QUESTIONS TO ASK WHEN CREATING AN ESTATE PLAN
Do you feel overwhelmed when it comes to creating an estate plan?
You know you need to put your affairs in order, but you may not know where to begin.
At Bold, Polisner, Maddow, Nelson & Judson, we understand your concerns and we can assist. For more than 25 years we have helped clients in Sacramento, Walnut Creek, and throughout Northern California develop effective estate plans to safeguard their interests and their families’ futures.
Over half of Californians do not have an estate plan and, as a result, subject themselves and their families to the probate courts. While there are many different questions that you may need to think about when creating an estate plan, the most common include:
Isn’t estate planning only for the extremely wealthy?
No. Many individuals hesitate to prepare an estate plan, because they believe it is too complicated, they don’t have enough assets to do an estate plan, and/or they are fearful of the costs of hiring an attorney. Whether you have a large or small estate, everyone needs an estate plan to ensure they are protected in the event of disability. It is even more important to prepare an estate plan when you do not have a sizeable estate, because your estate will not have the assets to cover legal costs and probate fees associated with the California probate process.
What is probate?
During probate, a court will determine if an instrument offered as a will is valid. If the probate court deems the will to be valid, it will then supervise the distribution of property according to the terms of the will. Often, the deceased already will have named an executor in the will to oversee the administration of the assets during the probate process.
If a person dies intestate, or without a will, the decedent’s estate still will undergo the probate process. The probate court may appoint an administrator to divide the decedent’s property. The probate court then will approve the administrator’s distribution of the decedent’s assets. Both executors and administrators are also more generally known as personal representatives.
Property that passes through the probate process is subject to an estate tax and may also incur an inheritance tax. Estate taxes are the responsibility of the personal representative of the estate. Conversely, inheritance taxes only apply to the beneficiaries under applicable intestacy laws or a valid will.
What are the main goals of Estate Planning?
Creating a valid legal will is one of the best and most obvious ways to ensure that your property and money will go to the people or charitable organizations you choose. The main goals of estate planning are to:
- Preserve your hard-earned wealth for your loved ones in the event of a death by avoiding probate and minimizing or eliminating estate taxes.
- Allow your family to administer your estate and pass on your assets in a private manner.
- Appoint a guardian for your minor child(ren).
- Ensure your wishes are carried out in the event of disability.
- Have some control over distributions to loved ones, especially children.
What is the best way to transfer these assets?
In some cases, a will is all you need. However, in other cases, a trust is a much better choice to preserve and pass along your assets. Creating a trust allows your chosen beneficiaries to bypass the probate process, which can save them time, money and stress.
What is the difference between a will and a living trust?
A will is a legal document in which you give certain instructions to be carried out after your death. These instructions generally relate to the distribution of your assets and choice of guardians for minor children. A will does not avoid the California probate process.
A living trust (or revocable trust) is a legal document similar to a will, in that it includes your instructions for what you want to happen to your assets when you die. But unlike a will, a living trust avoids probate at death and prevents the court from controlling assets at incapacity.
A living trust also provides a means to transfer assets to your loved ones in continuing trusts, as well as tax planning to avoid paying unnecessary taxes. When you set up a living trust, you transfer assets from your name to the name of your trust, which you control. Legally, your trust owns your assets, and you designate a backup trustee to handle your trust (according to your instructions) upon your incapacity or death.
What’s the difference between a revocable trust and an irrevocable trust?
A revocable trust is owned by the individual who created the trust (the settlor) during his or her life and is revocable up until the point the individual is no longer mentally capable of revoking the trust. Upon mental incapacity or death, the backup trustee manages the trust assets for the benefit of the individual during any period of mental incapacity and for the benefit of the beneficiaries in the event of death. The settlor controls the assets during his or her life.
An irrevocable trust, on the other hand, is property that is gifted to the beneficiaries of the trust at the time of creation. It is no longer owned by the individual and, therefore, is not included in the individual’s estate for estate tax purposes upon death. An irrevocable trust is irrevocable upon creation.
Who will care for my minor children or disabled family members?
You may want to create a guardianship or conservatorship to ensure that young children or those with special needs will be properly cared for after your death. If you have a beloved pet, you may even consider naming a guardian or creating a “pet trust” for the animal.
What about my needs for the future care I should receive?
Do you want to be placed on life support, if necessary? Are you willing to be given experimental drugs or treatments? Your answers to these kinds of questions should be documented in an advance health care directive. This way, your loved ones don’t have to guess what you would prefer, should you end up in a coma or otherwise become unable to speak for yourself.
Who will make medical and financial decisions for me?
If you ever become incapacitated and unable to make decisions for yourself, you will want to have a trusted person in place who can direct your affairs. This is the purpose of creating a power of attorney document.