Estate planning is a process whereby you decide how to distribute the assets you have acquired during your lifetime to your heirs, beneficiaries, and charities. It also includes planning for the possibility of a temporary or permanent incapacity, during which time someone else would manage your assets and handle such things as investments, debts and expenses, and health care decisions. Estate planning involves a wide range of decisions - legal, financial, and emotional.
Estate planning should be done before you really need it. Once you become incapacitated, you are held under the law to be incapable of creating an estate plan. Estate planning is important for you and also for your loved ones so that a plan is in place should something happen to you whether it be death or a disability. Naturally none of us like to think about these possibilities but advance planning can give you peace of mind, knowing that your loved ones will know your wishes and be able to carry them out.
An estate plan can mean the creation of a will or a trust. A will is a document that sets forth your wishes as to the distribution of your estate. It is usually witnessed by two or more individuals. A will is easy to draft and you can obtain a form for a simple statutory will at the California Bar website. I do not recommend a will if you have an estate over $100,000 as wills have to be probated, incurring unnecessary costs for your beneficiaries.
The other type of estate plan is a living trust, also called a revocable trust. A trust is a document that allows you to leave assets to your beneficiaries without probate. They also provide a means for someone else to take over if you become incapacitated and unable to manage your own estate. Other benefits of a trust are that they are flexible in terms of the provisions; they are more private than wills; they can reduce or eliminate estate taxes for a married couple, and they can usually be administered in a shorter length of time than a probate estate.
Another type of estate plan is to do nothing. There are ways besides a will or trust to pass your assets to beneficiaries however, if the “do nothing” approach is your choice, you still need to have the ancillary documents prepared such as powers of attorney for property management and health care directive and you need to be sure that all of your assets are titled in a way that will avoid probate.
The benefits of having an estate plan are the following:
1. You can provide for the distribution of your estate to minor beneficiaries, over time so they do not inherit a large inheritance at one time.
2. If you become incapacitated, the ancillary documents you create as part of your estate plan can guarantee that someone you trust can handle your finances and make decisions about your health care while you are incapacitated.
3. If your assets approach the value that might be subject to estate tax, the appropriate estate plan can eliminate or reduce the amount of estate tax that your estate will have to pay.
In addition to these benefits, estate planning can also provide techniques to leave money or assets to charity, grandchildren, or special needs beneficiaries. An experienced estate planning attorney can determine which estate plan is appropriate for you, to meet you goals while you are alive and after your death.
Whether you have a will or a trust, you also need a durable power of attorney for property management and an advance health care directive. My estate plans always include these documents as part of the estate plan package.