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What is Estate Planning?
Simply put, estate planning is the process of arranging and deciding the transfer of an individual’s assets in anticipation of their death, and management of assets in the event of incapacity. This may involve naming beneficiaries on various accounts or life insurance policies or determining which material assets are granted to which family or friends. Estate planning also focuses on minimizing tax ramifications during the process of transferring those assets. Estate planning provides direction for loved ones left behind by intentionally choosing the distribution of assets to mitigate stress, anxiety, and other negative factors that may add to familial grief.
What is Included in an Estate Plan?
Working with an experienced estate planning attorney, such as those found at Patricia Scott Law, will afford you the opportunity to craft an individual and customized plan that is catered to your needs and assets. This plan may include any of the following:
- You may create a living trust to avoid the probate process for loved ones.
- For parents, your plan may include who you would like to raise your children in the event of death.
- You may include medical procedural allowances and denials should you become too incapacitated, ill, or injured to decide for yourself.
- You may provide a detailed distribution of assets according to who gets certain property and when that transfer occurs.
What are the Types of Estate Plans?
There are many elements and documents that can be included in a thoughtful and comprehensive estate plan. Estate planning will include some or all of the following:
Revocable Living Trusts
A revocable living trust acts as a will substitute and is typically used to accomplish probate avoidance. Avoiding probate is particularly advantageous in California, where probate is typically time-consuming and expensive. A trustor assigns management of assets to a determined third party, known as the trustee. The trustor is also often the trustee during their lifetime(s) while they are competent. Upon death, incapacitation, major life events, the successor trustee is designated to manage the assets. It is then the responsibility of the successor trustee to manage and distribute the assets per the terms laid out in the trust.
These trusts are revocable, meaning they can be amended or revoked during the life of the trustor without prior permission from beneficiaries or the successor trustee. This flexibility allows easy changes to be made in case of possible life events that alter a person’s assets or potential beneficiaries.
Last Will and Testament
A last will and testament is a legal document that states wishes for property and assets after your demise. Using a will, you are able to appoint guardians for any underage children and to appoint an executor who is responsible for managing your estate. Here, an estate refers to the collection of assets and property owned at the time of death. The State of California recognizes several types of will. The two most common types are listed below:
- Witnessed will: Specific formalities must be followed for a will to be valid in California.
- Holographic will: This will is a completely hand-written document by the testator–or creator of the will–that outlines wishes after death. It is strongly recommended that this type of will be avoided because of potential conflicts or challenges to validity.
- Statutory will: One type of witnessed will is a Statutory will. This type of pre-printed will form follows a specified format and may be created without the help of a professional; however, legal advice is always recommended..
Irrevocable Trusts
An irrevocable trust provides individuals the ability to transfer assets to an independent legal entity–the trust itself–to be managed by a trustee for the benefit of designated beneficiaries. As the name suggests, these trusts cannot be altered, amended, or revoked by the trustor without prior consent from the beneficiaries. The rigidity of an irrevocable trust offers some advantages, such as asset protection and estate tax reduction.
During the creation of an irrevocable trust, the grantor surrenders control over all assets included within the trust, which effectively removes those assets from the grantor’s personal estate. This results in the assets avoiding estate taxes upon the grantor’s death, and the assets remain immune to claims from creditors. There are significant consequences to creating and transferring assets to irrevocable trusts that must be carefully considered with your estate planning, financial and tax advisors.
It is important to note that both revocable and irrevocable trusts are key ways to avoid probate. Due to the fact that any property placed into a trust is held by a separate legal entity, it is not required to pass through probate to be awarded to the beneficiaries.
Powers of Attorney
A power of attorney is a legal document that appoints another person, referred to as an agent, the right to make decisions on your behalf. These are typically employed when a person has become incapacitated and can no longer make financial or medical decisions on their own. There are several types of powers of attorney, as listed below:
- Durable: Once signed and effected, a durable POA goes into effect immediately and lasts until they are revoked or destroyed.
- General: General POAs are used for financial and general decision-making. They provide the agent with the ability to make all financial decisions as long as you remain incapacitated.
- Limited: Also referred to as a specific power of attorney, a limited POA allows only certain decisions to be made by the agent that are specified within the document.
- Financial: This POA transfers only financial decision-making permissions to the agent.
- Medical: A medical POA grants your agent the power to make health-related decisions on your behalf.
Do I Need an Attorney?
For an estate plan to be legally upheld, you need legal help you can count on. To ensure your wishes are carried out, call Patricia Scott Law today at 510-263-8808 or fill out a contact form for a free consultation.
