Estate Planning 101: Back to Basics

The Trusts & Estates Law Blog

The COVID-19 pandemic has focused us all on necessities and on trying to prepare for an uncertain future. This article outlines why an estate plan is one of those necessities.

I Don’t Have an Estate Plan; What Would Happen if I Died?

It’s important to have an estate plan for several reasons.  During your life, you want to ensure that you control your assets and that if you are ever incapacitated, your estate is controlled by a trustee that you have selected. When you pass away, you want to be sure that your assets are distributed to your beneficiaries in accordance with your wishes. This is especially important if you have charitable bequests, young children, or want to distribute specific assets to certain beneficiaries or in specific ways such as by age or in trust.

If you live in California and do not have a will or an estate plan, the State of California will apply a default plan to your estate, also known as intestate succession. This may include probate, which is a court-involved process that you want to avoid (see below). California’s default plan will distribute your assets according to a formula, and for some, this is acceptable.  But what about those who wish to include charitable organizations or friends, or prefer their assets going to one side of the family rather than another?  What about children who might receive their bequest at the age of eighteen versus being held in trust for them until the age of twenty-five?  What about children with special needs or addiction issues, where a direct distribution could be detrimental?

Can I Opt for a Will?

A will takes effect at death; it does not consider incapacity and medical choices needed during life.  Unfortunately, neither does it ensure that your heirs will avoid probate.  In fact, without a trust or beneficiary designation, a will can trigger a probate action. Generally, a probate takes anywhere from fifteen months or more (especially during COVID-19).  Not only is it a long process, it is also expensive. The probate fees are statutory, which means that the fees are based on the gross estate, not net estate.  For example, statutory fees for a one million-dollar estate are about twenty-five thousand dollars for the executor and twenty-five thousand dollars for the attorney, which would cost the heirs about fifty thousand dollars. Probate is waived if the estate is less than $166,250.

What is the Solution?

The trust is the centerpiece of an estate plan.  It provides for incapacity planning for you during your lifetime, distributes your assets to your beneficiaries in accordance with your wishes, and avoids probate (so long as your assets are titled properly).

The trust allows you to appoint trustees to help manage the trust.  While initially, you are trustee of your trust, if you are incapacitated or unable to manage your own financial affairs, your “trusted trustees” will have the legal authority to step in to manage your assets on your behalf.  Without a trust, you would have to go through a conservatorship to have someone take over when you can’t manage your estate. In this process, the court appoints a conservator for you, who may be a complete stranger.  Most of us would want to avoid this costly and impersonal process and appoint a spouse, family member, or friend for this critical role.

How About Medical Decisions and What is an Advance Health Care Directive?

An Advance Health Care Directive is a document that gives someone (otherwise known as an “agent”) the legal authority to act on your behalf if you are unable to do so. This document allows you to give authorization to a parent, spouse, sibling, or friend to advocate on your behalf in medical decisions—per your instructions—when you cannot speak yourself. You can make detailed decisions for your agent to follow such as whether you would like to be a donor, what type of treatments you would accept or refuse, and end of life decisions.

Do I Need an Advance Health Care Directive?

In California, once you turn eighteen no one (not even a spouse or parent you are living with) can consent or make decisions on your behalf unless you have an Advance Health Care Directive authorizing them to do so. Therefore, anyone over the age of eighteen should have an Advance Health Care Directive.

Can I Update My Will, Trust, or Advance Health Care Directive?

Yes, your plan can be updated whenever you want and as many times as you want. Beneficiaries, trustees, Advance Health Care Directive decisions and agents can change over time as we navigate through life.

Conclusion

These days there are enough issues to keep you awake at night—your estate planning doesn’t need to be one of them. This is a good time to create, review, and/or update your estate plan.  While this article discusses the trust, will, and Advance Health Care Directive, at Weintraub Tobin we provide for comprehensive estate planning and can help guide you and your family through the estate planning process.