What is an Estate Plan?
The best Estate Plans are created to focus on people and not just property and taxes. Estate planning is how your affairs will be managed in the event you are not around, either because of your death or incapacity. No one wants to think about their mortality but do you want to leave your loved ones to sort out your affairs without your input? Worse yet, if you do not create your own estate plan the State will create one for you and may give your assets to those you had not intended.
A well planned Estate Plan is a tremendous tool for directing assets to whom you choose and at the time you choose, planning for individuals (children) with special needs, promoting personal values, providing for long-term care, asset preservation, tax planning, business succession planning, fulfilling charitable intentions, and even planning for the care of a pet after the owner’s death.
You have worked hard to accumulate your assets – ensure they goes to whom you intend, and when and how they should be used!
Key Documents in an Estate Plan
Advance Health Care Directives
Advance health care directives are written instructions that tell others how you want your health care managed when you are not able to do so yourself. Advance health care directives generally include:
Advance health care directives are written instructions that tell others how you want your health care managed when you are not able to do so yourself. Advance health care directives generally include:
- Appointment of Health Care Representative – You appoint someone to make health care decisions for you in the event you are unable to do so yourself
- Living Will – You state how you want your end of life medical care handled
- Anatomical Donations – You give instructions should you decide to donate any of your body parts upon your death
Power of Attorney
A Durable Power of Attorney (DPA) allows you to appoint someone to manage your assets if you become incapacitated. The person you appoint can have broad powers to act but should, at a minimum, have the following powers:
A Durable Power of Attorney (DPA) allows you to appoint someone to manage your assets if you become incapacitated. The person you appoint can have broad powers to act but should, at a minimum, have the following powers:
- Manage and transfer your assets
- Create or amend trusts on your behalf
- Pay taxes and deal with the IRS
- Make gifts
Last Will
A Last Will is a written document that states who you wish to be the guardians for your minor children and how you would like your assets distributed at your death. The last will names an executor to facilitate the management of your will during the probate process.If you die without a valid Will (known as dying intestate), in California your assets will be divided up according to State statute.
A Last Will is a written document that states who you wish to be the guardians for your minor children and how you would like your assets distributed at your death. The last will names an executor to facilitate the management of your will during the probate process.If you die without a valid Will (known as dying intestate), in California your assets will be divided up according to State statute.
Living Trust
A Living Trust is an arrangement in which one or more persons manage or take care of property for someone’s benefit. A living trust is a trust that is created during your lifetime. In other words, while you are still alive, you transfer title to your property from your name to that of the trustee of the living trust. You can use the trust to gather your property under one document, so that the property is distributed efficiently after your death.When you put your property into a trust, the trustee of the trust owns the property – you are no longer the legal owner of the transferred assets. This doesn’t mean you have no control of your property. Since you will be your trust’s initial trustee, you will still be in charge of your property. You can do whatever you want with it – you can leave it alone, take it out of the trust, or use it as you had been before the trust was created. A living trust is an easy way to organize your assets and manage them as a single unit.
A Living Trust is an arrangement in which one or more persons manage or take care of property for someone’s benefit. A living trust is a trust that is created during your lifetime. In other words, while you are still alive, you transfer title to your property from your name to that of the trustee of the living trust. You can use the trust to gather your property under one document, so that the property is distributed efficiently after your death.When you put your property into a trust, the trustee of the trust owns the property – you are no longer the legal owner of the transferred assets. This doesn’t mean you have no control of your property. Since you will be your trust’s initial trustee, you will still be in charge of your property. You can do whatever you want with it – you can leave it alone, take it out of the trust, or use it as you had been before the trust was created. A living trust is an easy way to organize your assets and manage them as a single unit.
