Estate Planning

WHAT IS ESTATE PLANNING?

Estate planning is the process of structuring your assets in such a way that they are owned and managed as you wish during life, and will pass to your desired heirs and beneficiaries in an orderly way upon your death.

A very important aspect of estate planning is incapacity planning. For some people a living trust, and for everyone, Powers of Attorney for Financial Affairs and Advance Health Care Directives will allow for the orderly management of your legal, financial and health care needs during any period when you may be incapacitated and unable to manage your own affairs.

DO I HAVE AN ESTATE?

Many people think estate planning is only for the wealthy. Actually, each and every one of us has an “estate”, which means simply anything you have an ownership interest in at the time of your death. Estate planning allows YOU to determine how you would like your affairs managed during your life, and whom you would like to benefit from your estate upon your death.

WHAT HAPPENS IF I DO NOTHING?
Health Care

If you are single and do NOT have an Advance Health Care Directive in place and become incapacitated such that you cannot make your health care wishes known, your parents and/or siblings (if they can be found) would be asked to make your health care decisions for you.

If you are married to a person of the opposite sex and you become incapacitated, your husband or wife has the legal authority to make health care decisions for you in California and elsewhere.

If you are a registered domestic partner or married to a person of the same sex, your spouse has the legal authority to make health care decisions for you in California and in those states and foreign countries which choose to recognize that relationship. In those states and countries which do not recognize that relationship, then your spouse is “a mere friend” with no legal authority to speak for you or make health care decisions on your behalf without an Advance Directive for Health Care in effect.
Financial Affairs

If you are single and do NOT have a Power of Attorney for Financial Affairs in place and become incapacitated such that you cannot manage your own affairs, IF you have joint bank or investment accounts, the joint owner of those accounts has access to those funds, and may elect to use them for your benefit, though they are under no legal obligation to do so. If your bank and investment accounts are held in your own name alone, and for any individually owned retirement accounts you may have (IRA, 401(k), etc.) no one has the legal right or authority to access those accounts and records, or make legally binding financial transactions on your behalf without a durable Power of Attorney for Financial Affairs in effect.

If you are married or a registered domestic partner and become incapacitated such that you cannot manage your own affairs, your spouse ONLY has access to those financial accounts and records on which he or she is a joint owner or an authorized signer. If your bank and investment accounts are held in your own name alone, and for any individually owned retirement accounts you may have (IRA, 401(k), etc.) no one has the legal right or authority to access those accounts and records, or make legally binding financial transactions on your behalf without a durable Power of Attorney for Financial Affairs in effect.
Administration of Your Estate

When someone dies, the same general process is involved in administering their estate, whether they have a Will or Living Trust in effect (testate) or they have no formal estate plan (intestate). Someone is in charge of gathering your assets, paying off any valid bills and obligations that are owed by you or your estate, identifying and notifying your heirs and beneficiaries, and distributing what remains of your estate as directed in your estate plan or if none, by the rules of intestate succession.

If a person has a Will, or dies intestate (without a Will or Living Trust), then generally their estate will be administered under the supervision of the Probate Court. This process is called probate administration. However, certain assets may pass to another person after your death without the need for probate, including:

* “Community Property” passes to surviving spouse;
* “Joint Tenancy Property” passes to surviving joint tenant(s);
* “Pay-on-Death Beneficiary” designated financial assets (bank accounts, life insurance, IRAs, etc.) pass to surviving beneficiaries;
* Property held in a “Living Trust” passes to designated Trust beneficiaries; and
* “Small Estates” (those with an appraised value of less than $100,000) generally pass to the heirs and beneficiaries without formal probate administration.

Once all of the decedent’s assets are gathered and inventoried, and the community property, joint tenancy property (if there is a surviving joint tenant), assets with a designated pay-on-death beneficiary (if there is a surviving beneficiary), and property held in a living trust are eliminated, if what remains in the inventory has a fair market value of $100,000 or more, a formal probate proceeding is required to administer those assets (called the “probate estate”). If what remains in the inventory has a fair market value of less than $100,000, then a formal probate may be avoided as long as certain requirements are met. The probate process generally takes anywhere from 1 to 2 years to complete, and can sometimes take MUCH longer.

DO I NEED TO DO AN ESTATE PLAN IF I’M SINGLE?

If you are single, it is very important that you have at least a Power of Attorney for Financial Affairs and an Advance Health Care Directive, since no one is otherwise legally authorized to make health care decisions for you or manage your financial affairs in the event of incapacity.

If you are single and have no formal estate plan when you die, what remains in your probate estate (see above) will be distributed according to a strict formula set out in the probate code which favors your surviving children (if any), parents and siblings, then more remotely related biological relatives.

IF I’M MARRIED, WON’T MY SPOUSE GET EVERYTHING AUTOMATICALLY?

If you are married and have no formal estate plan when you die, your assets will be classified as either community property or separate property, and they will be distributed according to a strict formula set out in the probate code, as follows:

* Your surviving spouse will receive ALL of your community property, and
* ALL, ONE-HALF or ONE-THIRD of your separate property, depending on which other relatives survive you.

Copyright 2009 Dan H. Burcham, used with permission.