CAUTION: These are very basic responses for general information only and are limited to California law. Consult your own legal advisor about your specific circumstances.
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LAST WILL and TESTAMENT.
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POWERS OF ATTORNEY (Finance, Healthcare, Living Will).
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RESPONSES – GENERAL QUESTIONS
Estate Planning generally refers to planning for events following your death or incapacity. It means making very important decisions – about your loved ones and about yourself. Most estate plans include (or SHOULD include!) at least four documents: (1) Last Will and Testament; (2) Power of Attorney for financial matters; (3) Advance Healthcare Directive (also called a “living will” or “power of attorney for healthcare”); and (4) a Trust (also called a “living trust” or “inter vivos trust”). Many plans are complete with these four documents alone. Some cases are more complex and may require additional documents and steps, such as business entity formations, specialized trusts, and more complicated tax planning. Very simple plans may not require the fourth document (Trust), but it is advisable in most cases.
Estate Planning is not just for the wealthy. An estate plan does more than simply pass on your assets. It names someone to care for your assets and pay your bills if you become incapacitated. It names guardians for minor children. It appoints someone to make healthcare decisions for you. When it comes to assets, most people have more than they think. Do you have life insurance? A 401k, an IRA, or other retirement plan? How about collectibles, special mementos, or family heirlooms? What about your pets? Is it possible you might inherit assets from someone else? Not everyone needs a complex estate plan, but everyone should have some sort of plan. The only way to know for sure what you might need is to consult with a professional in your area.
The cost of Estate Planning depends on a number of things. Plans for couples usually cost more than plans for single persons. Plans for special circumstances can increase the cost, such as loved ones with disabilities, non-U.S. citizen spouses, substance abuse problems, pets, etc. Many estate planning attorneys offer a free initial consultation and can usually give an estimate during that meeting. The bigger question you should ask yourself is: Can I afford NOT to have an estate plan? If you have no plan, your estate may pay higher taxes, the State will decide who receives your property and who the guardian of children will be, and the court may have to appoint someone to care for you if you become incapacitated. Having no plan generally costs more in the end.
RESPONSES – WILL QUESTIONS
A Last Will and Testament can be used to nominate a guardian for minors; appoint an executor to handle your final affairs; and direct final disposition of your assets. Most people know what a Will is, but many are confused about what it actually does. A Will tells the court how to distribute that part of your property that is “subject to probate.” Not all of a deceased person’s property is “subject to probate.” Assets passing by joint ownership, or by beneficiary designation (such as life insurance or trusts) to someone other than your “decedent’s estate,” are not “subject to probate.” This means that the passing of those assets is unaffected by the terms of your Will.
Having a Will even if you have a Trust is like having a safety net. It is very common for people to accidentally leave something out of their Trust. A good example is your home. People buy a new home, or refinance an existing one, and forget to title the property back to their Trust when they are finished. When the person dies, the house is not part of the Trust so “who gets it” is decided by the Will. Ideally, the Will states that all assets pass to the Trust. This way, final distribution of assets still follows the plan laid out in the Trust. Without a Will, the State will decide who gets any assets that are not in the Trust. That may or may not be the people you wanted to have that property.
The original of a person’s Will must be deposited with the Probate Court when someone dies.The Will becomes a public record and anyone can ask to read it. If all of the deceased person’s property is in a Trust, or already has a legal beneficiary named (such as life insurance), then the Will just gets deposited and nothing more happens in the court system. Otherwise, a “probate administration” must be started, which means that the Probate Court will decide if the Will is legal, then appoint someone to be in charge of gathering the property, paying the deceased person’s debts, and distributing the remaining property to the right people. This person is usually called the “Executor.”
The “Executor” and the “Trustee” are similar in some ways, but very different in others.An “Executor” only acts if someone has died. The Executor can be nominated by the deceased person, but that selection must be approved by the Probate Court. The Executor only has authority over property that is under the Will, not property being distributed by a Trust, a beneficiary form, or joint ownership. A “Trustee” is selected by you and need not be approved by the Probate Court. The Trustee handles all of the property in the Trust and his or her authority can apply not only at your death, but also during your lifetime.
