Ultimate Estate Planning Guide – Top Southern California and San Diego Attorney

Why Estate Planning Applies to You Right Now

Estate planning attorney guide

Estate planning is the process by which an individual makes preparations for how their assets and other personal affairs will be managed in the event of their death or incapacitation.

There are two fundamental mistakes that can be made with regards to estate planning: 1) thinking that you’re not rich enough to have to worry about it, and 2) thinking that you’re not old enough to have to worry about it.

Some people assume that estate planning is only a concern for the wealthy. While it is true that people with more assets will often need to develop more complicated and thorough estate plans, that does not mean that your estate is not important, however small it may be. If you own anything at all, then you have an estate, and if you do, then estate planning applies to you.

With regards to age, it is also true that the issue of estate planning is more urgent for the elderly. But even though we live in a fairly safe society, many people do die or become incapacitated before their time, sometimes completely unexpectedly. If you die without a well-developed estate plan, this can cause all sorts of headaches for your loved ones who have survived you – something we know you wouldn’t want to happen.

It’s natural that people do not want to give much thought to the issue of estate planning, considering that it involves seriously contemplating the prospect of your own death, which is something most people would rather not do if possible. But it is a necessary task, and it will ultimately give you a greater sense of control over what will happen after you die.

Estate planning applies to you, no matter how young or cash-strapped you are. If you are old and wealthy, it matters even more. In this article, we will explain to you the basics of how to plan your estate.

What Estate Planning Allows You to Do

Different options for estate planning

The most obvious function of estate planning is that it allows for the distribution of your estate. After you have died, your money and other assets will be distributed to your heirs, and by planning your estate you can choose who will inherit your assets and how much each of them will receive, in addition to facilitating the process so that the various fees associated with it (including taxes and legal fees) are diminished.

However, estate planning is far more complicated than simply writing a will or trust decreeing who gets what and when. Many clients, upon finding out just how complicated estate planning actually can be, find it daunting, but we think that it’s empowering. An estate plan is a multipurpose tool that allows you do many things at once.

So, what else can an estate plan do?

  • As we mentioned already, estate planning can be used to prepare for the event of your possible incapacitation. Let’s say you end up in a long-term coma or develop severe dementia, or you are incapacitated in some other way. You will still be alive, but unable to make your own decisions. What will happen to you? Who will care for you? Will you be institutionalized? In the event of brain death, should you be kept on a feeding tube or allowed to die? With estate planning, you can answer all of these questions and more.
  • Estate planning allows you to make plans for what will happen to your dependents. If you are a parent of minor children, this is especially important. You will want your children to have a guardian that you trust, and ensure that they have someone reliable who is managing their share of the inheritance. It can also allow you to plan for children or dependent adults with special needs, and even for your pets.
  • Estate planning can allow you to give to charitable causes that matter to you. This is a good in and of itself, but it also lets you reduce the amount that you may have to pay in estate tax.
  • Estate planning lets you plan for your funeral, which may be one of the most important and personal things you do during the estate planning process. This includes factors such as the disposition of your body (whether you will be buried or cremated) as well as organ donorship.
  • Estate planning also allows you to make plans for what will happen to your business after you die, if you own a business or part of one. Typically, this is done by structuring a succession plan or buyout agreement which outlines what will happen to your business and who will stand to inherit it. (Such plans can also serve in other eventualities besides your death.)
  • Finally, estate planning allows you to make plans regarding your life insurance. This is an important source of funding that will significantly help your loved ones with handling your remaining debts, taxes, and other expenses. Like all other types of insurance, however, it can be extremely thorny and difficult to deal with.

Vehicles of Estate Planning

Wills

A will is the most basic type of estate planning vehicle, and the one with which you are probably most familiar. A will is a document that allows you to decide who will receive your property after you die and who will care for your minor children and other dependents.

Your will allows you to appoint an executor who will be responsible for fulfilling the terms of the will after you die and ensuring that all of your heirs and beneficiaries get what they are owed.

A will is a relatively simple document to create; you can even do it on your own without a lawyer, although the strongest and best wills will involve some legal consultation. The one major disadvantage of wills is that they have to go through a long and difficult court-supervised process known as probate, which we discuss in greater depth in this article. (link)

Probate can be helpful in ensuring that everything is on the level, but it is an arduous process for all involved, will cost a lot in court fees, and can take a very long time, sometimes a year or longer. Also, probate court filings are open to the public, which means that all of your finances will be made public after you die.

Ordinary wills only apply after you are dead. They cannot give another party the power to make decisions for you in the event of your incapacitation, although a separate type of document known as a living will can do that.

Living Trusts

If you want to avoid the probate process, then your best option is to create a trust.

The type of trust that you will use for estate planning is a living trust, or inter vivos trust. (It is important to note that this sort of trust differs from an asset protection trust, which we also discuss in another article (link), and you should not assume that a living trust for estate planning will confer on you any particular asset protection benefits.)

Trusts are fairly similar to wills in structure, but there are a few major differences. First, instead of an executor, the distribution of assets within the trust to the beneficiaries is overseen by a trustee.

Second, you will have to fund the trust by actively transferring the titles of property into the trust before it can have any power over the property. This is different from a will, which automatically applies to your property once it has been signed, without any transfers necessary.

Third, trusts, unlike ordinary wills, can be written so that they may be invoked in the event of your incapacitation.

Finally, trusts avoid probate, which means that you get to keep your finances completely confidential even after death, and also allows your loved ones to avoid many of the costs and stresses associated with probate.

Trusts and wills are not mutually exclusive. If you have created a trust, then it is advisable that you also create a will to serve as a backup plan for any property that you may not have transferred into the trust before you die. This is known as a “pour-over will.”

