Who needs an estate plan? Top seven reasons why you need one even if you think you don’t. Part I:

When I am talking to friends, colleagues and potential clients, they often tell me that they don’t need an estate plan because they don’t have enough money to reach the estate tax exemption ($5.25 million).  What is distressing to me is that individuals with estates worth one million dollars or less (this is the gross estate not taking into account any debt) have so much more to lose when they don’t have an estate plan in place.  Here are some reasons why:

  1. Probate fees.  If you have $150,000 in property in California – so anyone from Oakland to Livermore to San Jose to Walnut Creek with a house meets this requirement – will be headed to probate.  Probate fees cost 8-10% of your gross estate.  So if your total estate, not considering debt, comes to about $800,000, your estate could be paying up to $80,000 in probate fees.  Wouldn’t you rather that money go to your family?
  2. Probate time.  The probate process in California can take 6 years or more to complete.  During this time, your family has to deal with lawyers, court, judges, appraisers, and other strangers in their lives.  Plus, the property cannot be transferred during this time, so your family waits all these years to get access to the estate you left them.  With an estate plan, there is no delay at all.
  3. Ease of transfer.  The probate process is difficult, frustrating, time-consuming and very expensive.  Without an estate plan, you force your family to go through it at a time when they should be taking care of themselves and each other in the wake of the tremendous loss.  Generally we pick our closest family member to administer our estate.  Why wouldn’t we make that administration as easy as possible for them?
  4. Emotional difficulty of probate.  In addition to the fees, the time and the difficulty, the length of probate doesn’t allow our family members to move on after a death.  We all have our own processes for dealing with grief and death, and some take longer than others.  But the seemingly-endless probate process means that your family can’t get past the loss until the court says they can.  This allows for more time to get angry, to fight with other family members, and be held back in their own personal growth.  In life we support the growth of our families; why would we want to hold them back in death?
Come back tomorrow for the final three critical reasons you need an estate plan, even if you think you don’t!

Talking to your parents about estate planning: how to do it and when to do it

Many of my clients ask me how they can talk to their parents about estate planning. Either they are doing their estate plan and want to make sure their parents are properly protected, or they are learning about the importance of estate planning, and just want to make sure their parents know what they need to do. I’ve talked about this before in a similar article, but I wanted to provide a new perspective to go along with the older article.

First, you are coming from a place of concern rather than a place of greed (“Hey Mom, what am I going to get?!”). You know that they don’t want to put themselves into a situation where they are not taken care of in the way that they want to (for example, if they don’t have proper powers of attorney in place). You know that they want to do all they can to help you and your siblings and/or their grandchildren. You know that they are probably concerned about leaving a legacy to their family and to the world. While we don’t think about this much when we are younger, nearly all older adults worry about leaving a legacy. Part of my estate plans with all of my clients, from San Jose to Novato, includes a place to record not just where the finances go, but how the important personal items are distributed, passing down important genealogical, medical, military and personal histories. You know your parents want to do this, so you want to make sure they know how.

Second, parents will always be parents to their children, so you can bet that they want to continue to take care of you as much as possible, even after they are gone. The probate process, which is what will happen if an estate (in California is worth $100,000 – not taking debt into account) passes without a living trust, is a burden on you and your siblings. It’s time-consuming, expensive, and adds an incredible additional burden to you at their death, which will be hard enough as it is. By encouraging your parents to create an estate plan, you are helping them to continue to take care of you after they are gone, which is what all parents want.

A great time to discuss estate planning is (1) now, since you’ve read this article (send them the link! Isn’t your mom always sending you newspaper clippings? I know mine is…), or (2) when you do your own estate plan. Talking about your experience can be a great conversation starter.

It doesn’t have to be a tough conversation, but it is a necessary one.

So you have a living trust! Congratulations…now here’s some tips on what to do with it

Where to keep it, when to update it, and what to do with it:

o Keep your estate plan in your house, accessible to your family. If it’s in a safe deposit box when something happens to you, your family may not be able to get to it.
o Tell your family, and particularly your successor trustee, where your estate planning documents are located.
o Keep a copy (it does not have to be executed; I give my clients a blank copy) in a safe place, such as a safe deposit box in case your original is destroyed or lost.
o Review your estate plan each time there is a major life event in your family, such as a birth, death, marriage, or divorce. Also review it if you’ve bought or disposed of real property.
o Barring major life events, review your estate plan every two-to-three years to make sure it still reflects what you want. You can spend 15 minutes skimming through the summary sections to ensure you don’t want to change anything.
o Give your power of attorney for health care decisions and living will to your agent (the one who will be making decisions for you), and if it’s your spouse, also give one to the successor agent.
o Give your power of attorney for health care decisions and living will to your doctor(s) for your file, to the hospital if you have one you would go to in an emergency, and to your pharmacist.
o Give your power of attorney for your property to your agent or successor agent as well as to the institutions they will likely be dealing with, such as your bank, your financial advisor, or other account managers.
o Give your named guardian and conservator the nomination documents and make sure all caregivers know about them and how to find the documents in an emergency.
o TALK to your family about your wishes, your plans, and who you have designated as agent, conservator, and guardian.

