We work together with clients to achieve their estate planning goals. While creating an Estate Plan is on many people’s To Do List, many simply “don’t get around to it.” However, not creating an Estate Plan often results in a multitude of tasks ending up on the To Do List of your loved ones if you become incapacitated or when you pass away. We can help you cross off this important item that you may have been thinking about for years.
For many, the term “Estate Planning” is a confusing label. In essence, it comes down to properly prepared documents stating who you want to step into your shoes when you cannot take action and who should receive your assets after you pass away. We educate clients regarding the purpose of each step and counsel clients how best to achieve desired results. We offer knowledge, experience and understanding to help guide you in setting forth your wishes and decisions in an Estate Plan. If you do not set forth your wishes and decisions, then the statutory provisions set forth by the State of California will be followed. In other words, the government has an Estate Plan for you. But the government’s default plan is probably not the one you want.
FAQs about Estate Planning
Who needs an estate plan?
Estate planning is for adults who want to act upon their rights to determine who may make decisions for them when they cannot and adults who want to state who will get their assets when they pass and how the beneficiaries will receive the assets. Some of the services available for various life stages include:
- Young adults leaving home for college – to create Powers of Attorney for finances and health care.
- Young adults beginning their careers – to gain an understanding about how one should own assets and what documents are important to have at each stage of employment.
- Newlyweds – to gain an understanding about considerations when deciding who should act on your behalf if you are incapacitated due to an accident or illness and how California community property laws impact asset ownership after getting married.
- Parents – a Nomination of Guardian in the Event of Incapacity or Death.
- Homeowners – a Revocable Living Trust funded with their residence.
- Business owners – to gain an understanding about how one’s business fits into the individual’s and family’s overall financial future with planning and without.
- Empty nesters – to gain an understanding as to how their acquired assets align with their estate plan whether funded into a revocable living trust or distributed by a different arrangement.
- Mature individuals – to create Powers of Attorney for finances and health care before incapacity due to dementia-related or other conditions makes stating one’s own wishes no longer an available option.
We want something simple, will you do a simple plan?
We draft estate plans that fit each person’s situation. If “simple” fits, then it may be an option. However, “simple” is generally the exception, not the rule. With second marriages, blended families, family members with special needs, and many more important factors, many clients end up learning that they not only need but actually want a customized estate plan. Those with first-marriage, two-parent households also find that they have specific wishes and prefer to document those in an estate plan that reflects their values and goals.
How much will an estate plan cost?
It depends on which services you select. The adage, “You get what you pay for,” is particularly applicable. It is not uncommon for prospective clients to come in with estate plans previously prepared, and the plans are improperly executed and/or do not reflect what the signor intended the plan to say. Consequently, these issues may lead families into court, and there are no “do-overs” after one’s passing to alleviate the confusion and burden of an ill-prepared estate plan. Therefore, we encourage clients to create an estate plan that suits their needs and update it when needed.
We don’t have that much, why would we need an estate plan?
Aside from setting forth who you want to step in your shoes if you become incapacitated, estate plans should not only address financial accounts and homes but also other important assets and concerns, such as digital assets or firearms. Acquiring knowledge about how an estate plan can affect all of your assets is a powerful tool to sharing your voice when you cannot express it or after your passing.
I heard celebrities such as Aretha Franklin, Prince and Amy Winehouse died without an Estate Plan. If they did not have one, why should I?
Our goal is to minimize the time and cost necessary to wrap up one’s estate so that family and friends can focus on healing from the loss and carrying on with their own lives. When you do not have an estate plan, usually a lot of extra time and extra money are required to work on, finalize and distribute an estate.
We have a new baby and have heard we should name a Guardian. Can you do that?
Yes, we can discuss documents wherein parents nominate a Guardian who would care for minor children in the event of the parents’ incapacitation or passing.
My child is leaving for college, why would a young adult need an estate plan?
Due to privacy regulations, administrators, financial institution staff and medical personnel do not necessarily contact parents regarding their young adults. Young adults can authorize parents to be contacted or for parents to have access to financial accounts or university information, which may minimize administrative hurdles or be helpful in times of crisis.
