Estate Planning

For Orange County and California residents

Many think “Estate Planning” is about planning for property after death, or about avoiding taxes - but it is much more than that. It is about people: spouses, children, favorite family members, and close friends; their security and prosperity without you. It is about your values.

You are unique and therefore your estate plan should be unique. A skilled advisor can assist you to accomplish things that most people have never thought about and don’t understand, since estate planning is complex, and changes occur in legislation and circumstances. It is living planning as well as planning after death. It is about the time necessary to identify and accomplish goals and about the money and property necessary to create and maintain a lifestyle for your loved ones after death. It is also about state and federal taxes: income, gift, estate and generation skipping taxes. But there are many issues in estate planning more important to most people than taxes.

For example,

1. Who will be the guardian of your minor children ? Someone you chose or someone the government chooses ?
2. Will you plan to privately administer your estate or will you allow the government to plan for you ? In other words, will you be a voluntary or an involuntary philanthropist ?
3. Who will take care of you and how will you be taken care of if you become disabled ?
4. Who will make medical decisions for you, including life support, and how will they be made if you are disabled ?
5. How can you assure that your entire family is not burdened by taking care of you if you become disabled ?
6. How can you protect yourself from creditors ?
7. How can you pass your family values with your property to your children ?
8. How can you assure that your children’s character will not be spoiled by their inheritance from you ?
9. How can you leave your assets fairly, if not equally, to the children of a blended family ?
10. How can you assure that your surviving spouse will not worry about the management of your estate if you pass away ?
11. How can you protect your surviving spouse from a new spouse who becomes a financial predator upon his/her remarriage after your demise ?
12. How can you develop a family business succession plan during life or after death ?
13. How can you avoid disputes among your family members after your demise ?

There are many misunderstandings about estate planning. One of the most common misunderstandings is the thinking that “I only need a trust to avoid probate and accomplish my objectives and any trust will do…” Like many misunderstandings, this one is based upon a twisted version of the truth.

The truth is that a trust is a contract and courts honor the intentions of the parties to a trust which provides for the private administration of their estate at disability or death so that, theoretically, they do not then need to go through the administrative nightmare of probate court. However, that is like saying that the only thing you need to be successful in business is a business plan and any business plan will do. No one would believe that, yet many people whose trusts I have reviewed actually believed that they only need sign the trust to avoid probate and accomplish their objectives. Many years of experience administering trusts that I have not drafted is that only around 50% actually achieve the client’s objectives.

There are many reasons for this. The primary reason trusts fail is that the assets have not been transferred to the control of the trust. In my opinion, the second major reason trusts fail is that they do not have the correct trustees. Another important reason is that no one ever explained the multitude of alternative benefits in estate planning to the client, so that they could make intelligent decisions about what they wanted to accomplish.

The client had perhaps consulted one of the many attorneys simply providing a “trust book salesman” service. They purchased a boilerplate trust, never updated it, and died without knowledge of the benefits that might have been available if they had been correctly advised. The boilerplate trust failed because it didn’t accomplish the client’s true needs.

Other reasons trusts fail are because changes in the law have not been implemented into the trust, or that the trust has not been updated to reflect the client’s current wishes.

For more information about the reasons that trusts fail, or estate planning alternatives, please reference Mr. Wittick’s short presentation on Estate Planning Alternatives. To learn more about fundamental estate and trust planning, please reference the somewhat longer presentation entitled The Truth about Estate Planning.

Estate planning is also a process, that if not carried out privately by you, will be completed publicly and very expensively by the government.

The Government’s Plan for You

The California Probate Code allows the court to appoint a conservator of the person for someone who cannot properly attend to his or her personal needs and a conservator of the estate for someone who is “substantially unable to handle his or her financial resources”. That means that if you become disabled, the government may decide who will take care of you and that your care will then be governed by the expensive and time consuming judicial procedure known as a conservatorship until you are no longer disabled. And when is the last time that you have heard of any mentally disabled person being able to resume care of themselves ? That’s right. You will probably be under the care of the courts for the rest of your life.

At death, California law dictates that your assets will go to your “heirs at law” in predetermined percentages through the very expensive judicial procedure known as probate. Please reference the practice area entitled Probate Law for further information. 100% of the assets will be distributed when your children are 18, regardless of maturity or financial capability.

California will also decide who raises your minor children if the other spouse does not survive or is not custodial (as after some divorces). If your family or friends disagree about who should raise your children, the court will have to step in, resulting in high legal costs and possible family rifts that never heal. Your children may even be placed in foster care until the dispute is resolved in favor of a court appointed guardian.

Your Estate Plan

A good definition of fundamental private estate planning is a plan to control your property while you are alive, take care of you and your loved ones if you become disabled and give what you have to whom you want, the way you want and when you want and to save every last tax dollar, professional fee and court cost possible.

