About Estate Planning
At its simplest, estate planning ensures YOUR wishes are followed and makes the estate process as easy for your loved ones as possible. An estate plan will help you reach your goals, whether you want to avoid probate, minimize taxes, ensure your children are taken care of, or enforce your wishes regarding medical treatment even if you are unconscious.
There are a variety of legal estate planning tools you can use. Some of the more common tools include:
- Revocable living trusts: A revocable living trust is a trust that you can change or revoke if you (and your spouse, depending on the circumstances) are alive. These trusts are very popular since they allow your assets to pass without going through probate, enable tax minimization strategies, and can realize your wishes regarding the distribution of your wealth. In addition, you can have your revocable trust create specialized trusts (such as a pet trust or special needs trust) upon death. There are different types of revocable trusts, such as disclaimer trusts, A/B trusts, “intentionally defective” marital deduction trusts, qualified terminable interest property (“QTIP”) trusts, and more. The type of trust that is best for you will depend on how you want your property distributed, how much control you want your partner or spouse to have, and your asset level.
- Irrevocable trusts: If you create an irrevocable trust, you will be limited in what you can do to modify the terms. These types of trusts include life insurance trusts, intentionally defective grantor trusts, first-party special needs trusts, educational trusts, qualified personal residence trusts, charitable remainder trusts, and others. These trusts are typically used for tax benefits or to ensure government (or other) benefits are not minimized or eliminated when the beneficiary receives their inheritance.
- Last Will and Testament: A will allows you to direct how you want your wealth distributed so it goes to the people you choose rather than by the rules established by the state. However, any assets governed by the will have to go through probate so typically in California a will is only recommended either when the estate qualifies as a small estate, or as a fail-safe when all the estate assets should be in a trust or pass by beneficiary designation. When a will is paired with a trust, typically it will be a “pour-over” will that simply transfers any probate assets to the trust.
- Power of Attorney: In a power of attorney, you designate an agent to manage your affairs if you are unable to do so. These documents are essential in any emergency. For example, if you are in an auto accident and are temporarily incapacitated, you need someone to have access to your financial accounts so your mortgage (or car loan or…) can be paid so it is still there for you when you return home. These powers can be limited (for example, only the power to take action with a specific category such as health care) or they can be broad. These documents can also be general (ending upon incapacity) or durable (lasting past incapacity). Finally, they can also go into effect immediately or you can have a “springing” power of attorney that only goes into effect if a certain event happens, such as having a doctor certify that you are incapacitated.
- Advance Health Care Directive: In California, an advance health care directive typically combines both a power of attorney over health care decisions by assigning an agent and outlining the agent’s powers along with a living will which allows you to give instructions for your medical treatment. This may also be paired with an advance dementia directive which provides specific instructions in the event you have late-stage Alzheimer’s. These documents are essential to ensure not only that your wishes are followed regarding end-of-life care, but also to help alleviate the burden your family faces in making those decisions as they will have guidance to follow.