We executed an estate plan 20 years ago, why should we update it?
Our experience with clients who signed estate plans some time ago confirms that given the changes in the law, as well as one’s own family life, it is unlikely that an old estate plan reflects current wishes upon incapacity or one’s passing. Not updating an estate plan may end up costing an estate much more money than would have been spent to update it.
Estate Planning Process
What is the Estate Planning Process?
- Potential client requests an Estate Planning Questionnaire.
- Potential client completes the Questionnaire and returns it to the office.
- Potential client communicates with law firm that he or she would like to set up a consultation up to one hour.
- Potential client and attorney meet to discuss estate planning and the likely general direction of a customized estate plan given the responses in the Questionnaire.
- Once both potential client and attorney decide to move forward with creating an estate plan, the prospective client and firm sign a Legal Services Agreement setting forth the fee for the estate plan. The client will pay the fee in full, which will be initially held in a client trust account.
- Client will provide additional requested information. Thereafter, the client and attorney will meet for a Design Meeting, which is when they will go into depth about the needs and wants of the client and the tools that can help implement those.
- Additional information will be exchanged between client and firm as needed.
- A signing meeting will be scheduled about a month later when the client will sign the documents.
- When ready, the client will pick up the estate planning documents.
- If the firm is overseeing funding, that part of the process will occur after the execution of the original documents. If the client is handling funding, it should be done soon as possible after the estate planning documents are signed.
Glossary of Estate Planning Terms
Glossary of Commonly Used Words and Terms in Estate Planning
Annual Gift Exclusion: is the amount that someone can give to another during the calendar year without having to pay gift tax. The 2018 gift tax exclusion per beneficiary is $15,000 (see IRC section 2503 and periodic adjustment).
Applicable Exclusion Amount (AEA): is the amount that someone can leave to heirs without paying estate tax (a transfer tax at death). The 2018 AEA is $11,180,000.
Basis: this is the tax value of an asset, usually measured by the date on which the asset was acquired. Capital Gains tax is paid based upon the increase in value/gain from the owner’s basis to the value when the asset is sold.
For example, if you paid $10 for an item and over time, it increases to $100, you have a basis of $10 and a “capital gain” of $90. If you sell the asset, you pay a capital gains tax based on that $90.
Carry-Over Basis: if you give the above-noted property away during your life, the person who receives it has the same basis you had – this is “carry-over basis.” If the person sells the property for $100, their basis is still $10, and they pay tax on the $90 gain. This is generally the less desirable gain because the person who sells the property has to pay the capital gains tax liability based upon the original owner’s “carried-over” basis.
Step-Up Basis: if you pass away owning an asset that has increased in value and it is then given to someone, he/she will generally get a “step-up” in basis to the date of death value. Example: you purchased an asset for $10, and by the time of your passing, the value of the asset increased to $100. Beneficiaries then receive the asset, which is valued at $100, and they sell the asset for $100. Because the beneficiaries received the “stepped up” basis in your estate upon your passing, the beneficiaries have a capital gain of $0.
Strategies that target basis adjustment seek to eliminate carry-over basis and give step-up basis to beneficiaries.
Beneficiary: is the person, entity, or group for whom a trust is established. A beneficiary may be a present interest beneficiary, that is entitled to receive distributions from a trust at the present time, or a future interest beneficiary, entitled to receive distributions at some point in the future. They may be vested, where their rights under the trust may not be taken away, or contingent, where their rights are still subject to condition that may or may not occur in the future.
Bypass/Credit Shelter Trust: this is the portion of a deceased spouse’s property that gets charged against the decedent’s Applicable Exclusion Amount. The bypass trust can provide benefits for the surviving spouse or other beneficiaries (or a combination), and the trust is typically designed so that the value of the assets allocated to the bypass trust do not get included in the surviving spouse’s estate later when he/she passes away.
