An “estate plan” is a collection of legal documents written by an attorney and signed by you. They may tell the story of how you want to be treated when you get older or sick. They may say who you want for guardian of your kids. Then, at your death, these documents say who gets your property and money. And, how and where you want to be buried.
Here are my “Top 5” Estate Planning documents:
1. Pour-Over Will
The Will is not the Superhero of estate planning anymore. Its super powers are not what they used to be. If you just have a Will (but no Trust), after your death your loved ones will need to file a court action in the local county Probate Court. This is the only way they inherit any of your real estate valued over $50,000 or other assets over $150,000. And it costs them money, sometimes big money. Your estate pays a percentage of your assets to get them out of “hock”, as it were.
Although the Will has lost a lot of its shine, it’s still good for a few things. First, you may nominate guardians for your children in a Will; second, the Will says that any assets you may have forgotten about, automatically go into your Trust (i.e. they “pour over” to the Trust); and last, you may use the Will to name beneficiaries for personal property, such as your baseball card collection, your family china, or your antiques.
Should you die without a Will, state “intestacy” laws govern how your property is given away at your death. Your property goes to your closest relatives: first your spouse and children, then to your grandchildren or your parents, then siblings, grandparents, aunts and uncles, cousins, and lastly it may even go to your spouse’s relatives. So, your freeloader brother-in-law could get your golf clubs. Think about that.
Bottom line is that if you own real estate worth more than $50,000 not held in joint tenancy or you have assets over $150,000, you need a Trust AND a Will, so your assets won’t have to be divided up by the Court.
2. Revocable Trust Agreement
If you have a Trust document, your property privately passes to your beneficiaries with a minimum of hassle and expense. That’s because the Trust includes the California laws about how your trustee must take care of you and your property.
A Trust is also called a “Living Trust.” It may be amended or ended by you at any time during your lifetime; it becomes irrevocable only upon your death. Property that you transfer to the Trust during your lifetime avoids the Probate Court process upon your death. You name the persons you want to serve as trustees of your estate after your incompetency or death.
The Trust describes what you want a successor trustee to do, should you become incompetent to manage your personal care and financial affairs due to illness, accident, or dementia. Your Trust document may say that you want to live in your home as long as possible.
You may give your golf clubs to your best friend, instead of your brother-in-law. In case you’re beginning to get the picture, yes, a Trust is able to do almost anything a Will can do. But only a Will can “pour over” your omitted assets into the Trust.
3. Durable Power of Attorney
A Durable Power of Attorney names the person you want to serve as your attorney-in-fact, also called your “Agent,” to deal with matters affecting your property, while you are still alive. You may give your Agent the power to act on your behalf immediately or only if you become incapacitated. Your Agent may be given broad powers to mortgage your home or sell your car. So pick an agent you trust.
In California, you may add “Estate Planning Powers” to your power of attorney. This gives your Agent flexibility to modify your revocable Trust (and related documents) on your behalf. This is important because you could lose capacity long before death and be unable to amend your estate planning documents in response to tax law changes, MediCal qualification rules, or significant changes in your estate size or family situation.
4. Nomination of Guardians
A Nomination of Guardians for Minor Children names the person or persons you do and do not want to care for your children if you and the other parent should die. Parental nomination of a guardian in a Will or related document is authorized by CA Probate Code §§1500 and 1502. In California, there is no other legal substitute for naming guardians.
If, at your death, you are divorced, the other parents gets full custody of the kids. Your choice of guardian for the children would probably not be honored. However, your chosen guardian could file a petition seeking custody, if they believe it would be in the best interests of the children. It is also possible that both you and the other parent might die before the kids are age 18. In this situation, your children would need a guardian and the court would consider your nominee for the job.
5. Advance Health Care Directive
The Advance Health Care Directive enables you to name the persons you want to act for you if you become unable to make medical decisions.