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Legal-Ease: An Attorney’s Perspective: What Is an Estate Plan?

By September 24, 2021September 30th, 2021No Comments

Judd Matsunaga, Esq.

Yes, you need an estate plan, even if you don’t have an estate. You may hear the word “estate” and think mansions and sprawling grounds; but you don’t have to be wealthy to have an estate. If you have assets, e.g., a bank account, you have an “estate” — and you need a plan for it.

An estate consists of all the property a person owns, including real estate, cars, cash and other assets.

Anyone who loves their family and wants their assets to be transferred to one or more surviving loved ones after they pass away should consider establishing a formal estate plan. This important set of legal documents will allow your family to avoid the needless cost and delay of probate court. It will also ensure that your wishes and needs are met if you ever become incapacitated and unable to speak for yourself.

Sorry, but your children cannot create an estate plan after you die or become incapacitated. After you get very sick or you die, it’s too late to make an estate plan. Without a carefully designed, fully signed and witnessed documents in a complete estate plan, your wishes (which you assumed “everyone understood”) will likely carry no legal weight. You need to do this, and you need to do it now before you die or get Alzheimer’s.

So, what exactly is an estate plan? An estate plan is a collection of documents that protects your assets and personal property (your “estate”) and explains how you want to pass them down. It documents your wishes and may be as simple or complex as the owner’s wishes and needs directs. It also specifies exactly who will guard those wishes and act on them in your absence. Guardians are often designated for minor children and beneficiaries in incapacity.

Once you have determined what your estate plan should be, you will need to memorialize it in writing. Several different documents will be required to effectuate your wishes. The essential documents explained below are: (1) Living Trust with Pour Over Will; (2) Durable Power of Attorney for Assets (DPOA); (3) Power of Attorney for Health Care; and (4) Beneficiary Designations. Additional documents may be necessary depending on the complexity of your estate and your estate planning goals.

(1) LIVING TRUST WITH A POUR OVER WILL

These are the foundation documents of the estate plan. A simple will is not enough if you own your own home — paid for or not. A will has to be probated. A living trust avoids probate. I like to say, “A living trust has will power (i.e., gives instructions on who inherits your estate), but avoids the cost and delay of probate.” If, however, you don’t own your home avoidance, you may get by with a simple will. It is recommended you ask an estate planning attorney in your state.

A living trust is your primary estate planning document. However, it has a backup, companion document called a Pour Over Will. It’s just a safety device. If you fail to properly fund your living trust, a Pour Over Will takes any residue of the estate and pours it over into the trust. In addition, in a will, you can designate your executor, the person you entrust to implement your wishes that are outlined in the will.

Another advantage of a living trust is to reduce or eliminate Federal Estate Taxes upon death. Although only 1 percent of American families currently must pay estate taxes since Trump has the exemption at record highs of $11 million, Biden has proposed to lower them back to $3.5 million.

For example, if you have a $5 million estate and die when the exemption is $3.5 million, your heirs will pay tax on the $1.5 million over the exemption, close to $750,000. However, with a living trust with A-B provisions, your heirs could pay zero — huge benefit!!!

If you own your own home, there is no reason that I know of not to set up a living trust. There’s no disadvantage to you because you appoint yourself the trustee of your own trust. You stay in full control of your assets while you’re alive.

Furthermore, you also name yourself the Primary Beneficiary of your own trust. If you want to spend all your money, you can. You don’t need permission from anyone, not the court, not your kids — you are in full control.

(2) DURABLE POWER OF ATTORNEY (Also called a Financial Power of Attorney)

This document allows you to name a person to manage your financial affairs if you become unable to do so. Your financial power of attorney will be responsible for paying your bills and managing your investments and financial matters. These duties should be carried out by someone you consider to be trustworthy.

(3) HEALTH CARE POWER OF ATTORNEY (Also called a Health Care Proxy)

With this document, you appoint a person to make health care decisions for you if you become unable to make them for yourself. These decisions can include consenting to surgery, checking you into a nursing home or hospital, obtaining your medical records and terminating life-sustaining treatment. Your health care power of attorney will be communicating with your physician and carrying out your wishes with respect to different types of treatment.

(4) BENEFICIARY DESIGNATIONS

Certain assets, such as retirement plans, investment accounts and life insurance proceeds pass by beneficiary designation. Wills do not automatically apply to these assets. The beneficiaries you designate have priority over those named in a will. However, you can make your will apply to these assets by the wording you use on the designation, which may be advisable in some circumstances.

You should review your current beneficiary designations with your estate planning attorney to ensure they are in alignment with your overall estate plan and your wishes and that they are worded correctly.

In conclusion, remember that estate planning is not a one-time event. Estate planning is ongoing. Once you have your initial estate plan in place, you and your estate planning attorney will need to review them periodically. Changes in the law and significant life events, e.g., marriage, divorce, remarriage or the birth of a child or grandchild may alter your goals and require changes to your estate planning documents.

Judd Matsunaga is the founding attorney of Elder Law Services of California, a law firm that specializes in Medi-Cal Planning, Estate Planning and Probate. He can be contacted at (310) 348-2995 or judd@elderlawcalifornia.com. The opinions expressed in this article are the author’s own and do not necessarily reflect the view of the Pacific Citizen or constitute legal or tax advice and should not be treated as such.

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