Generally, planning an estate is not a one size fits all proposition, but there are certain documents commonly used in the estate planning process. The purpose of this article is to introduce some basic estate planning tools. It should be noted that estate planning can become more complicated depending on the type of property owned, who shares ownership, and use of other instruments such as life insurance policies.
Will (Last Will and Testament):
Definition – A Will communicates a person’s wishes relating to property distribution after they have passed on. It can be used to determine who gets real property like the family home or personal items such as furniture or jewelry.
Who needs one – When a person dies without a Will their estate gets distributed to their heirs according to the state statutes in place. There are many factors the statutes consider such as if the deceased person was married, has children, or maybe even has children that are unknown to him as well as if the property was jointly owned or the decedent’s separate property. It is highly recommended that everyone at least have a basic Will, which can specifically tailor how assets are divided and hopefully prevent disputes among those who stand to inherit.
Revocable Trust (Living Trust):
Definition – Generally speaking, a Trust is a relationship where property is held by one party and that same property benefits another. In California Revocable Trusts are often used to avoid having to go through probate court to distribute property and, thereby, save thousands of dollars in attorney fees as well as time. A Revocable Trust is a Trust that can be revoked or amended by the person who created the Trust. The actors involved are the settlor, trustee, and beneficiary or beneficiaries. The settlor is the person who creates the Trust and puts assets into it. The trustee is the person who administers the Trust. The beneficiary or beneficiaries are the people who stand to benefit from the Trust. It is quite common for the settlor, trustee, and beneficiary to be the same person until they become incapacitated or pass on.
Who needs one – If your estate is worth less than $150,000 as of the time this article was written a simple Will may be all that is required in your estate plan. However, if your estate is worth more than $150,000 and you would like to save your spouse or heirs a small fortune in court fees having a Revocable Trust may be a wise decision. Revocable Trusts also allow a settlor more flexibility to determine when and how assets are distributed. In general, a Revocable Trust makes estate planning simpler and less costly than estate planning would be otherwise.
Power of Attorney:
Definition – California residents often make use of two different types of powers of attorney.
Advanced Health Care Directive – This document allows a person to appoint an agent to make health care decisions on the person’s behalf should that person become physically or mentally unable to make those decisions themselves. An Advanced Health Care Directive can provide an agent vague guidance or very specific guidance such as an instruction to stop life support in the event that the patient is unlikely to recover.
Durable Power of Attorney for Financial Purposes – This document allows an agent to make financial decisions for someone who has become incapacitated. A trustee for a Revocable Trust will be able to make financial decisions regarding Trust assets. However, sometimes certain financial matters such as filing income tax returns do not fall within the power of the trustee and a Durable Power of Attorney for Financial Purposes becomes important. It is common for the successor trustee to also be the agent on a Durable Power of Attorney.
Generally, those of us who have loved ones should consider creating an estate plan and not leaving inheritance up to the courts. I hope that you now have a better understanding of some basic estate planning tools. If you have further questions I invite you to contact me.
Michael J. Smith, Esq.
20630 Redwood Rd
Castro Valley, CA 94546