Community Property: this refers to property acquired by a couple during marriage, or property that is combined or commingled between spouses. This only applies to community property states, which California is one of. The biggest benefit of community property is that the entire value of the property gets a basis adjustment (also known as a step-up) when one spouse dies. As an example, if a surviving spouse sells community property after the death of their spouse, the capital gain is based on the increase in value from the first spouse’s death (where the basis got adjusted on both spouses’ shares) to the value at the date of the sale. This allows the surviving spouse to save money on capital gains tax liability.
Decedent: is the person who died.
Disclaimer: is a legal “no thank you.” It is a technique that allows someone who is entitled to receive property to disclaim it and therefore allowing it to be distributed to someone or somewhere else. A disclaimer allows a surviving spouse to disclaim property into the bypass trust, providing flexibility that may be desired.
Executor/Personal Representative: is the person who is named in a will to administer the estate of a deceased person and if applicable, the probate estate. An administrator administers a probate estate where there was no will but there is a probate action.
Fiduciary: a party (person or entity) that owes legal duties to another and is held legally responsible for the fiduciary’s actions. (A trustee is a fiduciary of a trust. An executor is a fiduciary of a Will).
Funding: is the process of transferring property to the trust. The trust must hold title to property in order for the trust to work – similar to a car needing fuel to run. If there is any property that has not been funded to the trust when the client dies, that property must generally go through state probate proceedings before anyone can do anything with the property.
General Power of Appointment (GPOA): is a power that is reserved by a trust maker or given to someone else to direct how property in a trust gets distributed. General powers of appointment are included in the power holder’s estate. To be a “general” power of appointment, the person holding the power must be able to appoint the property to any one of the following: themselves, their estate, their creditors, or the creditors of their estate.
Irrevocable Life Insurance Trust (ILIT): a form of irrevocable trust that is designed to own high-value life insurance. A client establishes an ILIT and pays enough money into the trust to allow the trustee to purchase life insurance on the life of the client (and often, the spouse). When the insured person dies, the death benefit of the life insurance is paid into the trust but is not included in the gross estate of the client (and therefore, keeping it away from estate tax liability).
Intestate/Intestacy: is the status of someone who dies without a will or trust in place. If you do not have an estate plan, your property will pass through the laws of the state where you reside.
Probate: the court proceeding that must be undertaken to transfer the property of a deceased person to surviving beneficiaries. They are generally a public proceeding and in California, the process can be time consuming and costly. One of the objectives to trust-based planning is to avoid probate and to save time, minimize the likelihood of disputes among heirs and to preserve privacy.
Revocable Living Trust: is the main document and planning solution that clients use to transfer their property so that a trustee can manage property if the client becomes incapacitated and/or when a client
Settlor/Trust Maker/Grantor: in general, these refer to the individual who establishes a trust and are usually the same person. The Settlor/Trust Maker establishes a trust and determines how it will operate. The Grantor put his or her property into the trust.
Survivor’s Trust: in a joint revocable living trust, this term refers to the surviving spouse’s share of the joint trust property, plus any separate property the surviving spouse had. The deceased spouse’s property typically will flow into the marital and/or bypass trusts. The survivor’s trust
Trust: a formal legal relationship wherein the trust maker appoints a trustee to manage trust property for the benefit of beneficiaries: The trustee holds title to trust assets as a fiduciary.
Trustee: the one who manages and administers on a day-to-day basis the trust for the benefit of the beneficiary or beneficiaries. The trustee has a number of fiduciary duties to the beneficiaries to make sure that the trust is administered properly according to the terms of the trust and governing law and that the beneficiaries’ interests are protected. There must always be a trustee for a valid trust to exist, and all trustees are held to a fiduciary standard.
Trust Protector: is someone besides a trustee or a beneficiary who through authorized special administrative powers can oversee trust administration of an irrevocable trust so the intent of the trust maker is carried out even when the law or circumstances change in the years after the trust was executed and when the trust maker no longer can change the trust. (This role is called Trust Advisor by some).
Will: among other details, a Will is a document that states final wishes such as who should take care of one’s estate (an executor) and who should get one’s assets (a devisee is the general term).