Estate planning when you don’t have children or other heirs

Most of us first think about estate planning once we have a child. We know that having a child means we have to create something to secure our children’s future should something happen to us. But what about when there are no children? I have several clients who fit this profile in various areas in the Bay Area, and I have done estate plans – created living trusts – for single and married, childless, individuals and couples in Oakland, San Leandro, Lafayette, Fremont, and Hayward, among others.

There are a variety of different options for you if you don’t have children or other natural heirs. You can leave your estate to your siblings, parents, or other relatives, such as cousins. One client of mine set up an educational trust for her younger family members to help them to pay for college. You can use the opportunity to support a charity, as one client of mine is supporting a local animal rescue charity in her estate plan. In addition to animal charities, there are a wide variety of disease and disorder charities that are always seeking donations. Schools also will gladly accept donations in the form of bequests, so you can support a school that helped you to get where you are. One of my estate planning clients is leaving a substantial grant to UC Berkeley in their trust.

If you don’t create an estate plan and don’t have natural heirs, then your estate will go to the state. While you may not think this is too terrible, perhaps since you didn’t know exactly who to leave your money and assets to, I urge you to consider this:

1. What do you want your legacy to be? Leaving it to no one – the state – means there is no legacy at all.
2. There are so many deserving, hard-working, underfunded charities out there. Isn’t there at least one you would like to support?
3. You worked your entire life to create your estate and your legacy. Why not leave it to a cause important to you?

Post-death process with a living trust and estate plan

Yesterday we talked about the probate process, and what happens after a loved ones dies. Today, let’s go through that same process, but this time, our loved one has an estate plan and has put all of their affairs in order before they passes.  Remembering what we went over yesterday, here is how it would go with an estate plan:

In the hours following the death, you go to the funeral home, and the director tells you that your loved one came in years ago and chose their own service, with music, readings, flowers, and everything all picked out and paid for.  You don’ t have to decide a THING except what day to do it.  Oh, and your loved one already planned – and paid for – the life celebration party afterwards.  There are no decisions to make – the director tells you to go home, grieve, and take care of your family.

You get to the house, and you already know where the estate plan binder is.  Because you’ve already been over it, you know there’s a letter right inside that’s intended to be instructions for you on what you need to do.  You go to it, and feeling overwhelmed by everything, with the letters swimming on the page in front of you, you decide to just call the lawyer – me.  What do I tell you?  I say – there’s nothing you have to do right now.  You, take care of your family, grieve, and get back to me in a couple weeks – if you still need me – when you’re ready to move forward.

Those early hours, days and weeks are precious – precious time to be with your loved ones, to remember and celebrate to one who has died, and to work on our own processing of what’s happened and what it means to us.  An estate plan gives you that time.

When it comes time to assess the assets, pay the debts and transfer the property, the process:

  1. Involves no lawyers and no court;
  2. The fees are overall generally less than $100 in total; and
  3. Takes a few days to a month, depending on how quickly YOU work

Because you have all of the instructions, you don’t need to call a lawyer. The process is simple and quick, and costs almost nothing.

Does that sound like something you’d prefer to have from your loved one than the probate example?

Then, I ask, WHY are YOU not doing this for YOUR loved ones?  How could you not, knowing now what you do? What are you waiting for?

Estate planning is more than legal documents: Ethical Wills

When I work with clients on their estate plans, I work with them on the legal aspects, such as their living trust, will, and powers of attorney.  But I also work on other aspects of their estate plan and getting their affairs in order.  For example, I work with them to talk to their family about their estate plan.  I work with them to pre-plan and pre-pay for their funeral needs.  Happy stuff, right?  Well, it may not be the most desired of conversations, but –

  • It’s necessary.  If you don’t want to talk about it now, you will at some point.  And if you wait too long, you may not get the chance.
  • Once you talk about it once, especially with someone uninvolved like me, talking to the family becomes much easier.
  • If you knew what you were doing to your family but not having the conversations, and making them guess at what you want, then you would never leave anything unsaid.

