Legal issues that involve death and dying can be difficult to bring up. But, there is good reason to do so. In fact, having your financial and health interests in order will give you peace of mind knowing that you and your loved ones will be taken care of as you get older. To that end, there are a few key documents that should be part of your estate plan.
Goals of Estate Planning
Now, there are several reasons to have at least a basic estate plan in place in California. Here are are a few things that these instruments can accomplish:
- Ensuring your well-being during medical emergencies
- Protecting your health and finances in the event that you become incapacitated
- Knowing that your assets will be transferred to the people/organizations you want them to be transferred to after you pass way
- Paying the least amount in taxes on your estate
- Avoiding the probate process
- Assigning guardians for any minor children
Last Will and Testament
With that in mind, the most basic and popular estate planning tool is a will. As you may know, this document describes who will be entitled to your property after death and in what amounts. Keep in mind that without a valid will in place, your property will pass according to California’s intestacy laws. These may lead to your property being divided in a way that is against your wishes.
Now, a will can do more than simply direct where your property goes. For example, if you have any minor children, you can nominate a person to serve as guardian. In addition, you have the option of naming an executor. This person is tasked with managing all of the affairs related to settling your estate.
Trusts as Part of Estate Plan
Trusts can also be a key component of a comprehensive estate plan. One type of trust, known as a “living trust” can be an ineffective method for avoiding taxes and probate. These trusts are created while you are alive and involve an arrangement where a person or organization holds your property for the benefit of certain individuals, known as beneficiaries.
One reason to create a living trust is so that you can direct where your assets should go in the event that you are incapacitated and can no longer make these decisions yourself. Note that you may choose to name yourself as one of the beneficiaries.
These trusts can be either revocable or irrevocable. As the name suggests, an irrevocable trust cannot be withdrawn by the person that created it, referred to as the grantor.
Now, with an irrevocable living trust, because you no longer have discretion over where the assets go, it can be a way to provide protection against creditors. However, bear in mind that you would be giving up some control over how the property is divided. For that reason, it’s important to make sure that the terms of the trust and the person that serves to the administrator the trust, known as the trustee, are carefully selected.
Another type of trust is what is referred to as a “testamentary trust”. These trusts are created through your will and take effect after you pass away. Note that testamentary trusts do need to go through probate in California.
Power of Attorney
In addition to a trust, you should also consider establishing a Power of Attorney. A POA gives a person or organization the legal power to handle your affairs should you become incapacitated.
Now, there are two main types of POAs, “springing” and “durable”. Springing POAs go into effect once a doctor declares you incapacitated. Durable POAs goe into effect immediately.
POAs can serve several functions. Specifically, they may allow someone to manage your finances, buy or sell property on your behalf, file your tax returns, and perform other legal transactions. However, note that certain powers cannot be delegated to another person. Examples include the authority to make a will, vote, or pursue a divorce.
Health Care Directive
Along with a POA, it’s generally a good idea to create an Advance Healthcare Directive. These are often referred to as a Power of Attorney for Healthcare, and they grant someone the authority to make important health decisions on your behalf. The directive typically takes effect in the event that you become mentally incompetent or otherwise incapacitated.
These instruments also specify your preferences regarding end-of-life decisions, including issues related to diagnostic testing, use of resuscitation, and artificial nutrition.
The Probate Process in California
After the death of someone in California, the responsibility for settling the person’s estate lies with the executor. In cases where there was no will or an executor was not named in the will, a family member can ask to be appointed by the court. This can also occur if the executor is unable or unwilling to serve.
To begin the probate process, the executor files what is known as a Petition for Probate with the court and pays a filing fee. There are many duties that will need to be performed by the executor in settling the estate, including:
- Providing formal notice to beneficiaries, family members, and creditors
- Filing an inventory and appraisal of all probate property with the court
- Applying for a taxpayer ID for the estate
- Open an estate bank account
- Safeguarding all assets
- Paying any claims
- Distributing assets
As you can imagine, going through probate can be quite cumbersome. For that reason, many executors choose to hire an attorney to assist with the process.
How to Avoid Probate
Due to the potentially complex and time-consuming nature of probate, you may be interested in learning how it can be avoided. Perhaps the easiest way is if the person that passed away had a relatively small estate. In California, if the deceased person’s total assets to be distributed are worth less than $150,000, probate is not required.
In addition, certain types of property ownership transfer automatically at death and do not need to go through the probate process. Examples are community property owned by spouses and real estate owned between joint tenants.
Further, payable-on-death accounts and securities also pass outside of probate. And, as mentioned, living trusts do not need to be probated, so long as the property was placed into the trust before the grantor passed away.