Key Benefits of a Revocable Living Trust
Revocable living trusts are created and funded during your lifetime and you often name yourself as trustee to maintain control of the assets until your death or incapacity. Additionally, these trusts are revocable and amendable at any time. Some key benefits include:
- Protecting Property for Certain Beneficiaries
This is seldom mentioned as a reason for a living trust, but it’s probably one of the most important reasons. When most of us think about estate planning, we think about giving our property to our husband or wife, our children, and other loved ones after we die. However, sometimes our intended beneficiaries just aren’t able to handle an inheritance
Minor children are the usual suspects here. Many states don’t allow minor children to own property because they’re just too young. Instead, the state appoints a guardian to hold the property until they reach majority age (usually age 18). But, minor children aren’t the only ones who might squander an inheritance. Most experts agree that no one under the age of 25 should be given an inheritance outright because they generally are not mature enough to handle large sums of money.
That’s when a trust becomes a vital part of your estate planning; i.e., a trust allows you to give your hard-earned money and property to those you care about while protecting it for them at the same time.
Minor children are the usual suspects here. Many states don’t allow minor children to own property because they’re just too young. Instead, the state appoints a guardian to hold the property until they reach majority age (usually age 18). But, minor children aren’t the only ones who might squander an inheritance. Most experts agree that no one under the age of 25 should be given an inheritance outright because they generally are not mature enough to handle large sums of money.
That’s when a trust becomes a vital part of your estate planning; i.e., a trust allows you to give your hard-earned money and property to those you care about while protecting it for them at the same time.
- Managing Property Upon Incapacity
A Will only takes effect upon your death. A key benefit to a Living Revocable Trust is that the living trust has an incapacity clause that states who you want to sign for your affairs in the event you are unable to do so for yourself (often with one or two doctors’ opinions). Otherwise, the family would have to go to court, prove the individuals incapacity, which is often humiliating and expense ($5,000 to $10,000), and get a court order appointing a conservator to handle the individuals affairs (that person could be different than the individual would have wanted).
- Probate Avoidance
Without a Trust (either if the individual has a Will or dies intestate, without a Will) the estate will need to go to probate – a special part of the county court. A judge and others will be assigned to the probated estate, which typically costs up to 10% of the value of the estate. Thus, if the estate was worth $500,000, the cost for probate could be $50,000. Interestingly, real estate is valued at its market value and does not account for any mortgage. So a $350,000 home with a $320,000 mortgage would nonetheless be valued at $350,000 when applying probate fees.
Additionally, the probate process can take time – anywhere from several months to two or three years.
Additionally, the probate process can take time – anywhere from several months to two or three years.
- Private, Personal and Efficient
The probate process (where the individual does not have a Trust) requires creditors and heirs to be notified of the death so they can assert any claims against the estate, as well as makes all documents public for anyone to view. Regarding contests, living trusts will likely hold up better in the event that someone comes forward contesting the distribution of your assets; accordingly, court costs to cover any will contests may also need to be considered.A Trust is a private process which is efficient normally taking a few days or weeks.
“Another difference is the handling of out-of-state property you own upon your death. With a Will, that property will have to go through probate in its own state, so you may have two or more probates happening at the same time in different states; this is avoided with a living trust.”
Finally, you get to decide who will handle your affairs if you become incapacitated or deceased, with a Will and the probate process the entire process is handled by people not selected by youat the time of your death.
“Another difference is the handling of out-of-state property you own upon your death. With a Will, that property will have to go through probate in its own state, so you may have two or more probates happening at the same time in different states; this is avoided with a living trust.”
Finally, you get to decide who will handle your affairs if you become incapacitated or deceased, with a Will and the probate process the entire process is handled by people not selected by youat the time of your death.
What is the Difference between a Trust and a Will?
A Will is a legal document that allows individuals to indicate how they want their assets to be distributed after they die. However, wills don’t avoid probate nor do they allow for special needs and management throughout the individual’s lifetime.
A living trust, on the other hand, is an actual legal entity that allows assets to be transferred to beneficiaries without having to go through probate. It allows an individual to direct how they want their assets to be distributed, but in a much more customized manner (such as after a child obtains a college degree) and with the ability to minimize estate and inheritance taxes.
