Planning your Estate – the Basics. (Why planning is so important.)


If you do not plan your estate, your loved ones could be faced with some difficult situations when you become incapacitated or die.  On your incapacity, expensive and time consuming court proceedings will have to be brought to establish and maintain a conservatorship for you.  On your death, your estate will have to go through probate administration–another expensive and time-consuming court proceeding.  The court will order your estate distributed to classes of people determined by the California Probate Code, who may not be the persons you want to receive your estate.  In addition to court proceedings, there may be costly and emotionally destructive conflicts among your heirs over entitlement to the assets of your estate because you have not executed estate planning documents clearly setting forth who is to receive your estate or particular assets of your estate.

If you plan your estate, you can relieve your loved ones of the burdens of maintaining court proceedings on your incapacity and your death, and you can assure your estate will pass to the persons you desire.  A planned estate is an estate in which provision has been made for the handling of your financial affairs and health care during your life in the event you become incapacitated, and in which provision has been made for distribution of your estate on your death in accordance with your instructions.

Let’s discuss a typical estate plan for a middle class married couple.  The basic elements of the plan include the following legal documents:

A Durable Power of Attorney for each spouse that names an “attorney in fact” to handle the spouse’s financial affairs in the event of his or her incapacity.   Typically, each spouse will name the other spouse as attorney in fact, and will name other trusted persons to serve in the event the other spouse is unable to serve.

An Advance Health Care Directive for each spouse that names an “agent” to make health care decisions for the spouse in the event he or she becomes unable to do so.  As with the Durable Power of Attorney, each spouse will typically name the other spouse as his or her agent, and will name other trusted persons to serve if the other spouse is unable to do so.

A Revocable Trust, also referred to as a “Living Trust,” which will hold the spouses’ assets and which will govern distribution of those assets when the spouses pass away.   More is said about Living Trusts below.

A Will for each spouse.  Because distribution of the spouses’ estates will be governed by their Living Trust, their Wills will be simple “Pourover Wills.”  A Pourover Will is a short Will that recites the fact the spouses have a Living Trust and directs that any assets not in the Living Trust on the death of the spouse be put in the Living Trust so they can be distributed according to the terms of the Living Trust.

There are other documents that may be prepared as part of an estate plan, but the above four are the main documents.

The Living Trust, which is referred to below simply as the “Trust,” is the central component of virtually every estate plan.  The Trust offers a number of advantages as an estate planning tool.  Some of those advantages are:

Control of Your Assets.  You retain control of your assets in your Trust the same as if the Trust did not exist.  In addition, you can revoke the Trust at any time you wish.

Providing for Incapacity.  If you have a Trust and become unable to handle your financial affairs, the Successor Trustee you have named in the Declaration of Trust you signed when you established the Trust will take over the administration of the Trust and the Trust assets.

Avoiding Probate. Assets held in trust are not subject to probate when you die.

Minimizing or Eliminating Federal Estate Tax.  A Trust can be an effective means of minimizing or eliminating federal estate tax if you have an estate large enough to incur estate tax.

Protecting the Interests of Children of Prior Marriages.  If spouses have children from prior marriages, a Trust can continue for the benefit of the surviving spouse after the death of the first spouse the (“deceased spouse”), and provide for inheritances to be received by the children of the deceased spouse when the surviving spouse dies.

Flexibility in Dispositive Provisions. When it comes to providing for your beneficiaries, the Trust is the most flexible estate planning tool.  The Trust can continue for many years after your deaths and be administered by the Trustee in accordance with the instructions you have stated in the Trust.

Having an estate plan is the responsible thing to do.  With an estate plan in place, you will have provided for management of your affairs should you become incapacitated in the future.  You will also have provided that, following your death, your estate will be held, administered, and distributed in the manner and for the specific persons you have designated.