Estate planning involves the preparation of legal documents that allow for the ongoing administration of a person’s assets and income, both during life and at death. Its primary purpose is to ensure that there is a smooth and seamless transfer of assets belonging to a decedent to his or her heirs with as little cost and trouble as possible. Modern estate planning usually involves the creation of a living trust, wills, and durable powers of attorney for both health care and financial decision making.
The Estate Planning Section of Harris & Plottel, LLP is staffed by trained professionals with years of experience. By working with our Attorney’s to create your own unique Estate Plan, you can be assured that you and your loved ones will not have to conform to a “one size fits all” plan to accomplish your individual planning goals.
During your initial appointment, you will describe your estate planning goals. In response, you will be presented with a variety of options to incorporate into your plan in order to accomplish your objectives. The Firm’s Attorneys will also discuss the advantages and disadvantages of each option so that you can make informed choices. The end result is a plan that meets your unique needs.
A living trust will avoid probate for all assets that have been properly transferred to the trust. Probate is a costly, time-consuming process that many estates can, with proper planning, avoid. Legal fees for probating an estate are usually much higher than the fees for establishing a trust and/or administering a trust. Further, probates can take a year or longer to complete whereas a trust administration can be completed in a much shorter time. A trust also can avoid a conservatorship, which is a court supervised proceeding that is expensive, time-consuming and restrictive. Conservatorships are needed when an individual can no longer manage his or her financial affairs. A conservator is appointed by a court and given the power to manage the conservatee’s financial affairs, and also make decisions concerning the conservatee’s living arrangements. A properly prepared trust will designate a successor trustee who will manage the trust for the benefit of the trustor, sometimes avoiding the need for a conservatorship. For married couples with estates subject to the federal estate tax, a living trust can reduce or eliminate federal estate taxes by setting up Exemption Trusts, Disclaimer Trust, and/or Bypass Trusts.
Regardless of the size of your estate, the attorneys at Harris & Plottel can provide you with the advantages and disadvantages of having a living trust and help you make an informed decision regarding your estate planning needs.
In order to stay current with ever-changing laws and family dynamics, we recommend a periodic review of your entire estate plan. Making changes to your estate plan requires the same legal formalities as executing a new estate plan. Contrary to popular belief, handwritten changes on your existing will or living trust will not be considered valid amendments. Some circumstances that should trigger a review of your estate plan include: marriages or divorces; births or deaths of family members; minor children or grandchildren becoming of legal age; relocation to or from another State; purchase or sale of real property or other assets; changes in estate and gift tax law; changes with decision makers (who will make health and financial decisions for your if you are not able); etc. If you are considering a change to your estate plan or just need to ensure it conforms with current laws, Harris & Plottel, LLP can help.
A will allows you to decide who will receive your assets after you die. It also allows you to nominate an “executor,” which is the person or entity that must be appointed by the court to administer your estate after your death. Contrary to common misconception, a will does not avoid a probate. Further, the person you designate as executor has no authority over your estate during your lifetime. Absent a will or other testamentary instrument, however, your estate would pass “intestate” meaning certain relatives designated by statute would inherit your estate. A will, whether it be a stand alone document or a companion to your living trust, is a necessary component of a comprehensive estate plan.
A Durable General Power of Attorney (DPA) allows a person (principal) to appoint another (agent) to act on behalf of the principal in matters related to finances and assets. Great care must be exercised when creating and using a DPA.
First, not all Powers of Attorney are durable. Unless your Power of Attorney provides that the instrument shall not be affected by your incapacity, your agent’s authority is not durable and ends upon your inability to act. Simply stated, if your Power of Attorney does not expressly provide that the instrument is not affected by your incapacity, your agent cannot act if you become incapacitated.
Second, not all Powers of Attorney are general. A Power of Attorney can be used for nearly anything that a principal can do his or herself. The Power can be restricted to one specific act or limited in time. Unless restricted, however, a Power of Attorney is considered general and the agent is authorized to perform all acts allowed under current law. There are, however, limits to the authority of the agent as discussed below.
Third, not all Powers of Attorney are immediately effective. Unless otherwise provided in your Durable Power of Attorney, your agent’s authority to act begins upon your signing of the document. If, however, you want your agent to act on your behalf but only when you become unable to act yourself, you should consider a Springing Durable General Power of Attorney.
And finally, not all Powers of Attorney are the same. Many of our clients ask if a stationery store Durable General Power of Attorney is adequate. The simple answer is, “it depends on what you want your agent to do.” If you expect your agent to pay your bills and conduct simple business on your behalf, a simple Durable General Power of Attorney may be sufficient. However, if you are concerned about protecting your estate should you become incapacitated and require long term care, a simple Durable General Power of Attorney isn’t worth much. Durable General Powers of Attorney can contain pages upon pages of granted authorities or merely provide all powers allowed by law. Neither guarantees that your agent will have sufficient authority with which to preserve your estate if you need public benefits.
We strongly urge you to consult with one of our attorneys prior to executing a Power of Attorney. An improper Power of Attorney, or one that is executed without a full understanding of its authority, can grant too much power and control to the agent in some respects and not enough power in other respects. Of all the estate planning documents, this is the most complex and powerful tool. Caution should be exercised and expert legal advice should be sought.
