To ensure your assets are distributed as you’d like them to be when you die, estate planning is the answer. Successful estate planning transfers your assets to your beneficiaries quickly and with minimal tax consequences.
Estate planning can also assure that family members know how you’d like your financial and medical affairs to be handled if you become incapable of making your own decisions.
The process of estate planning includes inventorying your assets; talking over important decisions with family members; and making a will and/or establishing a trust. This brochure provides only a general overview of estate planning.
You should consult an attorney, and perhaps a CPA or tax advisor, for additional guidance tailored to your specific situation. We can recommend an excellent Estate Planning Attorney in your neighborhood, and provide you with a clear understanding of the costs involved.
Check out Susan’s Elder Life Series videos to see how Susan has helped other families with Estate Planning.
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Frequently Asked Questions about Estate Planning
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What is estate planning?
Estate planning is the preservation and the distribution of your assets, both during your life and upon your death. It is accomplishing your personal and family goals and easing the management of your financial and legal affairs, as well as minimizing taxes if your estate is large enough for taxes to be of concern. An “estate plan,” generally, refers to the means by which your estate is passed on to your loved ones on your death. Estate planning can be accomplished through a variety of methods, including:
• Revocable Living Trusts
• Last Will and Testament / Probate
• Lifetime Gifting
• Joint Ownership
• Beneficiary Designations
• Life Estates
Problems often arise when people don’t coordinate all of these methods of passing on their estate. To take just one example, a father’s will may say that everything should be equally divided among his children, but if the father creates a joint account with only one of the children “for the sake of convenience,” there could be a fight about whether that account should be put back in the pool with the rest of the property. -
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What will happen to my property if I die without a will or trust?
If you die without a will or trust, the state determines who will be your ultimate heirs. This distribution plan can be found in the intestacy statute of each state. The applicable state can be either the location of your legal residence (for personal property), or the state in which your assets are located (for real estate).
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How is my property transferred if I die intestate?
If you die intestate, the transfer of your property is accomplished through a court supervised proceeding called probate that takes a minimum of a year in California, and typically longer. These proceedings generally are expensive and time consuming and tie up your property. Probate can be avoided with proper estate planning.
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What is probate?
Probate is the court-supervised public proceeding used to change title to assets from the name of an individual who has passed away into the name of the living beneficiaries. It is also the process by which creditors of a decedent file claims to collect their debts and where interested parties who have a complaint regarding the deceased can file a complaint (a will contest). Even without a contest, probate can be costly and time consuming.
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Can probate be avoided?
Probate can be avoided with proper planning. There are a number of different techniques for doing so which can be used alone or in combination.
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What is a power of attorney?
A power of attorney is a document authorizing someone else (your agent) to act on your behalf (the principal). The purpose of giving someone such a power in connection with your estate planning is to enable the agent to act on your behalf when you cannot act for yourself.
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Who can create a power of attorney?
Generally, any individual can create a power of attorney if over 18 years of age, a resident of the state in which it is created, and legally competent. This, however, varies from state to state.
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Who may act as an agent under a power of attorney?
In general, an agent may be anyone who is legally competent and over the age of 18. Usually, it is a family member such as a spouse or a child. More than one person can be named as an agent. However, sometimes naming two or more individuals to act together can prove inconvenient, particularly if a power of attorney must be exercised promptly. A better course is to name one individual as agent and then another as an alternate
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What is the difference between a general and a limited power of attorney?
A general power of attorney authorizes your agent to do almost everything on your behalf which you could do for yourself. A limited or special power of attorney authorizes your agent to perform only certain acts specifically listed in the document.
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How does an agent use a power of attorney?
Your agent presents the power to the other party involved in the transaction and signs any necessary documents needed for such transactions on your behalf. Your agent signs "Your Name, by His or Her Own Name, Attorney-in-Fact for Your Name."
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What are the formalities of signing a power of attorney?
Requirements vary from state to state, but in California signing the power in the presence of a notary is not necessary. In California a power of attorney is legally sufficient if it is signed either (1) by the principal or (2) in the principal's name by another adult in the principal's presence and at the principal's direction and is either acknowledged before a notary public or signed by at least two adult witnesses. The attorney-in-fact may not act as a witness.
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When does a power of attorney become effective?
