Estate Planning 101

No one wants to think about mortality or incapacity.  However, failing to establish an estate plan may result in both unnecessary costs and delay and in your loved ones handling your affairs without your input.  If you do not create your own will or trust, the California Probate Code will determine who will inherit your assets.  Those default heirs may very well not be the people you wish to leave your assets to.   

The basic estate plan includes four simple documents: a revocable trust, pourover will, advance health care directive, and durable power of attorney for asset management.

Trust
A trust is contract in which you name someone to handle your assets in the event of your incapacity or death under a framework that you create.  Once the trust is created, you transfer your assets to the trust to be managed under the terms of the trust.  There are a number of different types of trusts and the provisions can be customized to match your specific tax needs and wishes. 

One of the benefits of holding your assets in a trust is probate avoidance.  Trusts provide great flexibility in allowing you to decide how your assets should be distributed upon your death without the need for court involvement. 

Another benefit of trusts is the incapacity planning component.  In the event you become unable to manage your finances during your lifetime, the trust enables the person you select as successor trustee to manage the assets for your benefit.  If no estate plan were in place, it might be necessary for your loved ones to establish a conservatorship for you.  Conservatorships are very costly and result in significant court oversight.   

Pourover Will
For many of us, the most important purpose served by the will is that wills allow us to nominate guardians for our minor children.  Additionally, the will serves to transfer assets left in your name without a beneficiary designation to your trust if you inadvertently leave assets outside of your trust. 

Advance Health Care Directives
Through this document, you nominate someone to make health and end of life decisions for you if you are unable to make them for yourself.  You can include specific instructions to assist the agent in carrying out your wishes. It is often much easier for your loved ones to make difficult end of life decisions if wishes are expressed in writing. 

Durable Power of Attorney for Asset Management
While your successor trustee will be able to manage all of your trust assets if you become incapacitated, not all assets or benefits should be held by a trust - i.e. retirement accounts (depending upon the circumstances), Social Security or pension income.  The power of attorney nominates someone to assist with management of your non-trust assets if you become unable to manage your own assets due to incapacity or for shorter periods of time, such as traveling outside of the country. 

Kristan Shepard
*Kristan is an Encinitas resident and a trusts and estates attorney with Goodwin Brown Gross & Lovelace LLP (www.goodwinbrownlaw.com).  She is a Certified Specialist in Estate Planning, Trust and Probate Law, State Bar of California.