Estate Planning

Guide to Estate Planning in California

This guide is intended to answer questions about estate planning and how it can help protect yourself, your family, your business and your assets. An estate plan can help you save on taxes. Because each person’s circumstance is different, it is crucial to talk to an attorney about these issues.

The information on this page was provided courtesy of Joshwa Wang of the Law Offices of Joshwa Wang.

1. What is an estate?

An estate is your collection of assets, including money, home, and other items of value.

2. What is an estate plan?

An estate plan is a set of legal documents that describes how your assets will be used to protect yourself and your loved ones during your life and after you pass away. It also contains documents that tell your loved ones what kind of medical care you want when you’re not mentally able to make those decisions.

3. Do I need an estate plan?

A proper estate plan tells your loved ones what you want in terms of your financial and medical decisions if you become unable to communicate those wishes (for example, if you become mentally incompetent), and it also describes how you want your assets distributed after you pass away. Without an estate plan, the laws of intestate succession (the laws that spell out who gets your property when you haven’t made other arrangements)1The laws of intestate succession provide a default system for distributing your assets, if you failed to execute a Will or other estate planning devices such as a Living Trust. In California, Probate Code §§ 6400-6455 lay the general framework for intestate succession. may determine how your property gets distributed after you pass away.

4. What are the components of an estate plan?

Most estate plans consist of some or all of the following documents. There may be additional documents specific to your situation that need to be prepared, so consulting a qualified estate planning attorney is important during the planning process.

Will – A Will does a number of things. In it you can name a person (often referred to as the “personal representative” or “executor”) to be in charge of managing the process of paying your debts, managing your assets, and then distributing them to the appropriate parties. A Will can also be used to designate the people you choose to take care of minor children you may have. It’s important to note, however, that a Will generally does not control how certain assets such as life insurance, retirement plans, or “joint tenancy” accounts get distributed. A Will also does not determine how assets held in a Living Trust get distributed. The State Bar of California has a guide on Wills, which provides more specifics.

Living Trust – Many people hold their assets in a Living Trust, which spells out how those assets are to be used during their life and after their death. For example, if you became mentally incompetent, your Living Trust might specify how you want your trust assets spent for your care. In California, using a Living Trust may also help to avoid the costly and time-consuming Court-supervised process known as probate.

Advance Health Care Directive – Deciding who will make medical decisions for you is impossible once you become incapacitated. The Advance Health Care Directive allows you to specify who you want as your Agent to make medical decisions for you before that happens. You can also use the document to tell your Agent and others whether you want to donate organs or want extreme measures to prolong your life.

Durable Power of Attorney – In the same way that an Advance Health Care Directive names an Agent to make health care decisions for you, the Durable Power of Attorney is used to name an Agent to make financial decisions on your behalf.

5. What happens to your assets if you die without an estate plan?

Some types of assets have a predetermined destination when you die. For example, life insurance benefits and retirement accounts generally get distributed to the beneficiaries that you’ve designated for them. If you have life insurance or retirement accounts, be sure to check who you’ve named as beneficiaries. Other types of assets, unless the law provides otherwise, will be considered part of your “estate” and may need to be probated to transfer them to your heirs. There are some exceptions to this2Some of the exceptions include property held in joint tenancy or community property with right of survivorship. In California and some other states, there are procedures to collect assets of an estate where the value is relatively small. See California Probate Code §§ 13000-13210. so consulting an attorney after someone close to you has passed away is a crucial step.

6. What is probate?

Probate is the Court-supervised process where a personal representative is appointed to manage the payment of your debts, collect your assets, and distribute your estate to your beneficiaries or heirs. Unless you own the types of assets referred to above (e.g., life insurance or retirement accounts with proper beneficiary designations), hold title to assets in a specific way (e.g., joint tenancy or community property with right of survivorship), and/or utilize a trust to hold your assets, chances are probate will be required after you pass. Avoiding probate is ideal for a few reasons.

1) Cost – In California, probate fees are set by law.3See California Probate Code §§ 10800 and 10810. Personal representatives are paid based on the value of your estate using the following schedule:

  1. 4% of the first $100,000
  2. 3% of the next $100,000
  3. 2% of the next $800,000
  4. 1% of the next $9,000,000
  5. 5% of the next $15,000,000
  6. A “reasonable amount” determined by the Court for anything above $25,000,000

To illustrate how this would work, let’s imagine you died owning a home valued at $1,000,000. The fee that your personal representative would be entitled to is $23,000.

 It’s important to remember that the calculation ignores any mortgage or debt on the property, so even if there were a $500,000 mortgage on the property, the calculation is still based on $1,000,000. In addition, the attorney that helps you with the probate is entitled to an equal fee, so after all is said and done, total fees of $46,000 may be paid from your estate (not including other costs such as court filing fees, publication fees, fees for certified documents, etc.), which reduces the amount that is left for your beneficiaries or heirs.

2) Time – Again, the process of probate is state specific, but in California, it is relatively rare for probate to take less than a year to complete. Often, the timeline extends to one and a half or two years. This is a long time for your beneficiaries or heirs, who may need more immediate access to the assets of your estate.

3) Control – Probate is required regardless of whether you die with or without a Will, except where you owned assets with beneficiary designations that have been properly filled out (e.g., life insurance, retirement accounts, etc.), held title to your assets in some special way (e.g., joint tenancy, community property with right of survivorship, etc.), or you owned your assets through a Living Trust. If you die without a Will in California, the laws of intestate succession have a very specific scheme for the distribution of your assets, depending on whether you’re married or in a registered

domestic partnership4See California Probate Code § 6401. and whether you have descendants.5See California Probate Code § 6402. This may not be ideal if you have family members who are incapable of responsibly handling gifts from your estate.

4) Privacy – Probate is a Court-supervised process, so your Will becomes public for the world to see. The identity of your beneficiaries or heirs will also be public.

7. Why might a Living Trust be a good idea?

Many people utilize Living Trusts to avoid the hassles and costs of probate, and to provide specific instructions when it comes to the distribution of assets, both during life and after death. Typically, for a fraction of the cost of the probate process, it is possible to construct a Living Trust and all of the other documents required for an effective estate plan. When utilizing a Living Trust, it is imperative that you “fund” it with assets by retitling things like bank accounts or deeding your real estate to your Living Trust. In some cases you can handle funding your trust with proper guidance from an attorney, but in other situations you may need the attorney to do this for you.

8. Further Research

There are many resources available online to learn more about this topic. In California, here are some helpful links provided by the State Bar:

  1. Do I Need Estate Planning?
  2. Do I Need a Will?
  3. Do I Need a Living Trust?

9. Do I Need a Lawyer?

While it’s not a requirement to use a lawyer, hiring one is usually a good idea since they often have experience and suggestions with ways to efficiently structure your estate. Consultations with estate planning attorneys are often free, so it doesn’t hurt to get a bit more insight into your specific situation and learn more about what you can do to protect yourself, your family, and your assets.

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