Estate Plans - the Fundamental Questions

Because estate planning is not just about reducing taxes but also about making sure your assets are distributed as you wish both now and after you're gone, you need to consider these questions before you begin your estate planning.

1. Who Should Inherit Your Assets?

   If you are married, before you can decide who should inherit your assets, you must consider marital rights. Under California Community Property law, each spouse has a one half interest in property acquired during marriage whereas each spouse may own 100% of their separate property defined as property owned before marriage, property acquired after marriage by gift or inheritance or the rents and profits of such property. Therefore, if you die without a will or living trust, state law will dictate how much passes to your spouse.
   Once you've considered your spouse's rights, ask these questions:
   
   • Should your children share equally in your estate?
   • Do you wish to include grandchildren or others as beneficiaries?
   • Would you like to leave any assets to charity?
   • Which assets should they inherit?
   • When and how should they inherit the assets?
   To determine when and how your beneficiaries should inherit your assets, focus on these factors:
   • The potential age and maturity of the beneficiaries,
   • The financial needs of you and your spouse during your lifetimes, and
   • The tax implications.

2. Why Should I have a Durable Power of Attorney?

   A Power of Attorney appoints someone you know and trust to make your personal health care and financial decisions even when you cannot. If you are incapacitated without these legal documents, then you and your family will be involved in a judicial proceeding known as a guardianship and/or conservatorship. This is the court proceeding where a judge determines who should make these decisions for you under the ongoing supervision of the court

3. Will or Trust?

   If you wish to decide to whom, how and when your assets are distributed at death, you have two basic choices, a will or a trust. Please reference a simple side by side chart comparing the features of each. To learn more about Wills, please reference Probate Law because all Wills are subject to the judicial procedure known as probate. Please reference Living Trusts to learn more about Living Trusts.

4. Who should draw up your will or living trust?

   A lawyer! Don't try to do it yourself. Estate law is much too complicated. You should seek competent legal advice before finalizing your estate plan. While you may want to use your financial advisor to formulate your estate plan, wills and trusts are legal documents. Only an attorney who specializes in estate matters should draft them. You would go to a doctor for advice concerning your health. You should go to a lawyer for advice concerning your wealth.

5. Who should I select as an executor or trustee?

   You also need to select someone to administer the disposition of your estate — if you have a living trust, a trustee, and an executor or personal representative under your Will. 1) An individual, such as a family member, a friend or a professional advisor, 2) an individual professional fiduciary, or 3) a corporate trustee which is an institution, such as a bank or trust company, can serve in these capacities. Many people name an individual, an individual professional trustee and an institution, as successor trustees and executors, to leverage their collective expertise.
   
   What does the executor or personal representative do? He or she serves after your death and has several major responsibilities outlined under Fiduciary Law.
   
   What are the advantages of each category of trustee and executor? An individual has the usual advantage of being familiar with the family and therefore knowing what the client would have intended, they typically are paid lower administrative fees, and they can always hire professional advisors if needed. An individual professional fiduciary is employed full time as either a trustee, executor, conservator etc., typically is paid more than an individual nonprofessional but less than a corporate trustee, and is useful for clients who do not have an individual they trust enough to be trustee but do not wish to pay the significant fee of a corporate trustee. A corporate trustee does not die, does not become disabled, if they are sued they are collectable, they are specialists in handling trust administrations, are independent, and, at the very least, are useful as a last successor trustee so that, if all other trustees die or resign, the beneficiaries do not have to petition the court to appoint a trustee.
   
   Finally, make sure the executor, personal representative or trustee doesn't have a conflict of interest. For example, think twice about choosing an individual who owns part of your business, a second spouse or children from a prior marriage. A co-owner's personal goals regarding the business may differ from those of your family, and the desires of a stepparent and stepchildren may conflict.

6. Who should I select as a guardian for my children?

   If you have minor children, perhaps the most important element of your estate plan doesn't involve your assets. Rather, it involves who will be your children's guardian. Of course, the well-being of your children is your priority, but there are some financial issues to consider:
   
   • Will the guardian be capable of managing your children's assets?
   • How will the guardian determine your children's living costs?
   • Will the guardian be financially strong? If not, your estate plan should include instructions to compensate the guardian for necessary expenses.
   • Will the guardian's home accommodate your children? If not, your estate plan should include instructions allowing the guardian funds necessary to assist the guardian in providing comfortable care and housing for your child.

7. How do I maintain control over my assets in an estate plan?

   Please reference the Home page tab entitled Law Firm Procedures to the subtitle Transfer of Title and/or Beneficiary Designation of Assets to Plan.

8. Is it important to maintain or update my estate plan and, if so, how do I do that?

   Please reference under Updating and Maintenance.

A cookie-cutter approach is not viable in estate planning. Please don't use a template form method, consult an experienced professional.