Written by: Jasmine Arooni
An estate simply refers to your assets – including things like your car, home, life insurance, bank accounts, investments, etc. It is important to develop an estate plan to designate how you would like these assets to be handled and how to protect your family in the process.
When to Plan
Estate planning is appropriate at all stages of life. It is important to have certain documents in place to protect yourself and your family in an emergency situation. Different points in life call for different needs that should be considered in your estate plan. The following situations are examples of when action towards an estate plan would be appropriate:
- If you have minor children
- If you have health concerns
- If you are single or newly divorced If you have a blended family
- If you are cohabitating
It is important to have an estate plan in place or the state of California will make all decisions for you through the Probate Code. If your estate is larger than $150,000, it will pass through probate. During probate, the court essentially decides who inherits your assets. In the case of minors, assets cannot be inherited outright and the court will assign a guardian to the child’s estate to hold the funds in a blocked account. Probate is costly and time intensive, often taking a year or more in the state of California. It is disadvantageous because personal information is no longer private and family decisions are left in the hands of the court. There have been countless instances in which poor estate planning has led to court case disputes and probate. It is important to understand the pitfalls of failed estate planning in order to materialize its importance for yourself and your family. A number of the failed cases in California Courts can be explored here.
Setting up a Trust
A trust is important because it allows you to distribute your assets to your beneficiaries at varying times according to your wishes, instead of outright. It also can minimize or eliminate estate (death) taxes and protects you from court involvement during incapacity. The types of trusts are as follows:
- Revocable trust
- Family trust
- Living trust
Essentially, they all refer to a trust created during your lifetime that contains terms that can be changed until your death-at which time they become irrevocable. With a trust, you can determine at what age your children can get the funds and even specify ways you would like them to be used.
Funding a Trust
Once a trust is created, you must ensure that your assets are either owned by you as a trustee of your trust (real estate, mutual funds, savings accounts, etc.) or name the trust as a primary or contingent beneficiary (life insurance, retirement funds, etc.). A fund for your trust is important to avoid probate for your family and assure your assets are distributed how you choose. If a will is already in place, a trust can be created in conjunction and is called a “pour over will.” This is done to ensure that if you have forgotten to transfer any assets into the trust during your lifetime, they will be “poured over” into your trust at death. That way, your trust can remain the controlling document by which all of your assets will pass. Before assets are “poured into your
trust, they will pass through probate, so this type of planning should occur as a last resort and not as a way to avoiding funding the trust.
When you have minor children, you will need the following documents:
- A guardian nomination
- A revocable living trust
The guardian nomination specifies how your kids will be taken care of and by whom and the revocable living trust specifies how your assets are managed in relation to your children. If a family has another baby, it is recommended that the wording of the trust is changed to accommodate any additional children. Some individuals choose to assign non-relatives to be guardians of their children. In this case, it is essential that these wishes be on paper so that the court does not side with a relative in the case of an undocumented decision. If leaving on a short-term trip, you can designate a temporary guardian for your child on a short-term basis with a specified start and end date. This way, the short-term guardian can make medical, school related and other important decisions for the minor.
Consulting a Lawyer
By involving a legal expert in the estate planning process, you can ask questions and ensure that all important information and documents are included in order to protect your family in the way that you intend. Self-drafting the documents is possible, but it does not always address the needs of a family completely. If you have minor children, it is important to speak to your significant other about who will care for your children if something were to happen to you both. It is a good idea to have a list of people that can take on responsibilities and handle your financial assets after you pass away. Whether you decide to make distributions outright or keep them in a trust, you will need a trustee or an executor to help collect your assets.
Working with our Firm
The estate planning process generally takes 4-6 weeks, but our firm can work with you to speed up this process given certain circumstances. Our priority is to provide accuracy and assurance in reflecting each client and their family’s needs. After a consultation, a design meeting, document draft, review meeting, signing meeting, and funding of your trust will take place. We offer a free initial consultation and virtual meetings to accommodate the needs of clients across California.