RESPONSES – LIVING TRUSTS
A Living Trust, also called an “inter vivos trust” or a “revocable living trust,” appoints someone (the “trustee”) to hold title to and manage your assets during your lifetime and after your death. You can be the trustee of your own trust, and remain in full control, then the successor trustee nominated in your trust document will take over if you die or become incapacitated. You can change the terms of the trust, cancel the trust entirely, and add or remove assets at any time, as long as your are not incompetent. If something happens to you, all assets in your trust can be managed, and eventually pass to your designated beneficiaries, without any probate court involvement. A trust avoids probate court, allows greater flexibility for planning, allows for delayed transfer of assets, and can be structured to provide greater protection to your loved ones.
A Trust that cannot be canceled or changed by its creator is an “irrevocable” Trust. Once it is setup, the Trust is final. The creator cannot take back the property, cannot change how the property is used or who gets it, and usually cannot change the Trustee. Any changes must be made by the Probate Court, which may or may not approve them.
A Trust can last almost as long as its creator wants it to last,but there are some limitations. Most Trusts cannot last longer than about 99 years after it creator has died. A Trust may also end early if it runs out of property, or if the value of the property is so low that it doesn’t make sense to continue as a Trust anymore. A Trust might also end early if a Probate Court orders it to end, but that usually only happens in special circumstances.
RESPONSES – POWERS OF ATTORNEY
An Advance Healthcare Directive, sometimes also called a “living will” or a “power of attorney for healthcare,” is a document that tells others what to do if you are unable to make your own medical decisions, tells them under what circumstances (if any) you would wish to be removed from artificial life support, and appoints a person you have selected to consent to (or withhold consent from) medical procedures when you are unable to do so.
A Power of Attorney for Financial Matters appoints someone to manage your assets and pay your bills. It can take effect immediately, or it can be limited so that it only takes effect if you become incapacitated. A “durable” power of attorney is the kind that remains in effect even if you become incapacitated. Your power of attorney can be a general power of attorney that authorizes someone to manage many assets, or you can have one or more limited powers of attorney that give someone authority only over specific assets. A power of attorney is only effective during your lifetime and terminates immediately upon your death.
Even if you have a Trust, you still need a Power of Attorney because it applies, during your lifetime, to management and control of your property that is not in a Trust. Certain property does not get put into your Trust during your lifetime and some of your rights do not belong to your Trust. Examples include social security rights, personal income tax returns, and qualified retirement plans. Your Trustee has no authority to prepare and sign your personal tax returns or speak to the I.R.S. about your taxes. The Trustee has no power to redirect the deposit of your social security benefits or make social security and Medicare benefits elections. Your qualified retirement plan accounts cannot be titled to your Trust during your lifetime or the I.R.S. will treat that as an early withdrawal, assess taxes and penalties, and refuse to honor additional deposits or earnings as tax delayed. If they are not titled to the Trustee, then the Trustee will have no authority to direct investments, elect withdrawals, take out loans, etc. The Trustee also has no power to transfer into your Trust any property you accidentally forgot to put into it.
RESPONSES – PROBATE COURT
Probate refers to a division of the court that deals with Wills, Trusts, Guardianships, and Conservatorships. In some courts, probate departments also handle adoptions. To “probate” a Will means to initiate a court proceeding for recognition of the Will and court supervision of the completion of the terms of the Will. A “probate estate” is the collection of assets (and debts) that fall within the court’s jurisdiction and subject to the terms of the Will. Many assets are not part of the probate estate and will not be governed by the Will or the probate court. Examples include some types of property owned with someone else, and life insurance or financial accounts naming a beneficiary other than the estate.
No – there are many instances where the Probate Court is not actively involved when someone dies.In fact, a lot of property never passes through the Probate Court. Jointly owned property that passes to the surviving owner; property with a legal beneficiary designation, such as life insurance; and property held in a Trust are all examples of things that do not need to go through the Probate Court.
When someone dies owning property in two states, it may be necessary to conduct two probate proceedings – one in each state. Whether that will be required depends upon many factors, such as the laws of the other state; whether or not it is real estate instead of personal property; and whether or not the property is in a Trust.