What Will Be Included In My Estate Plan?

Revocable Living Trust:

The trust that I draft for you remains revocable and amendable until the settlor (you) pass away. If it is a joint trust, then it remains irrevocable and amendable until both settlors (usually a married couple) pass away. The trustee (whom you select) is tasked with distributing the trust’s assets (formerly, your assets) as directed by you through the terms of the trust. This is done outside of the probate process, saving time and money. A Living Trust may also designate a guardian for any minor children.


Last Will and Testament:

Since the Revocable Living Trust does most of the “heavy lifting” in your estate plan, the Last Will and Testament is simplified. Remaining assets (with the exception of some personal property, such as a wedding ring) become the property of the trust.


Durable Power of Attorney:

A Durable Power of Attorney authorizes someone to manage your financial affairs if you become incapacitated.


Advance Health Care Directive:

This directive, which is a form document that was created by statute, designates someone to make medical decisions on your behalf if you are unable to do so, and sets forth your preferences regarding certain end-of –life medical treatment and life-sustaining measures in case of incapacity.


HIPAA Authorization Form:

Under federal (HIPAA) and state (CIMA) laws, medical information is confidential, and cannot (with some exceptions) be communicated to third parties, even family members. The waiver that I draft for you will grants healthcare providers permission to share your medical information with designated individuals, such as your immediate family members.


Beneficiary Designations:

We will go over your beneficiary designations for your retirement plans, your bank accounts, and any insurance policies to insure that these assets pass directly to intended recipients, consistent with your overall estate distribution plan.


Authorization to Access Digital Assets:

This is a short document that grants legal authority to another person to access and manage your digital assets, including online accounts and files.


Retitling of Property Deeds:

To insure that your real property becomes the property of the trust, I will draft and file with the County Recorder a new property deed stating making the revocable trust the owner of record. This will not cause a change to your property taxes.


Community Property Agreement:

California is a community property state. This is a benefit, because the federal tax code provides significant benefits to married owners of community property. Even when property is held in trust, it does not lose its status as community property. The Community Property Agreement that I draft for you will re-state that the property you own together with your spouse remains community property.

 

Do I Need Estate Planning?

  1. The question you should really be asking is “Will my loved ones benefit from my having an estate plan?” The answer is unequivocally, in almost all circumstances, yes. Why? Because in California, all estates over $184,400.00 must go through probate. That might seem like a lot of money, and you may be thinking to yourself “I sure don’t have $184,400.00 sitting around.” But if you own property in California, it’s almost a certainty that your estate is worth more than the maximum needed to avoid probate. At this point, I can hear some of you thinking, “I’m already going to avoid probate. My spouse and I hold property as either Community Property with Right of Survivorship (CPRS), or Joint Tenants With Right of Survivorship (JTRS).” It’s true that in either of these scenarios, when one spouse dies, the other spouse automatically becomes the full owner of the entirety of the property. Odds are, if you’re married and you own real estate, you’ll see one of these phrases on the deed to your property. That’s because most real estate professionals do this as a matter of routine for couples buying homes because the benefits are so significant. But unfortunately, JTRS or CPRS only solves part of the problem. It’s excluded from probate when the first spouse dies. But when the second spouse dies, we’re back to the original problem. Your kids, or whomever else you want to inherit the property, are going to have to go through probate. Unless something is done beforehand, that real property is going to be part of the probate estate.

What Is Probate And Why Do I Want To Avoid It?

It helps to think of probate as following: Imagine getting in the mail an invitation to a Wedding, or a Bar Mitzvah, or a Confirmation, of a family member who you’re not really close to.

You don’t want to go. Probably the people who sent the invitation don’t really care if you’re there. They felt obligated to invite you because you are in the family. So you end up having to go.

That is, unless you can come up with a plausible explanation for not attending – an explanation that doesn’t leave people feeling insulted. Then everyone is happy.

