Estate Planning is the process of deciding who will get your property and how you would like it transferred after your death. It can also involve designating a guardian for young children or a representative to make financial and medical decisions for you if you become incapacitated.
An Estate Planning involves many issues. First of all, you should consider the following questions:
- What are your assets and what is their approximate value?
- Who would receive those assets upon your death – and when?
- Who would manage your assets if you cannot – either during your lifetime or after your pass away?
- Who should be responsible for supervising your minor children if you become unable to do so?
- Who would make medical decisions on you behalf if you were to become incapacitated?
Estate Planning is not only the writing of a Will, but also involves other documents as well to fully address your estate planning needs. Many professionals and business representatives may participate in the estate planning process. For example, lawyer, financial planners, certified public accountants, life insurance salespersons, bank trust officers, personnel managers and pension consultants often assist you in planning your estate.
No matter your net worth, it’s important to have a basic estate plan in place. Such a plan ensures that your needs, your families’ needs, and financial goals are met during your lifetime and upon your death.
Probate is a court-supervised process for distributing a deceased person’s assets to the beneficiaries listed in his or her will.
Every probate estate is unique, but most involve the following steps:
- Filing of a petition with the proper probate court
- Notice to heirs under the will or to statutory heirs (if no will exists)
- Petition to appoint Executor (if there is a will) or Administrator (if there is no will) for the estate
- Inventory and appraisal of estate assets by Executor/Administrator
- Payment of estate debt to rightful creditors
- Sale of estate assets
- Payment of estate taxes, if applicable
- Final distribution of assets to heirs
Though Probate is a process designed to protect the beneficiaries’ interests, it has obvious disadvantages:
- It is public
Probate records are always open to the public. Your estate plan and the value of your assets will become a public record.
- It can be expensive
California lets lawyer and executor charge a “statutory fee” – an amount that is a percentage of the value of the assets that go through Probate. The fee is also based on the gross amount of the probate assets (for example, the value of your house will include a mortgage), not what you actually own. A Probate may cost more than the management and distribution of a comparable estate under a Living Trust.
- It may take long
The length of time needed to complete the Probate of an estate depends on the size and complexity of the estate and the local rules and schedule of the probate court. The entire probate proceedings can take between 9 months to 1 ½ years, maybe even longer. A probate proceeding generally takes longer than the administration of a living trust.
A regular Will is a legal document, which indicates:
- the executor who will be appointed and supervised by the probate court to manage your assets; pay your debts, expenses and taxes; and then distribute the rest of the estate to your beneficiaries.
- the beneficiaries who will receive your estate and property after your death;
- the guardians of your minor children or self should you become incapable or pass away.
If you were to die without a Will (intestate), your assets generally go to your spouse or your closest heirs, which may not be what you want to do. Also, the probate court could assign someone you wouldn’t trust to manage the distribution of your assets or be the legal guardian of your minor children.
In California, a Will must first pass through probate court before your estate can go to your heirs. Upon Probate, a Will becomes a matter of public record.
A Living Trust is a legal document that provides for the management and distribution of your assets after you pass away. With a Living Trust, your assets are put into the trust, administered for your benefit during your lifetime and transferred to your loved ones at death – all without the need for court interference.
The assets in a trust may include real estate, bank accounts, stocks, or any other assets (e.g., cars, jewelry, household items). Generally, you would name yourself as trustee so that you can remain in full control of the trust assets while you’re alive. You will also designate a successor trustee (a person or institution) to carry out your instructions for how you want your assets managed and distributed in case of death or incapacity.
- Revocable Living Trusts
A Revocable Living Trust may be revoked or changed at any time during your lifetime, but become irrevocable (cannot be changed) when you die.
- Irrevocable Living Trusts
An Irrevocable Living Trust is created during your lifetime, but cannot be revoked after its creation.
A well-thought out Living Trust can provide your loved ones with the ability to administer your estate privately, with more flexibility and in an efficient and low-cost manner. A Living Trust allows for:
- avoiding the expense and delay of probate proceedings;
- protecting your privacy. A Living Trust will not become part of the public record unless a trustee or a beneficiary demands court approval of accounts;
- naming someone you trust to manage trust property for your beneficiaries;
- transferring management of your assets if you become incapacitated (either physically or mentally), without undergoing the court-order guardianship or conservatorship process;
- possibly reducing (or postponing) state and federal estate taxes.
In order for the Living Trust to function properly, you need to transfer many of your assets to your Living Trust during your lifetime. Assets that have been transferred to a Living Trust would not be distributed through your Will. A Living Trust does not, however, remove all need for a Will. Generally, you would still need a Will — known as a Pour Over Will— to cover any assets outside the trust and name a guardian for minor children.
This document, also known as a Financial Power of Attorney, designates a trusted individual (Agent) to make financial decisions on your behalf when you become incapacitated. Generally the same individual(s) nominated as Trustee are also named as your Agent in your Financial Power of Attorney.
Advance Health Care Directive covers medical decisions in the event you are unable to make such decision. Generally an Agent is nominated under the document to act on your behalf in such a situation, although the document can be effective without naming an individual. The advance directive also sets forth your wishes for medical treatment and life support under extreme and terminal conditions. This document can also make clear your preferences about organ donation, disposition of remains, your funeral, etc.
Guardianship is created by court in the event of deceased parents or unfit parents (e.g., serious illness, drug abuse, in jail). The guardian may not be the child’s parent, but make decisions on behalf of the child. There are 2 types of probate guardianship:
- Guardianship of the person: the guardian acts as the child’s parent to take care of the child and be responsible for what the child does;
- Guardianship of the estate: the guardian manages the child’s money or assets that he or she inherits.
Either the same or different person can be appointed to be the guardian of the person and of the estate, respectively.
Conservatorship is created by court to protect incapacitated adults. Similar to guardianship, there are 2 types of probate conservatorship:
- Conservatorship of the person: the conservator is in charge of the conservatee’s personal and medical decisions (e.g., food, clothing, heath care);
- Conservatorship of the estate: the conservator takes care of the conservatee’s financial matters (e.g., receiving income, sell property).
Guardianship and conservatorship may be expensive and time-consuming. They often require a lot of paperwork and court hearings. Furthermore, all court proceedings and documents are a matter of public record, which can be unwelcome for someone who values independence and privacy. If you planned ahead and signed Durable Power of Attorney For Financial Matters and Advance Health Care Directive, you won’t need a guardian or conservator because the person named in those documents can take charge.