Regardless of the size of your estate or whether you are married or unmarried, every adult should execute an Advance Health Care Directive (formerly known as a Durable Power of Attorney for Health Care). This document is included as part of your comprehensive estate planning documents. The Advance Health Care Directive is used to appoint a family member or friend to make health care decisions for you if you are physically or mentally unable to make those decisions yourself. This document is more comprehensive than a living will or a directive to physicians, and could help to avoid a conservatorship of your person. In this document, you may direct how much, how little, and the types of medical treatment you want your agent to facilitate. For example, you may include details about comfort care measures, whether nutrition and hydration should be provided, when treatment should be halted, or whether your religious tenements restrict certain treatments like blood transfusions. The agent’s authority to take action is triggered only by a determination that the patient lacks mental capacity as determined by the patient’s primary physician.
FREQUENTLY ASKED QUESTIONS
What exactly is “Probate?”
Probate is a court supervised administration of a deceased person’s estate. It is a lengthy public proceeding that follows strict procedural formalities as mandated by the California Probate Code. A typical probate lasts about a year, but could last longer. The expense of a Probate is broken down into attorney’s fees, executor’s fees, and costs (costs include court filing fees, publication fees, recording fees, etc.). Fees for the attorney and executor are statutorily based on a percentage of the gross value of the Probate Estate (“gross” meaning the value of the estate is not offset by any debts or mortgages owed). By way of example, the combined attorney’s and executor’s fees to probate a $300,000.00 home (even if the home is encumbered) would be $18,000.00 plus additional costs averaging $1,500.00. These fees and costs do not include any other expenses such as taxes.
What is some basic terminology I should know about Estate Planning documents?
A properly executed and funded living trust should avoid the probate procedure. A typical trust-centric estate plan includes a Revocable Living Trust, Pour-Over Will, Durable General Power of Attorney, and an Advanced Health Care Directive.
Revocable Living Trust: This document is a legally binding contract wherein the creator of the trust (called the Settlor/Grantor/Trustor) enters into an agreement with the Trustee (or manager of the assets) to manage the Settlor’s assets according to the terms of the contract for the benefit of the Beneficiary (the person receiving the benefit of the assets). Typically, the Settlor may also be the initial Trustee and initial Beneficiary of the Trust.
Pour-Over Will: If you have a trust-based estate plan, then your Last Will and Testament will be used to transfer certain assets into your trust at the time of your death. It will “pour over” certain assets into the Trust that you did not transfer into your Trust prior to your death. The creator of the Will is called the Testator. The Testator nominates an Executor to administer the Will, however, only the Probate Court appoints the Executor to administer the Will.
Durable General Power of Attorney: This document, also known as a Financial Power of Attorney, allows the Principal (the person creating the document) to appoint an Agent or Attorney-in-Fact to manage assets held in the Principal’s individual name such as retirement accounts, vehicles, or life insurance policies. It typically does not allow the agent to manage or access assets held in the Revocable Living Trust (only the Trustee of the Trust can manage Trust accounts). A Springing Durable General Power of Attorney only goes into effect once the Principal becomes incapacitated, whereas an Immediate Durable General Power of Attorney becomes immediately effective once the Principal signs it.
Advanced Health Care Directive/Power of Attorney for Health Care: This document allows the Principal to designate an Agent to make health care decisions on the Principal’s behalf if he or she is unable. It also contains a written set of instructions or guidelines about the Principal’s wishes regarding life-sustaining treatment.
What information should be included in my Trust?
As stated above, a Trust is a legally binding contract and is therefore unique. A Revocable Living Trust should contain detailed instructions covering three important periods of your life:
- What happens while you are alive and well;
- What happens if you become mentally incapacitated; and
- What happens after your death.
It should define all the players of the Trust (Settlor/Trustee/Beneficiary); it should nominate successor Trustees; it should clearly define how a Trustee can resign or be removed and what authorities a Trustee has; it should state who gets the Trust’s income and principal and in what manner; it should provide clear instructions on what happens at the death of the first spouse (i.e. does the Trust require a division into two or more subtrusts at the spouse’s death); it should provide clear instructions on where the assets go at the Settlor’s death and in what manner. Finally, the Trust must be properly funded with assets (this requires formal retitling of certain assets, transfer deeds, etc).
How do I change my Trust?
Changing your Trust requires the same formalities needed to establish your initial Trust. That is, it must state the requisite authority that allows for the amendment, who can amend, and how the amendment must be executed. In our office, we completely restate and republish a Trust document to avoid ambiguities and confusion in the future. Restatements also affect who receives notice when the Settlor dies. Restatements do not require you to retitle assets currently held in the original Trust.
Does my Trust automatically distribute to my beneficiaries at my death?
Contrary to common belief, the Trust does not automatically terminate nor distribute at the Settlor’s death. This procedure is referred to as a “Trust Administration,” and follows the same formalities required in a formal probate, albeit without court supervision. The Trust instrument, as well as the California Probate Code, require the successor Trustee to follow certain rules and regulations prior to distributing assets. Failure to abide by these laws could expose your successor Trustee to liability and monetary damages. A Trust Administration is not nearly as costly as a formal probate, and we do suggest your successor Trustee hire a qualified attorney to assist in the post death administration of your Trust.this text.