This is what probate is like. No one wants to be there because it’s a pain in the neck and it’s expensive. The court doesn’t want you there either because the court has more important matters that need the court’s limited judicial resources. But unless you take some action in advance, unless you invent the reason for not having to go, you have to go. And when I say “you”, I don’t actually mean you because by the time your estate needs probate, you will be dead. Avoiding probate isn’t something that benefits you. It benefits your family. (Most likely your children, because as I pointed out earlier, property held between spouses doesn’t usually end up in probate court).

But what actually is this thing called “probate”? Simply put, probate is a legal proceeding in which the court asks the following question:

“The person who owned this property has died. So now what do we do with it?”

If there’s a will, then the court will order the estate distributed as per the terms of the will. (Unless someone contests the will, which will be a whole other proceeding). If there is no will, it will be distributed pursuant to the laws of the State of California. Either way, it’s a legal proceeding that in nearly all cases, is going to be a lot more expensive than paying an attorney to draft up a trust. To add to that, it may take a very long time for the court to fully probate your estate. That could be a problem if your children want to sell the property.  With the recent passage of Proposition 19, which reassesses the value of the property for tax purposes when your property is passed on to your children (except under some very narrow circumstances), your children will likely want to sell the property and do so quickly.

So how do you avoid probate court? The same way you would avoid traffic court – by avoiding doing things that give the court jurisdiction over you. If you want to avoid traffic court, you drive safely and obey the rules of the road so you don’t get a traffic ticket and end up in traffic court. If you want to avoid probate court, don’t have more than $184,500.00 in estate assets when you die. No, that doesn’t mean give everything away. It means move the assets to a different owner, one that lets you have full control over the assets while you’re alive. That’s exactly what a revocable trust is.

When spouses put their assets in a revocable trust, they still own and control the assets. A revocable trust is just that: revocable. You can take assets out of the trust and you can terminate the trust. You can do all that while one or both of the spouses is still alive.

It’s when the second spouse dies that a trust does the work that you want it to do. When the second spouse dies, the trust becomes irrevocable. More importantly, the trust assets are no longer considered assets of the deceased person. They are considered assets of the trust. This is important because remember what the point of probate is – to dispose of the deceased person’s assets. If the assets now belong to the trust, then there is literally nothing for the court to do becuase the deceased person’s (former) assets now belong to the trust! That’s how you avoid probate.

Some of you may be asking, “If it’s just a matter of transferring the assets, why can’t I just transfer the assets to my kids while I’m alive? My kids aren’t going to backstab me and steal my money or sell my house out from under me.” Assuming that all to be true (although, you might want to re-familiarize yourself with Shakespeare’s King Lear. If you know the play, you know what I’m talking about), this is not a good way to avoid probate for at least two compelling reasons: One, if you transfer your real property to your children while you’re still alive, the property is going to be re-assessed for property tax purposes. In all likelihood, that’s going to mean a very big increase in your annual property taxes that you, and your children, are going to be liable for every year until the property is sold. Two, giving away assets to that degree is likely to have capital gains tax consequences for your children that could otherwise be avoided.

Revocable trusts, however, have neither of these problems. Neither the state nor federal taxing authorities consider a transfer to a revocable trust to be an actual change of ownership. Similarly, the assessor’s office doesn’t consider a transfer to a revocable trust to be a change of ownership for reassessment purposes (even though the trust will be listed as the property owner on the deed). It is only when the second spouse dies that the assessor considers there to have been a change in ownership. And it is only when the second spouse dies that the state and federal taxing authorities consider the trust to be a new entity for tax purposes. Furthermore, when the property passes to your children through a trust, they will usually receive much more favorable capital gains treatment then if you had transferred the property to them while you were alive.

(Plus, you avoid the possibility, however remote, of suffering the same fate as King Lear. Sorry! I was a Theatre major in college. I can’t resist the Shakespeare references, however hard I try. The central drama of King Lear, for those of you unfamiliar with the play, involves the King dividing up his kingdom amongst his daughters while he is still alive. As you might deduce from the fact that it’s a Shakespeare tragedy, it doesn’t go well for the King. Two of his three daughters turn out to be evil, and he disinherits the one good daughter. The evil daughters then kick him off the land that he gave to them, which results in the King being homeless and throws England into civil war. A great work of drama, but not something you want to have happen to you or your family).