Wills and Other Ancillary Documents
Basic estate planning will suffice for a very simple asset situation but it won’t address all the issues that are involved with a more sophisticated or complicated estate. First of all, we have a will, and everyone thinks that wills are what estate planning is. Frankly, nowadays a will is very secondary in nature. It doesn’t have the primary importance that it used to have because the problem with just using a will is that if anything passes by a will, it’s subject to probate. Probate usually is not desirable. A will is a document that has to be in writing and it has to be witnessed properly, and while you can have a holographic will in your own handwriting, I wouldn’t recommend that. A holographic will is usually a disaster waiting to happen and it’s something that should be completely avoided.
A will is a formal document. It is witnessed, in most states, by at least two disinterested people. The will can’t be witnessed by a beneficiary. Wills don’t have to be notarized but they do have to be witnessed with a declaration of the Last Will and Testament. A very important provision in the will is to nominate an estate executor to administer the estate. The executor has a responsibility to file income tax returns, to file any death tax returns, and to gather together the personal property and make sure that it is distributed according to the provisions of the will.
Many times, the will refers to the trust and incorporates the trust by reference. That is what is called a pour over will and it provides that the assets are poured over into the trust even if they weren’t originally titled into the name of a trust, and they are to be poured over into the trust for subsequent distribution (through the probate process). Other ancillary documents include a durable power of attorney. This is a critical document because it provides that in the event of incompetency, someone else can make legal decisions for you. Even if you have a trust where most of your property is in your trust, you might need a durable power of attorney in order to take care of a situation involving personal legal matters that really couldn’t be put into a trust.
If you were involved in an automobile accident and you are in a coma, you are still alive, so the will just isn’t relevant yet. The durable power of attorney would give the person you appoint the power to make legal decisions. There are generally two kinds of durable powers of attorney. One goes into effect immediately and that’s called a durable power of attorney in the present. Many durable powers of attorney are what we call springing durable powers of attorney because they only come into effect upon the incapacity of the maker of the durable power. The problem with that is then you have to get a certification of incompetence and that can be very difficult and time consuming.
There may be legal decisions that need to be made immediately but some people feel like they need to have the safety of having that durable power of attorney not be in effect until they are incapacitated. In a family situation where a family member is going to be the appointed attorney, if it is a loved one that the person trusts, it seems to me that the springing power would not be relevant. You would just have the existing power knowing the agent is not going to use it unless they absolutely have to. There are ways to block it, also, if they need to.
In a will, you also nominate the guardian of your minor children. Making a choice for the guardian of the children is extremely difficult for some people because they don’t have anyone that they really trust or that they think would have the capacity to raise their children. Our recommendation is to always talk to the person you are going to nominate as guardian and find out whether they are willing to do it. Spend some time with them talking about how you would want your children to be raised and what your standards are. Many of the people that you would nominate would have that same standard and already have the same way of life that you have.
Revocable Living Trust
Over the years, there was a tendency on the part of lawyers to use wills because the same lawyer who drafted the will made money on the probate. In the 50s and 60s, a strong movement started towards establishing revocable living trusts, which would take the place, in many respects, of the will. One of the benefits of having a revocable living trust is that it avoids probate.
If you die owning assets in your name, the probate court is the only way to verify your will (or apply the laws in your state if you die without a will), take your name off the property titles and put the new owner(s) names on them.
When you establish a living trust, you transfer ownership of your titled assets from your individual name to the name of your living trust.
Technically, even though you retain control, you no longer own anything. Everything is now in the name of the trust. Therefore, there is nothing for the courts to control when you die.
The living trust provides that you (and your spouse) control the trust and that, upon your death (and/or the death of your surviving spouse) a successor trustee steps in to manage the assets of the trust. Since the assets are not in the name of the decedent, they live on in the name of the trust. The trust then can distribute them without having to go through the process of probate.
Another benefit of a trust is it gives privacy because probate is a matter of public record. A revocable living trust is completely private and no one knows what your estate is. Creating a trust forces you to specifically set forth what your current assets are and to put them into the trust. With a will, the beneficiaries don’t really know what the assets are and they may have a hard time finding out exactly what property the decedent owned. If you have a revocable living trust, those assets are listed on a schedule and it forces the trust maker, while he/she is alive, to gather the necessary information about their assets.
Another benefit of a living trust is that it can provide for more sophisticated death tax planning and for safety against ex-spouses and creditor’s claims for the children (if the trustee is independent). A revocable trust is easy to amend, if you need to. If an attorney amends the trust, the attorney sanctions the trust and adopts it as if he or she drafted it, so if you are going to change anything of substance, it may be better to amend and restate the trust in its entirety. It’s now a different document but it’s the same trust.
The revocable living trust has one key that, many times, is ignored. You have to properly transfer title to your assets to the trust. For example, assume we have the William and Dorothy Jones’ Trust. William and Dorothy have signed the trust (usually before a notary). They own a home that’s in the name of William and Dorothy Jones and is not in the name of the trust. They have to deed the property over to the trust, so that now the property is titled in the name of the William and Dorothy Jones’ Trust. They have to go to the bank and change their bank account into the name of the Jones’ Family Trust. Perhaps, they take that account they have with the mortgage and/or family, or stock accounts and put them into the name of the William and Dorothy Jones’ Trust.
Why Would the Court Get Involved if I Become Incapacitated?
If you cannot conduct business due to physical or mental incapacity and your name is on the titles of your assets, only the court can conduct business for you. A spouse, parent or friend cannot sign for you, and a will cannot help because a will only goes into effect after you die. The court must step in to protect your interests, and once the court gets involved it usually stays involved until you recover or die. A durable power of attorney can help, but it is far from satisfactory in many instances.
The concept is simple, but re-titling your assets in the name of your trust is what keeps you and your family out of the courts. The court system can be expensive, it takes time, it is a public process, and the court, not your family, has complete control. Most families prefer to handle those matters privately on their own.
For more information on Basic Estate Planning In The State Of California, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (714) 384-6500 today.