Estate Planning 101-The Basics

  • The majority of American’s die today with no will, trust or estate plan whatsoever.  The absence of a valid estate plan means the state will decide how to distribute your estate, and it may not be the desired result that you were intending.

    An estate plan is essentially a written plan for the disposition of your assets at death.  A well drafted plan can avoid the costs and delays of probate and minimize or eliminate estate taxes, thereby providing the maximum amount of your estate to your loved ones.   It can even allow you to control the amount and timing of distributions years after your death, or to provide for the special needs of minor children or those who would have trouble managing assets on their own.

    Estate planning involves an overall integration of your personal and real property and how it should be handled both during your lifetime and after your death.  It should include your choices concerning health care decisions in the event that you become unable to make those decisions for yourself.

    Minimum “Estate Plan”

    An “estate plan” should include at least a Will and Durable Powers of Attorney for Financial purposes and an Advance Health Care Directive.

    Powers of Attorney for Financial

    A Durable Power of Attorney for Financial matters allows your appointed agent to take care of your financial needs and outlines the powers in which he or she can act should you be incapable of acting on your own behalf; otherwise a court-ordered conservatorship would be required.

    Advance Healthcare Directive

    An Advance Health Care Directive gives your agent the authority to make health care decisions for you when you can not.  It can also address several important decisions, such as life support, organ donation, autopsy, and burial or cremation. For many people, it is the most important estate planning document to have.  An Advance Healthcare Directive is necessary to authorize not only decision making but also access to information and medical records even for spouses and parents.  With the passing of the Health Insurance Portability and Accountability Act (“HIPAA”), hospitals and doctors are reluctant to provide information to your agents without this document.


    The absence of an estate plan may cause your estate to be subject to probate and court fees, thereby reducing the amount available for the care of your children, and delaying the distribution of your assets for the benefit of your family.  The fees for probate are generally based upon the gross value of the estate.  For example, the probate fees for a $500,000 estate in California can exceed $26,000; larger estates even more.

    Living Trusts

    A well drafted revocable trust allows you to avoid probate and the related fees, delays and publicity, and is helpful in preventing the need for a conservatorship if you become ill or are otherwise unable to care for yourself.  Your living trust is the centerpiece of your estate plan.  It can assure that your instructions are carried out efficiently without unnecessary judicial involvement.  A revocable trust gives you the flexibility to change the trust as your needs change.


    What to Consider in Your Estate Plan

    Prepare an inventory of your estate

    Since your estate plan will essentially direct the transfer of your assets at death, you should compile a list of all your holdings and obligations.

    Select the key people you want to involve

    Who do you want to oversee the management and/or distribution of your estate?   Who do you want to be the guardians of any minor children you might have?  Who should be your agent for your power-of-attorney and health care documents?  You will not only need primary agents, but also alternate agents in case your first choices are unable or unwilling to serve.

    Decide what to give family members

    There are many issues to consider. Too much inheritance may stifle personal initiative.  One child may be careless with money, another disciplined.  One may have special needs requiring extra assistance.  One may be self-sufficient, another financially strapped.

    Determine your charitable bequests

    After providing for family and friends, many people designate a gift(s) to an organization(s) that reflect values and work they wish to see perpetuated. A charitable giving component in your estate plan can have significant meaning to your survivors, communicate your values in a powerful way and create an enduring tribute to a loved one.  Many times, these gifts also provide sizeable tax benefits.

    Domestic Partnership laws affect my estate plan?

    While there are significant benefits to same sex partners under new Domestic Partnership laws, California domestic partnership does not apply to federal tax law or benefits.  Furthermore, there is great confusion as to what a California domestic partnership means.  Domestic partners should not rely on registration alone to guarantee an inheritance or other rights.  Just like married partners, domestic partners should create a complete estate plan, which may include premarital agreements, wills, trusts, and powers of attorney.


    Definitions for Some of the Estate Terminology Used


    Probate is a court process and, therefore, subject to review by the general public. An inventory is required to be filed; listing the decedent’s assets.  Notices must be published in the newspaper. Most clients prefer to avoid this type of publicity.  If you die without a will the assets go to your heirs according to State law.  This is called intestate and will be done by the Probate Court.


    A Will is a written document naming charities, heirs and special gifts to be distributed upon your death.  All property in the will is subject to probate.

    Pour-Over Will.

    Upon your death, your Pour-Over Will leaves any property not transferred to your living trust before your death to your living trust.  It functions as a safety net to insure that property owned in your individual name rather than in the name of your living trust is ultimately managed by your successor Trustees as provided in your living trust.  Property transferred by a pour-over will may also be subject to probate, if over the excludable amounts.

    Living Trust

    A Living Trust can be set up for any size estate and avoid probate and publicity (probate courts are public record).  A trust is often used to manage an asset or property, both real estate and personal property, for the benefit of another.  A living trust may be amended or revoked at any time, as long as you have capacity, but you must do so through a written instrument that complies with all the legal requirements.

    Successor Trustee

    The trustee of the Living Trust is responsible for carrying out the terms of the Living Trust that apply upon the Decedent’s death. If the Decedent was the trustee, a successor trustee must be appointed.

    Special Needs Trust

    The purpose of the Special Needs Trust is not merely to secure government benefits eligibility but mostly to give the trustee of the Special Needs Trust discretion to enhance the quality of the beneficiary’s life.  A Special Needs Trust can allow a person with disabilities to receive government benefits and still have a source of funds to pay for extras that government programs do not provide

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