A little while back I had the pleasure of meeting Kris Paden through one of the networking websites that I belong to. She is an Estate Planning Attorney and we quickly realized how our professions complement each other. My experience is that most people (homeowners, Realtors, Agents, etc.) do not realize the importance of properly planning for the future to avoid costly (both emotionally and financially) legal issues such as probate. I came up with "10 Questions for an Estate Planning Attorney" which she readily and thoroughly answered. PLEASE NOTE that this is based on California law only. For information in your State please do not hesitate to ask for a referral. ALSO NOTE that these answers are for general informational purposes ONLY and are NOT legal advice to be relied upon. Every family or individual has their own unique goals, plans and situations.
1. What is estate planning?
It's an arrangement for the conservation and transfer of your wealth after your death. An estate plan is designed to see that you keep the most money and other property for your heirs at the least cost to you during your lifetime, and to them when they inherit. The basic elements are a Trust, Will, Durable Power of Attorney and Advance Health Care Directive. Please visit my web page at www.krispaden.com for a brief description of each of these documents. There are many more levels of estate planning that involve reducing estate taxes. There is also something generally referred to as "Asset Protection." Generally, this is shielding your personal assets from any business creditors by changing your business structure from a sole proprietorship to a different type of business entity such as an LLC or Corporation.
2. What is the most common mistake people make with estate planning?
Doing it on-line or buying software and doing it themselves. They are canned estate plans and if they don't ask you the right questions you will never know if something important has been completely missed. For the same reason, I have my tax returns prepared by a professional, because I have no way of knowing if I'm missing something.
3. Why should someone take the time to meet with an estate planning attorney?
To have their specific goals and concerns discussed and brought to the surface, and to fine tailor an estate plan to address those goals and concerns.
4. Who should do estate planning?
Anyone who wants to create their own plan rather than having the default plan created for them by the government. You might as well pick who you want to inherit your estate, as well as pick who you want to administer once you pass away. Otherwise, the law picks these people for you. More specifically, if you have minor children, you want to have a Will so you can name a guardian for your children in case something happens to you. In California, if you own assets over $100,000.00 you want to have a Revocable Living Trust so your heirs (children, etc.) can inherit your assets without having to go through probate court. If you own assets over $2 million (including the full value of your home without subtracting your mortgage, and any life insurance death benefits), then you want to do Estate Tax planning so you can reduce or completely eliminate owing federal estate taxes when you pass away. Everyone should name agents for health and financial matters in the event they become incapacitated. In a nutshell, almost everyone can benefit from an estate plan.
5. How does someone know they need to do an estate plan?
Some of the main triggers are: 1) if you have minor children, 2) if there is someone in your family who you wouldn't want to inherit from you or you wouldn't want to be in charge of anything after your death, 3) if you have over $100,000.00 in assets as discussed above, 4) if you want to avoid owing the estate tax (death tax), and if you want to avoid a conservatorship (this is where an agent is named for you by a court to make health care and financial decisions for you in the event you become incapacitated. This happened to Britney Spears in 2008). Generally, you need to plan for when you are not here or, because of illness, unable to speak for yourself. You probably don't want someone else — such as the state — to make important, and very personal, decisions for you or the family you will leave behind.
6. Is it only for the super wealthy?
No. Anyone in California with an estate over $100,000.00 has to have their estate administered under the supervision of the probate division of the California State Court. The average time in California for probate court takes 2 years and the cost is a % of the value of the estate. For example, if you have an estate worth $500,000.00, the cost will be a minimum of $25,000.00. This is the amount of money to pay the executor, the attorney and the court costs. This money comes off of the top of the estate and the deceased's heir will receive that much less. Most people in California who own a home have more than $100,000.00 in assets. By creating a Revocable Living Trust, your estate can be administered under Trust Administration law and the time and the cost is a fraction of the time and cost for an estate to be administered under the supervision of the probate court. Also, the benefit of naming an agent to make health care and financial decisions for you once you become incapacitated is immense and has nothing to do with how wealthy you are.
Ask yourself these questions:
If you become incapacitated or if you die suddenly, will your loved ones know how you want the situation to be handled?
Will they know what medical arrangements to make or who you want to care for your children?
7. I only have a will, is that enough protection for my spouse/family?
It can be. It's a great start. At least you are making your own plan and hopefully naming guardians for minor children in your will. However, just having a will does not prevent your estate having to be administered under the supervision of the probate court. It also does not allow you to take advantage of trust law and the marital deduction to reduce or eliminate the estate tax. Also there are fewer Trust contests in Calfornia than Will contests (i.e. your will is disputed in court).
8. What are the effects of NOT having a plan?
The government has made up a plan for you. It is called "intestate succession." How your estate is distributed and who is in charge of such distribution is set forth in the California Probate Code. The people who inherit and the people put in charge may not be the people you would have selected yourself. Your heirs may also inherit less because they have to pay probate fees and costs and possibly estate taxes out of your estate. You will also need a conservatorship established over you if you become incapacitated and you haven't named agents in a Durable Power of Attorney and an Advance Health Care Directive.
9. How does NOT having a plan affect the family?
In short, there may be disputes that could have been avoided, privacy is less easily protected, and the costs, time, and difficulty of administering the estate or acting as an agent for an incapacitated person go up.
10. How often should an estate plan be reviewed/updated?
It depends on the specific situation. However, a general rule is any time there is a major life event such as a death, birth, wedding, divorce, major illness or a move to another State. Also, keep track of the estate tax law as there will be changes between now and 2011. Even if there are no major changes, you should re-evaluate every 3-5 years.
Kris Paden has offered a free 30-minute phone consultation for California residents who want to learn how they can benefit from estate planning. Here is her contact info:
Phone:(818) 883-6031
Fax (818) 883-6041
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