection.

What is a Charitable Lead Trust?

Charitable Lead Trusts (CLTs) are split interest trusts which provide a stream of income to a charity of your choice for a period of years or a lifetime. Whatever’s left goes to you or your loved ones.

What is a Charitable Remainder Trust?

Charitable Remainder Trusts (CRTs) are split interest trusts which provide a stream of income to you for a period of years or a lifetime and the remainder goes to the charity of your choice.

What is a Special Needs Trust?

Special Needs Trusts (SNTs) allow you to benefit someone with special needs without disqualifying them for governmental benefits. Federal laws allow special needs beneficiaries to obtain benefits from a carefully crafted trust without defeating eligibility for government benefits.

What is a Generation-Skipping Trust?

Generation-Skipping Trusts (GSTs) allow you to distribute your assets to your grandchildren, or even to later generations, without paying the generation-skipping tax.

What is a Grantor Retained Annuity Trust?

Grantor Retained Annuity Trusts (GRATs) are irrevocable trusts which are used to make large financial gifts to family members while limiting estate and gift taxes.

What is an Irrevocable Life Insurance Trust?

Irrevocable Life Insurance Trusts (ILITs) are designed to exclude life insurance proceeds from the deceased’s estate for tax purposes. However, proceeds are still available to provide liquidity to pay taxes, equalize inheritances, fund buy-sell agreements, or provide an inheritance.

What is a Marital Trust?

Marital Trusts are designed to provide asset protection and financial benefits to a surviving spouse. Trust assets are included in his or her estate for tax purposes.

What is a Qualified Terminable Interest Property Trust?

Qualified Terminable Interest Property Trusts (QTIPs) initially provide income to a surviving spouse and, upon his or her death, the remaining assets are distributed to other named beneficiaries. These are commonly used to maximize estate and generation-skipping tax exemptions and tax planning flexibility as well as in second marriage situations.

What is a Testamentary Trust?

Testamentary Trusts are created in a will. These trusts are created upon an individual's death and are commonly used to provide for a beneficiary. They are commonly used when a beneficiary is too young, has medical or drug issues, or may be a spendthrift. Trusts also provide asset protection from lawsuits brought against the beneficiary.

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