Estate Plan Overview:

Estate planning is the process of organizing your assets, finances, and wishes for medical treatment and end-of-life care, including during times when you cannot manage your own assets and affairs. After your passing, your estate plan will control the disposition of assets to your beneficiaries. For Californians, estate planning is especially important due to thehigh costs of, and delays caused by, probate proceedings. Your estate plan will also help to delay, minimize, or even eliminate estate taxes. Having a well-structured estate plan ensures that your loved ones are protected, your assets are distributed according to your wishes, and potential legal hurdles and delays are minimized.

Key Components of an Estate Plan

1. Living Trust (aka Revocable Trust and Irrevocable Trusts)

A trust is a legal entity that holds and manages assets for the benefit of beneficiaries. There are several types of trusts, but living trusts are the most commonly used type of trust.

Living Trust:

Allows you to manage your assets during your lifetime and transfer them to your beneficiaries upon your death without going through probate. You can modify or revoke the trust at any time while you are alive, and the trust does not need to obtain an EIN or file a tax return during your joint lifetime. Sometimes an irrevocable trust is created at the first spouse’s passing for tax planning and control purposes, but we will discuss this in detail

Your revocable trust is essentially a backup plan in case something unexpected happens to you, and it should contain detailed contingency planning. Yourtrust can (and should) remain private until your passing.

Upon your incapacity or passing, your successor trustee will step in and manage the trust for your benefit and for the benefit of your beneficiaries.

Irrevocable Trust:

Once established, this type of trust cannot be changed or revoked except in certain situations. It is most often used for tax planning and asset protection. We can discuss further if you have estate tax concerns, as irrevocable trusts can greatly reduce potential estate taxes.

Avoid Probate Expenses:

As mentioned, your trust will avoid the costs and fees of formal probate proceedings. Attorneys and executors are both entitled to a percentage of your estate, as follows:
4% of the first $100,000
3% of the next $100,000
2% of the next $800,000
1% of the next $9,000,000
For reference, a $1,000,000 gross estate would incur attorney’s fees of $23,000 and executor fees of $23,000, and there are additional costs for court filings, publishing the required notice in the newspaper, bonding fees, probate referee fees, etc.

2. “Pour Over” Will

When a will is used in conjunction with a trust, it is almost always a “pour over” will, meaning that the will leaves all of your assets to your living trust. Probate should only be necessary if assets are not appropriately titled in the name of your trust, and by naming your trust as beneficiary of your will you ensure that trust terms will apply to all of your assets. For example, a pour-over will may need to be probated if someone purchases a new home and forgets to take title in the name of his or her trust.
An important component of your will is naming a guardian for your minor children in the event of your passing. Please note that a will must go through probate proceedings, while a trust does not.

3. Power of Attorney for Finance

A power of attorney for finance empowers an “agent” or “attorney-in-fact” of your choosing to act on your behalf in financial and legal matters. Your POA can be effective immediately upon signing, or only effective after doctors have determined that you are incapacitated. While your successor trustee will be able to step in and manage trust assets if you cannot, your trustee will not be able to deal with non-trust assets such as retirement accounts and insurance companies. If you have not named an agent to manage your finances and you cannot do so yourself, a court must appoint a “conservator of the estate” before financial institutions will release information or allow access to any of your accounts.

4. Advance Health Care Directive

An advance health care directive names someone to make medical decisions for you if you cannot make them yourself, and also specifies what types of treatment you would want in certain situations. The advance health care directive avoids having a “conservator of the person” appointed to make medical decisions for you. It also takes the burdens that come with making medical decisions away from loved ones, because you have told them what types of treatment you would want.

5. Dementia Directive

Our firm offers a dementia directive to clients, which would only apply if you had
advanced Alzheimer’s, were unable to communicate, and were unable to feed yourself.
The dementia directive allows you to indicate that you would only want to be fed and
hydrated if you were receptive and cooperative, or that you would not want to be fed or
hydrated if the above conditions are met. Again, this serves to relieve your loved ones of
having to make an extremely tough decision.

6. HIPAA Waiver

A HIPAA waiver is a document that grants specific individuals access to your medical
records. This is important so that your successor trustee and financial power of attorney
can show that you are incapacitated. It will also authorize the release of your medical
records to your healthcare agent.

7. Final Disposition Instructions

These instructions tell your survivors how you want you remains handled, what type of
service you want (or do not want), and what type of pre-need arrangements you have
made. We have seen disputes develop as to the disposition of remains, and this
document helps to avoid those disputes.

8. Beneficiary Designation Review

Many assets cannot, or should not, be owned by your trust due to tax implications or
federal laws. For example, a trust cannot own retirement accounts, but it can be the
beneficiary of the account (although often you should not name your trust as
beneficiary). Beneficiary designations control at death and assets with a valid beneficiary
designation will avoid probate. During the estate planning process, we will review your
beneficiary designations and help you determine whether to name your trust or
individuals as beneficiaries.

There are other documents that a good estate plan will have, including an assignment of
personal property, a certification of trust, deeds for real estate to transfer your real property to
your trust, and a marital property agreement. We can discuss these documents in greater detail.
Please feel free to contact me at (949) 508-2980 or abrown@essaylibrown.com if you have questions or would like to discuss the above.

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This article is intended for general informational purposes only. It does not constitute legal or tax advice, and no attorney client relationship is implied or formed by this article. You should always consult with a tax professional or attorney before taking any action. The information on this website is considered LEGAL ADVERTISING under applicable California law and may be considered advertising under your state’s laws and ethical rules. The responsible member for this advertising is D. Andrew Brown of Essayli & Brown LLP.