The Basics of Estate Planning

No matter what stage of life one is in, it is never too early or too late to reflect on your estate planning needs. Life is nothing short of unpredictable, things can change instantly, and when they do, it is vital you be prepared to take care of those closest to you.

Often times, people are skeptical or unwilling to begin the estate planning process because they do not want to think about death, they do not know where to begin, or they believe they do not have enough assets to make a will, trust, or other plan necessary. Despite these common roadblocks, estate planning is a crucial process for everyone. Estate planning ensures several things including the following:

1. Ensuring your wishes are respected.
2. Ensuring your assets are protected.
3. Ensuring your loved ones are provided for once you are gone.
4. Ensuring you are prepared for the unlikely event of your own incapacity due to illness or disability.
5. Ensuring the avoidance of probate court.

While this is not a comprehensive list, one can already see estate planning goes far beyond whether one has an extensive list of high value assets to distribute upon death.

What are the Key Components of Estate Planning?

The estate planning process without competent counsel can be daunting. However, with the right counsel, one can navigate the process with ease and prepare the key components of an estate plan, including the following:

1. Trust: A trust is a legal arrangement that allows the trustee to hold assets on behalf of the beneficiaries. Moreover, a trust can provide control over asset distribution. Overall, a trust is vital to avoid the costs and delays associated with probate.
   1. Parties Involved in a Trust:
      1. Trustor: The individual who funds the trust.
      2. Trustee: The individual who manages the trust property for the beneficiary(ies).
      3. Beneficiary(ies): The individual or individuals who benefit from the trust.
   2. The Most Common Type of Trust: The most common type of trust is the revocable living trust. People create the following while they are alive, in order to leave property at their death. A revocable living trust is extremely advantageous because it saves surviving family members the money, time, and effort necessary to go through probate. Probate remains unnecessary because property left through a revocable living trust need not go through probate prior to being transferred to the beneficiary(ies). Moreover, the living trust is revocable in that it may be changed or amended at any time absent the consent of the beneficiary(ies). Overall, a revocable living trust is an invaluable tool in that it offers flexibility and control during one’s lifetime, while also serving as a mechanism that allows for the smooth transfer of assets to your loved ones upon death. 
2. Will: A will is a legal document outlining how one wishes their assets to be distributed after their death and only takes effect after one’s passing. Additionally, a will allows for individuals with minor children to name guardians for their minor children should they pass.
3. Durable Power of Attorney (POA): A legal document that remains in effect even if the principal becomes incapacitated. The term “durable” specifically refers to the POA’s endurance lasting through the principal’s incapacity. A durable POA will typically cover one’s ability to designate an agent to act on their behalf with regards to financial affairs while they are still alive should they become incapacitated or unable to do so. For example, this document will allow the agent to assist in tasks such as paying bills, filing tax returns, and more.
4. Advance Healthcare Directive: A legal document that allows one to designate an agent to make healthcare decisions for them should they become incapacitated or unable to do so. The following document also allows one to lay out their specific wishes for their agent to review and consider.

Beginning the Estate Planning Process

1. Consult with an Estate Planning Attorney: To create an estate plan, it is advisable to consult with an experienced estate planning attorney. The attorney will guide you through the process, help you understand legal implications, and ensure the estate planning attorney documents are tailored to your needs and specific goals.
2. Assess Your Assets: Generate a list of all your assets, including property, bank accounts, investments, and personal property. Reviewing one’s assets allows one to determine what should be included in the trust and how they should be distributed. 
3. Identify Your Trustee: Often times, individuals remain unsure who they wish to act as the trustee of their living trust, and choosing a trustee can be a stressful experience. In choosing a trustee, one should keep in mind, a trustee’s overall responsibility is to carry out the trust’s directions. In order to carry out the trust’s directions though, the trustee must act as a fiduciary, manage the assets of the trust, understand the terms of the trust, potentially invest assets when necessary, administer the trust, and more. Therefore, it is vital the trustee be a trustworthy individual or entity, as the trustee will manage the assets according to your instructions and distribute them to the beneficiaries upon your passing.
4. Identify Your Beneficiary(ies): It is important to specify who will receive the assets and any specific instructions regarding the distribution. Beneficiaries may include family members, friends, or even charitable organizations.
5. Create Essential Documents: Work with your attorney to create all the following essential documents including not only the trust, but the will, durable power of attorney, and advance healthcare directive.
6. Review and Update: The estate planning process is a continuous and ongoing process as one progresses in life. It is important to review all estate planning documents regularly to ensure they reflect your current wishes and circumstances. Major life events such as marriage, divorce, birth, or death may require revisions to your documents. Additionally, it is important to keep your estate planning documents up to date to maintain their effectiveness.

Commonly Asked Questions:

What is the difference between a will and a trust?

Often times, clients will ask what the difference between a will and a trust even is. While both share the common goal of facilitating a unified estate plan, there are some key notable differences.

See chart below:

Do I need an estate plan if I don’t have a lot of high value assets?

Regardless of whether you have a lot of high value assets, an estate plan is how one voices their wishes for the assets they do have. Regardless of asset value, not having a plan in place has the potential for chaos and dispute. With an estate plan in place, you have the power to control exactly how your property is disbursed. Additionally, as mentioned, estate planning offers several important benefits beyond just managing money and assets. For example, it provides for protecting your minor children by designating a guardian, it provides for healthcare decisions down the road, it allows the bypass of probate, and more. 

Why hire an estate planning attorney rather than using an online template service?

Too often, individuals use an online template service to create their estate planning documents. While these services can be helpful for understanding the estate planning process, they are not reliable in drafting an overall estate plan. Templates provide a one-size-fits-all solution to individuals with completely different goals and safeguards needed. 

More importantly, the law is continuously changing, and there is no way for a non-expert to know whether the template they are using complies with the latest and most up to date laws. While an online template service may seem efficient and cost effective now, you run the risk of a completely unenforceable estate plan. On the other hand, you can hire an expert whose job is to know and understand the law, stay up to date with the most recent changes, and provide individualized tailored estate plans based on every individual’s unique and different situation.

Conclusion

Overall, estate planning is one of the most important things you can do for not only yourself, but your family. An estate plan is a roadmap for who will inherit your assets, who will take care of your children should you pass, who will take care of you should you become unable to do so, end of life planning, and so much more. Absent an estate plan, California will make a number of decisions for you. More importantly, those decisions will fail to take your wishes into consideration.

Therefore, an estate plan ensures your wishes are respected, your loved ones are provided for, and potential disputes are avoided. Consulting with an estate planning attorney and following the necessary steps will allow you to establish an estate plan that aligns with your goals and safeguards the financial security of your loved ones.