Estate Planning

Today, most realize that estate planning is an important step to make sure your family is taken care of and your property is distributed according to your wishes. Despite the importance of estate planning, many people put off making estate plans because people believe they have plenty of time to make such plans or they have difficulty addressing the issue of what will happen when they pass away. Failing to prepare a comprehensive estate plan can leave grieving family members with the burden of dealing with a complex estate, unnecessary expenses, and an inflexible distribution of assets that may be against the decedent's wishes.

Comprehensive Estate Plan

Estate planning involves making decisions on how your property and assets will be distributed after death. Estate plans can also involve setting aside assets to take care of friends, family members, or pets into the future. Proper planning can also designate representatives to make financial and healthcare decisions if you are no longer able to communicate your wishes.

Without an estate plan, an individual's property is distributed according to state law, regardless of how the decedent would have distributed their assets if they had made a will. Dying without a will is known as dying “intestate.” When a person dies intestate, their estate will go into probate, which is the judicial process of taking inventory of the individual's property, paying out taxes and debts, and distributing the remaining assets according to state succession laws.

There are a number of reasons why individuals and families want to avoid probate. For example, the probate process can take months or years to complete before property and assets can be distributed to beneficiaries. If there is any dispute over the estate, the probate process can be drawn out even longer. Probate may also end up costing the estate fees and costs associated with having the state handle the estate. Probate also becomes a matter of public record, details of which some people would rather keep private.

Under state succession laws, assets are distributed according to a strict formula, without regard to the decedent's wishes. This may result in money or property going to an estranged relative who never cared for the decedent, while a lifelong partner or other beloved relative is left with nothing despite years of caring for the decedent. In cases where no next of kind can be identified, the decedent's property may end up going to the state.

There are a number of legal instruments that can be utilized to make estate plans, including a will, trust, payable on death accounts, power of attorney, or advance health care directive. Each option has benefits and drawbacks; however, an individual does not need to select only one type of estate planning tool. A comprehensive estate plan may include a combination of these estate planning instruments. Given the long legal history of estate planning documents, there are some unique terms used in reference to estate plans.

Wills

The person who executes a will dealing with their property is known as a testator. A will, or last will and testament, is a legal document that indicates how the testator wishes their property to be distributed on death. A will may also indicate an executor to carry out distribution of the estate, and the devisees or beneficiaries, who inherit property according to the will.

Generally, a will should be signed in front of two witnesses, with the witnesses also signing the document. However, California has less strict requirements than other states when it comes to creating a handwritten will. In some cases, a holographic will, written in the testator's handwriting, may be accepted as a legal document. Individuals may be able to make their own simple will; however, more complex estate planning may require professional assistance.

Living Trust

A trust is a more flexible estate planning device, where property is held for the benefit of another. The most popular form is the revocable living trust. This allows someone to control their property and assets during their lifetime while planning for distribution of their property upon death. A living trust is established by a written legal document that places property into a trust, to be administered for the trustee's benefit during their lifetime, and transferred to their beneficiaries upon death.

A trust can also be used in cases where the trustee becomes incapacitated or unable to handle their financial affairs. By designating a trustee or co-trustee, once the property owner becomes incapacitated, the trustee can make decisions for the benefit of the other. Depending on the designated responsibilities, this can include decisions regarding health care, finances, and other decision-making.

A will or trust can also designate a guardian to care for one's children. The guardian can also handle property for the children to be passed on when they have reached a certain age. It is important to talk about guardianship and plans to designate another person to handle property after death to make sure they are willing and able to take on such a responsibility.

Trusts are also becoming increasingly popular for people who are concerned about the care of their pets. Pets are not able to inherit property; however, pet owners can establish a trust to care for their pet after they pass away or are otherwise unable to care for their pets.

Living Will and Durable Power of Attorney

A living will or durable power of attorney can be important measures to protect assets at a time an individual is incapacitated. When an individual becomes incapacitated due to a disease, accident, or other illness, they are not able to handle their finances or make important healthcare decisions. These documents may also designate someone to make these decisions on their behalf. Similarly, a durable power of attorney can designate someone to handle specific functions like handling finances when the individual is unable.

San Diego Estate Planning Attorneys

Butterfield Schechter LLP provides our clients with a variety of estate planning options to meet their individual goals, and ensure their loved ones will be provided for. Our attorneys will help establish a plan that meets state and federal tax code requirements, reduces tax liability, and ensures future plans are carried out according to the individual's wishes. Our attorneys can assist clients with updates to address regulatory changes for continued effectiveness in meeting the client's' specific goals. Contact our office today with any questions on how we can help you and your family plan for the future.

5 Basic Estate Planning Choices to Consider

1. Simple Wills - No Trust

This alternative is not advised because there are no probate advantages, minor children are not as well protected if you predecease and there is no trust mechanism to help manage your assets if you have mental incapacity prior to death.

2. “A” Trust

A Living Trust is set up, but all goes to the survivor upon the first death. (see below).

3. “A-D” Trust

All goes to the surviving spouse, but the surviving spouse has up to 9 months to shunt some of the first spouse-to die's assets to a “Disclaimer Trust.” Estate tax potential savings would be the reason the surviving spouse would use this. There is no need to make any decision on use of the Disclaimer Trust until someone dies. This is the basic level trust.

Disadvantage? The surviving spouse has total control - and there is no mechanism to focus the first-to-die's assets on the kids when the surviving spouse dies. The surviving spouse can change the Trust to give everything to a new spouse, a charity, etc.

4. “A-B” Trust

The “first-to-die's” assets - up to $11.58 million (for 2020 – limits drop dramatically beginning January 1, 2026) shift to a “By-Pass Trust”. The Bypass Trust assets survivor “rents” the income on his/her life - and may - depending on how the trust is drafted - have restricted access to some principal (access has to be restricted to help preserve estate tax exemptions and help preserve assets for the children). Upon the surviving spouse's death, the Bypass Trust's remaining assets go to the children. The “Survivor's Trust” goes to the children too, unless the Surviving Spouse has changed the game plan.

5. “A-B-C” Trust

This adds another layer on top of the “A-B” if a couple's assets exceed $10,680,000. The “C” Trust preserves, for the children, that part of the “first to die's” assets over the applicable estate tax exemption.