Nobody wants to think about death or incapacity, but establishing a comprehensive estate plan is one of the most important things you can do to make these difficult times easier for your loved ones. Proper estate planning not only puts you in charge of your testamentary decisions, it can also spare your estate the expense, delay, and hassle associated with managing your affairs through the California court system when you pass away or become disabled.
If you leave your estate to your loved ones using a Will, your estate will have to go through the court-supervised process called "probate." The probate court oversees the process of gathering the assets of the estate, paying your final debts and expense, and (finally) distributing the remaining property to your beneficiaries. Most individuals want to avoid this expensive, time-consuming, and public process. With proper planning, your assets can pass on to your loved ones without going through the probate process—in a manner that is inexpensive, quick, and private.
Planning for Incapacity.
Many individuals are under the mistaken impression that once they are unable to manage their own financial affairs their spouse or adult children will be automatically able to step in and manage things. In reality, without an estate plan, in order for others to be able to manage your finances, they must petition a court to determine that you are legally incompetent. This process can be lengthy, costly, and stressful. Even if the court appoints the person you would have chosen to manage your finances, they will have to come back to the court every year or two and show the court that they are appropriately managing your finances and how they are spending and investing each and every penny.
Instead, most people want their family to be able to immediately take over. For this to happen, you must sign the proper legal documents and designate a person or persons that you trust to have the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, and refinance your home.
In addition to planning for another to manage the financial aspect of your affairs during incapacity, you should also put a plan in place for your medical care. California law allows you to appoint someone you trust (for example, a family member or close friend) to make health care decisions on your behalf if you lose the ability to make those decisions for yourself. You can do this by creating an Advance Health Care Directive (sometimes referred to as a power of attorney for health care or living will). In an Advance Health Care Directive, you designate who you want to be able to make health care decisions on your behalf. In addition, an Advance Health Care Directive typically gives your designated agent direction concerning important health care decisions, such as life support or life sustaining treatment, the donation of organs, and your preferences concerning the disposition of your remains.
Providing for Young Children.
If you have young children, it is important that your estate plan address issues regarding the personal and financial well-being of your children. A comprehensive estate plan ensures that someone you trust will manage your children's inheritance until they are able to do so themselves. Additionally, a comprehensive estate plan identifies the individuals you want serve as your children's guardian. It is this person who will make medical decisions for your young children, decide where they will go to school, and where they will live. The individual that you select to manage the finances does not have to be the same person as the guardian. While the ultimate selection of the guardian is up to a court to decide, this nomination plays an important role in giving your loved ones some much-needed guidance and clarity concerning your wishes during a difficult process.
Minimizing the Impact of Taxes.
Currently, the federal tax laws allow you to transfer over five million dollars in the form of gifts, either during your lifetime or upon your death, without paying federal estate or gift taxes. With the federal exemption so high, and California not having an inheritance tax, very few have to worry about paying any federal estate taxes. In minimizing the impact taxes will have upon your estate and beneficiaries, a comprehensive estate plan pays special attention to the income tax (capital gains) and real property tax consequences of your intended gifts, There are many well-established strategies that can be implemented to reduce or eliminate the impact of these taxes, but you must start the planning process early in order to implement many of these plans.
Charitable Bequests and Planned Giving.
Do you want to benefit a charitable organization or cause? Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death. Depending on how your planned-giving plan is set up, it may also let you receive a stream of income for life, earn higher investment yield, or reduce your capital gains or estate taxes.
A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding guardianship during your lifetime, probate at death, estate taxes and unnecessary delays. You should consult a qualified estate planning attorney to review your family and financial situations and your goals. Then they can explain the various options available to you. Once your estate plan is in place, you will have peace of mind knowing that you have provided for yourself and your family in case the worst happens.