An estate plan can provide peace of mind when dealing with life’s uncertainties. Only about 40% of Americans have taken steps to make a plan for what they would want to have done if something should happen to them – either temporarily or permanently.
An estate plan contains a legally enforceable set of decisions that become effective as certain events take place in a person’s life. Estate plans are about more than just transferring assets upon death. Estate plans also include arrangements for the care of persons affected by death or incapacitation. They can provide guidance to medical professionals and loved ones when making difficult decisions about a person’s health.
Since a typical estate plan is about more than the transfer of assets at death, it makes sense for any adult to have at least a simple plan in place. The unexpected can happen at any time, and the more prepared a person can be for any event, the easier it will be for family members and loved ones to get through a difficult situation.
An estate plan lets everyone know a person’s wishes when they die or when they become physically or mentally unable to make legal decisions for themselves. Decisions can be made with an estate plan that would otherwise need to be decided by a judge and require a court proceeding.
An estate plan can name the persons who should serve as guardians for minor children if their parents should die. An estate plan can appoint a person to act on behalf of another in matters of business or personal health. An estate plan can also express a person’s desire for certain medical procedures under specific circumstances. An estate plan can minimize estate taxes.
If a person has not executed an estate plan, a court often needs to get involved when the person dies or becomes incapacitated. Real estate and personal property will be distributed according to California law, and a court will need to appoint any representative necessary to handle business or healthcare decisions. Court processes can be slow and costly and may not produce desired results.
For a lot of people, creating an estate plan may be an uncomfortable or unpleasant task. The prospect of facing mortality or thinking about debilitating injuries or illnesses is not something people enjoy doing which makes it easier to put off. The reason most people give for the tendency to procrastinate about estate planning is that it is not a priority.
A recent study by Caring.com found the following top four reasons why American adults do not have estate plans:
The study also showed persons aged 55+ are the age group most likely to have done some estate planning. However, it is young adults – ages 18-34 – that have shown the biggest increase in estate planning since the start of the pandemic.
Estate planning can get very creative and complex when assets are substantial and taxes are an issue. For the majority of people, a few basic documents are usually sufficient to accomplish their goals and give them the peace of mind that comes from taking care of personal business.
The following documents typically form a basic estate plan in California. Whether a person decides to use a will or a trust as the primary document for the distribution of their property depends in part on what they are trying to accomplish and in part on personal preference.
A will is the standard document used to transfer property when someone dies. Wills must be in writing and be signed in the presence of two witnesses. Wills are subject to probate law and must go through the court-directed probate process. Trusts are really a type of will alternative that can transfer property without court involvement. But trusts cannot accomplish the same things as wills, and so most people who decide to create a living trust for estate planning purposes also have a will as a backup.
Often trusts are promoted as the better estate planning tool because they avoid probate – which can be both lengthy and costly. But when there are minor children in the family, parents may want to designate a guardian for the children, and that must be done in a will because the designation is still subject to court approval.
Wills are designed to wrap up final affairs and then be done. A trust is often used when more long-range planning – beyond the life of the person creating it – is desirable for business or personal reasons. A trust can be created by a will but the trust will not exist until the will goes through probate.
Selecting the appropriate type of estate planning vehicle is based on individual circumstances and preferences. What is right at a particular time of life may not continue to be adequate as years go by and circumstances change. It’s a good idea to review estate planning documents periodically or after significant changes in financial status to make sure an estate plan continues to meet a family’s changing needs.
Some types of property may not be transferred by an estate plan because of how the property is owned or the type of property it is. For instance, land can be owned in what’s called ‘joint tenancy.’ Joint tenancy ownership gives the ownership interest of a deceased joint tenant to the remaining joint tenants automatically at the time of death.
Bank accounts and retirement accounts allow the owner to designate a beneficiary or beneficiaries to receive the proceeds of the account. When the account owner dies, the contents of the account pass to the beneficiaries without probate and free of trust (except in the case of minors).
Life insurance proceeds are paid directly to beneficiaries upon proof of death. Payouts on life insurance policies are not typically part of the estate of the decedent when they are paid to other people.
About half the states, including California, allow persons to transfer a single-family residence or small multi-family dwelling unit via a transfer on death (TOD) deed. TOD deeds transfer real property without going through probate and are revocable until the person executing the deed dies. Certain formalities must be observed for the transfer to be legally effective. A TOD transfer does not avoid the debts of the transferor.
California is a community property state which means the law characterizes most property acquired during marriage as owned equally by both partners. Property owned prior to marriage or received by gift or inheritance during the marriage remains separate. A community property agreement allows partners to designate all of their property as belonging to the marital community and transfers one partner’s interest to the other upon death.
While there are certain documents that all estate plans should include, estate planning law can be customized to meet the unique needs of a particular family. No two situations are exactly alike, and no two estate plans will be identical either. It’s important to get legal advice from the law office of CA estate planning lawyers who understand what a client is trying to accomplish and will use those tools that most effectively achieve a client’s desired results.
The California estate planning attorney at Korompis Law works with families in Riverside County to create estate plans uniquely suited to meet the needs of each client. The law firm provides legal services to young families in southern California who are just starting out as well as professionally established couples with years of experience who may be thinking about retirement.