Powers of Attorney

Power of attorney graphic

A power of attorney (POA) will come into effect if you become incapacitated and unable to make your own decisions. A POA is a document which gives another party the power to make decisions and handle practical matters for you in the event of your incapacitation.

There are both financial and medical powers of attorney. The first of these allows another party to make decisions for you about your financial matters, while the second allows them to make medical and health decisions for you. A medical power of attorney is often created in tandem with a living will.

What Happens If You Don’t Create an Estate Plan

If you die without an estate plan, then your assets will still be taken through the process of probate, just as they would if you had created a will. Every state has laws that determine the process for probate without a valid will or living trust. The only difference is that you won’t get any say in how they will be distributed.

The courts will appoint an administrator (instead of an executor) and the administrator will distribute your assets to your heirs. There are laws determining who will receive your assets, although they will typically go to your immediate family members, and if you don’t have any family, then the state will simply take them. Your friends and acquaintances won’t get any. If you have children or other dependents, the court will appoint a guardian and oversee their inheritance until they reach the age of legal majority.

If you become incapacitated without an estate plan, then the courts will appoint a person to serve as conservator over your medical, personal, and/or financial affairs. Typically, this will be a close family member, but it may not be the person you would have chosen.

In other words, all of the processes associated with estate planning will still occur. They simply won’t occur according to your wishes. All things considered, it’s far better to take an active role in estate planning than leave it to fate and the courts.

Taxes

One of the central goals of an estate plan will be to reduce taxes.

The federal government has an estate tax; the exemption rate is $11.4 million, but once you get beyond that level, the actual tax rate is an extremely high (around 40%). Various states also have their own estate and inheritance taxes. (Estate and inheritance taxes are slightly different, with the former imposed on the transfer of wealth by the estate and the latter on the receipt of that wealth by the heirs, but they both serve the same general purpose of taking your wealth after you die.)

While there’s no getting around the estate and inheritance tax entirely, there are various ways in which you can legally minimize the tax burden you will face.

For instance, while the government also taxes gifts given during your life, you can give up to $15,000 (as of 2019) each year to as many people as you want while you are still alive without having to pay any taxes on these gifts. Charitable contributions can also help reduce your taxable estate, and spouses can double the exemption rate by combining their exemptions.

The Importance of Organization in an Estate Plan

Organization is one of the most important factors in estate planning. The process will be much more difficult for your trustee or beneficiary, not to mention your heirs, if they have to search for months or years to find all of your documents. This may sound like a fairly minor concern, but it’s no exaggeration to say that proper organization can mean the difference between a successful estate plan and a disastrous one!

You should keep many documents organized, including a comprehensive list of all your assets, the deeds and titles to any assets, information regarding any insurance policies, financial records such as bank statements, and (of course) the will, trust, and power of attorney documents themselves. You should also include a list of passwords to any relevant digital files, as well as the contact information for relevant financial planners and others whose help your executor or trustee may need. All of these documents should be kept secure in a place such as with your lawyer or in a safe deposit box.

Estate Planning Is a Process

The process of estate planning

It may be tempting to see estate planning as a one-time responsibility that you spend a few weeks or months working on, only to check off your to-do list and place on the back burner for the rest of your life.

In fact, it isn’t so simple. Estate planning can and should be a comprehensive and ongoing process that lasts your entire life. Your circumstances will change. Your assets will grow or shrink (hopefully grow) with time. Your values may change and evolve. People you trusted may prove themselves untrustworthy, and vice versa. Your children will grow older, and hopefully wiser.

Estate planning can and should change to encompass all of these factors. Life is necessarily a messy and imprecise thing; estate planning, being something that builds itself on the circumstances of your life, will be somewhat messy and imprecise as well, no matter how well you plan. That is why it is up to you to plan as well as possible.

If you do it right, good estate planning will end only with your death. Do not set your estate plan in stone, but leave it open to growth and improvement.

At the same time, an estate plan must not be so complex that you cannot understand it. The plan is supposed to be something that works for you, and if you don’t even understand your own estate plan, that’s a sign that something is wrong. Also, while a comprehensive estate plan is best, even a basic estate plan is better than no plan at all, so don’t think in all-or

5 Comments

  • Shayla Cademis
    July 31, 2019 @ 8:42 am

    Thanks for clearly explaining the purpose and importance of wills. My husband and I are starting to think about retirement and haven’t yet established our wills. We’ll have to start looking for a great attorney in our area who can help us do so!

    • Keith KFernandez
      August 13, 2019 @ 4:04 pm

      My pleasure Shayla. Glad we could help direct you and your husband. Depending on where you live, we may have a referral for you. Feel free to contact us for any questions!

  • Mindy Jollie
    August 1, 2019 @ 1:16 pm

    Thank you for covering what happens if you don’t create an estate plan, particularly with how the government deducts taxes from the estate. My parents are getting to an age where they have to re-evaluate their assets and estate. They will have to find an attorney that will help them plan their estate so that their wants and needs will be met when they pass on, and so that their beneficiaries won’t be liable for anything.

  • Penelope Smith
    September 4, 2019 @ 9:12 pm

    It is good to know that you need to get records of your insurance policy and bank statements. I know that I would be smart to get an expert to help with creating your probate plan. My sister and her husband are going to have a baby early next year. So this might be something they should do.

  • Bob
    September 9, 2019 @ 6:38 pm

    I agree that organization is super important for organizing a trust. My family doesn’t have any plans of inheritance for our kids and we need one. We’ll have to consider getting a lawyer to draw up the will.

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