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What is Estate Planning?
An estate plan is a collection of documents that lay out who will have control of your financial and medical decisions if you become incapacitated, and who will inherit your assets when you die. If you have minor children, it can also nominate their guardians.
Who Needs an Estate Plan?
Everybody! But that doesn’t mean that estate planning choices will be the same for everyone. In recent years, the term “estate plan” has become synonymous with “living trust”. Although revocable trusts have many benefits, including avoiding probate, not everyone wants or needs one. Both wills and trusts are effective ways to distribute what you own upon death. However, they differ in their initial setup costs, how long they take to settle your estate, and how easy the transfer will be for your beneficiaries.
No matter which option you choose, it’s also wise to assign your payable on death (POD) beneficiaries for all banking and brokerage accounts, annuities, insurance policies, and similar assets.
Does a Trust Protect My Assets from Creditors?
It depends on the type of trust. A revocable trust allows you to maintain full control of your assets during your lifetime, but in turn has limited asset protection benefits. For example, revocable trusts allow you to pay nursing home fees with the money in your trust, thereby reducing your assets and often preventing you from qualifying for Medicaid assistance until your finances are depleted enough to meet the stringent eligibility limits.
Alternatively, Asset Protection Trusts (APT) can protect your assets from nursing homes and other creditors (and potentially allow you to qualify for Medicaid assistance) if properly created and funded. However, APTs are irrevocable trusts, which means you can’t change them and you lose control of your assets because your beneficiaries gain ownership of the trust after its creation. APTs can also be canceled by court order if the court decides the transfer of assets was done with the intent of defrauding creditors.
If you’re considering creating a trust so that your heirs will avoid probate, a living trust is often the right choice. However, if your main concern is protecting assets from creditors and/or high taxes, an asset preservation trust may better suit your needs. Consult an attorney and/or financial professional for help deciding, and for more information on irrevocable trusts.
** Dingler Document Assistance does not create irrevocable trusts **
What if I Die Without an Estate Plan?
If you die without a Will and/or Living Trust, intestate succession laws will be applied by the probate court. If you’re married or in a registered domestic partnership, California intestacy laws first divide the estate into community property and separate property. After that, who inherits and what they inherit can be very confusing—it depends on the number of surviving heirs and their familial relationship to you. For example, if you are survived by your spouse and two children, your spouse inherits all of your community property and one-third of your separate property, while your children split two-thirds of your separate property. However, if you are survived by your spouse and parents (no children), your spouse inherits all of your community property and half of your separate property, and your parents receive the other half of your separate property. For the full California intestacy succession laws, see California Probate Code §§6400-6414.
California doesn’t have a common-law marriage statute. Therefore, the length of the relationship has no bearing on distribution—if you’re in a long-term relationship but haven’t married or registered as Domestic Partners with the State of California, then there’s no community property, and your partner won’t inherit under the intestate line of succession.
What is Community Property vs. Separate Property?
If you die without a Will and/or Living Trust, intestate succession laws will be applied by the probate court. If you’re married or in a registered domestic partnership, California intestacy laws first divide the estate into community property and separate property. After that, who inherits and what they inherit can be very confusing—it depends on the number of surviving heirs and their familial relationship to you. For example, if you are survived by your spouse and two children, your spouse inherits all of your community property and one-third of your separate property, while your children split two-thirds of your separate property. However, if you are survived by your spouse and parents (no children), your spouse inherits all of your community property and half of your separate property, and your parents receive the other half of your separate property. For the full California intestacy succession laws, see California Probate Code §§6400-6414.
California doesn’t have a common-law marriage statute. Therefore, the length of the relationship has no bearing on distribution—if you’re in a long-term relationship but haven’t married or registered as Domestic Partners with the State of California, then there’s no community property, and your partner won’t inherit under the intestate line of succession.
Common Estate Planning Documents
Revocable Trust: Also referred to as a living or inter vivos trust, it can be amended or revoked at any point during the creator’s lifetime so long as the creator (a.k.a. trustor, grantor, and settlor) is still legally competent. Upon the creator’s death, the successor trustee (who is a person you’ve chosen) takes over and distributes assets to your beneficiaries according to the terms of your Trust, thereby avoiding probate.
Certification of Trust: A notarized document that provides a general summary of your Trust. It can be provided to banks, escrow companies, and anyone else who needs to verify the Trust’s existence and the Trustee’s legal authority to act (instead of providing the entire Trust, thereby keeping any sensitive information private).
Will: Can either be a stand-alone document (Last Will & Testament) or part of a trust package (Pour Over Will). A stand-alone Will sets out your full estate distribution, and is submitted to the probate court upon your death. Conversely, a Pour Over Will is included as part of a revocable trust to cover any assets that haven’t already been transferred into the trust—it “pours” them into the trust. Both stand-alone and Pour Over Wills include the nomination of guardians if you have minor children.
Power of Attorney: POAs delegate authority for someone else (your “agent” or “attorney-in-fact”) to act in financial and legal matters on your behalf. POAs are used for a variety of reasons (e.g., your housebound, you’re selling a property but will be overseas during the signing, etc.). As long as you have legal capacity, POAs can be revoked at any time in writing, and are automatically revoked if you become incapacitated. For this reason, estate plans use Durable POAs, which contain language specifically authorizing your agent to act during your incapacity. Estate plan POAs can also be “springing”, meaning they remain inactive until you become incapacitated (at which time the agent’s powers are activated).
Health Care Directive: Also known as an Advance Health Care Directive (AHCD) or Living Will, HCDs are sometimes referred to as “medical powers of attorney” because they designate an agent to make medical care decisions if you become terminally ill or mentally incapacitated.
HIPAA Waiver: Works in conjunction with your HCD by allowing medical professionals to share your medical records with your chosen HCD agent. This is necessary so that your representative can make informed decisions on your behalf.
Final Disposition Instructions: Sets out how your remains are to be handled, including if you want to be cremated or buried, where you want your memorial service held, and any other special instructions you may have.
Deeds: Used to transfer real property into your trust.
HCD RT 476.6G: Used to transfer unaffixed mobile homes into your trust.