This depends upon what the power says. It can be made effective at the time of signing or it can become effective at the time of your incapacity.
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How does a power of attorney terminate?
Death revokes a power of attorney. You may also cancel your power of attorney by signing a revocation. The best way to revoke a power of attorney is to destroy all copies. If the power is a non-durable power of attorney it will terminate upon your incapacity, while a durable power of attorney survives your incapacity.
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Must third parties honor a power of attorney?
There is no way to force a third party to accept a power of attorney without going to court. Many banks will require you to complete their own forms to authorize your agent to write checks on your account, so it is advisable to inquire as to whether your banking institution requires such forms that can be completed in conjunction with executing a power of attorney. In addition, the IRS generally will not honor any power of attorney that does not specify the tax matter and the tax year at issue.
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What are the disadvantages of a power of attorney?
First, third parties may not recognize your power of attorney. Second, it can be difficult to revoke a power of attorney, especially if your agent has given copies to third parties that have honored it. Third, the agent can reach your assets without court approval or supervision. Therefore, it is imperative that you select an agent with great care and have tremendous confidence in that individual.
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Are there alternatives for managing property when a person becomes incapacitated?
There are several. One a court-supervised proceeding referred to as a guardianship or conservatorship. This is not an appealing option to most people. The best alternative is the use of a living trust where assets are funded into the living trust. However, a power of attorney is still essential even if you have a living trust.
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What is a guardianship or conservatorship?
This is a court supervised proceeding which names an individual or entity to manage the affairs of an incapacitated person. A guardianship may also include the duty to care for the incapacitated person.
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What are the disadvantages and advantages of a guardianship?
A primary disadvantage to a guardianship is that it is a public proceeding, thereby exposing the incapacitated individual to embarrassment as the details of their incapacity are discussed at length. It is also expensive, and is a restrictive procedure. In addition, there is no guarantee that the end result will be in accordance with the incapacitated person's wishes, and someone unacceptable to the incapacitated person could be placed in charge of his or her affairs. A major advantage to a guardianship is that the courts watch every move the guardian makes in relation to the assets. Some feel this provides increased protection as well as establishing the authority of a guardian as third parties must deal with the guardian due to the court's supervision.
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Why is a Living Trust sometimes better than a power of attorney?
A Living trust is often recommended to clients as the key document in their estate plan. One reason for this is that the living trust is normally the best method for managing assets during incapacity. A major advantage of the living trust over the power of attorney is that a trustee has actual title to the assets and therefore third parties must deal with the trustee as the owner. An agent does not have title and hence third parties may refuse to deal with the agent. This is a particular problem if the power of attorney was not signed in the last year, because some financial institutions refuse to honor powers of attorney that are more than a year old.
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Why should I consider a Living Trust?
Not only does a Living Trust provide for the disposition of your property (like a Will), but it also offers many other benefits, such as:
1. Avoiding Probate During Life
2. Avoiding Probate Upon Death
3. Avoid Probate for Multiple Generations
4. Holding Assets for Beneficiaries Indefinitely
5. Avoiding Ongoing Probate
6. Avoiding Estate Tax (if married)
7. Eliminating Probate Tax
8. Reducing Legal and Administrative Fees
9. Providing Oversight by Family, not Court
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Who is the trustee of my Living Trust?
While you are alive, you act as trustee. For married couples, either one or both spouses may act as trustee or co trustees. The successor trustee is an individual whom you designate to be in charge of your trust in the event of disability or upon death.
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Who should be designated as successor trustee of my Living Trust?
You will need to designate one or more successor trustees. These can be individuals, such as family members, trusted friends, trusted professionals, or you could designate an institution, such as a bank or professional trust company. Individuals may predecease you, while an institution will (most likely) still exist at the time of your death. Institutions provide the benefit of experience in money management and trust administration, while family members and close friends are more "personal" and have first hand knowledge of your desires. If you choose an individual, the individual should have some business sense, or you might wish to name an individual and a professional trustee as co-trustees. The downside to co-trustees is the possibility of disagreement.
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What is a Living Will?
A living will, more often called an Advance Directive or Advance Medical Directive, is a document normally incorporated into a Medical Power of Attorney in which you give directions for life sustaining treatment should you become unable to communicate your wishes.
Estate Planning Blog Articles
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