Another thing that I talk to my clients about is an “ethical will.”  An ethical will is a document where you share your life lessons, hopes, dreams, values, history, faith, love and forgiveness with your family, friends, and community.  Gaining in popularity in the last several years, there are several online websites where you can record your ethical will and keep it, or there are forms you can download and/or purchase.  For my clients, I ensure that they have the document then need to record everything they would ever want to, such as the items noted above, in addition to genealogical, medical, military, and other histories as well as other pertinent information.

As we get older, the desire and need to leave a legacy becomes stronger and stronger.  We want to be remembered, for our lives, for our contributions and for our love.  As long as we are remembered, we stay alive.  Creating an ethical will is a way to leave that legacy that is so important.

Trusts and debt payment

I am often asked whether creating a living trust will allow the creator to avoid their debts: their mortgage, their credit cards, their other loans and secured debt.  The short answer?  No.

Living trusts are generally created to avoid probate, estate taxes, and allow one generation to pass assets along to the next generation with a minimum of hassle and expense.  Once you pass away, your successor trustee still has to determine what your debts are, pay them from your estate, assess taxes, and then distribute your assets according to your wishes.

What my debt-averse clients may be thinking of is a spendthrift (or asset management) trust, which does in fact protect the assets in the trust from the beneficiary’s creditors.  Spendthrift trusts are used when an individual or couple want to leave money to someone, usually a child, but don’t want to leave a large amount outright, or all at once.  So, for example, the beneficiary gets a certain percentage or amount at regular intervals (or for specific expenses, like education or health or living expenses), but is not entitled to the entirety of the money until a certain time or age.  In this case, should a creditor come after the child and the money in the trust, so long as there are restrictions placed on the disbursements to the child, then the trust money will be protected against the creditor.  This can mean  a great deal when, for example, there are millions in the trust and the beneficiary gets into a serious car accident with large liability.

In general, however, living trusts do not let you get out of paying your debts. The only way to get out of paying your debts is to not leave enough estate to pay them…which I would not recommend to anyone!

Estate planning for same sex couples in California

California has made some strides toward equality for same sex couples, but it cannot be said that there isn’t still a long way to go.  As unfair as it is, same sex couple have to do more: prepare more documents, plan for more contingencies/eventualities, update more frequently – than their heterosexual counterparts.  The worst thing that a same sex couple can do is bury their heads in the sand, hoping or assuming it’s ok not to put anything in place – that somehow, some way, it’ll all be taken care of should something go wrong.

Uh, no.

Even in the best of circumstances, what you effectively do when you don’t plan is place an enormous burden on your loved ones; the ones who have loved you and cared about you the most, and the ones you have loved and cared about the most, are going to be put in a horrific situation should something happen to you and you haven’t planned for it.  And this horrific situation, not only does it come at a time of grief for your loved ones, but it is entirely avoidable.

Some tips to get you started:

  1. With no estate plan (will, trust), you die intestate (i.e. the government decides your estate plan) and the government’s plan discriminates against same sex couples.
  2. Without powers of attorney in place, the parents who threw you out of the house when you came out could be making medical and financial decisions for you if you’re incapacitated.
  3. Being a Registered Domestic Partner in California, or married, does not change these points in their entirety.
  4. Holding your property in joint tenancy with your property will not avoid the problems here, plus they could work to DIS-inherit your children and/or cause additional problems down the line.
  5. Not choosing a guardian for your child(ren) could mean they end up in foster care should something happen to you.
  6. Without a living trust, probate fees could take up to 10% of your gross estate (your estate not taking debt into account) and take 2-3 years – if not more – to resolve.

The best way to take care of your family when you are a same sex couple is to put an estate plan in place.

Putting your affairs in order: what documents to collect to save your family

Generally, we think of “putting our affairs in order” as something we do after we get the terminal illness diagnosis from the doctor.  There are many reasons not to wait for that time to get your affairs situated, but I’ll leave that for another time.  Today I want to talk about what it actually means to get your affairs in order. First, though, let’s see why it’s important:

Have you ever been the one “in charge” after someone has died?  No?  Imagine this: your nearest and dearest loved one has passed away.  You’ve talked to the hospital and picked a mortuary, so that’s a process that’s been started.  It’s really hard to talk about your loved ones “body” or “remains” while you’re still trying to process the loss in the first few minutes or hours.  But then you feel like you have to DO something, so you head to the house to see if you can find the “important papers.”  Two things can happen at this point:

Scenario one is that you arrive, and already know where the estate plan is, and head right for it.  With it are all of the life insurance policies, retirement and bank accounts, instructions, pre-need funeral planning receipts and contact information, and smaller things like an address book to get in touch with all his/her friends, a locked box (which you have the key) with all of the computer passwords, safe combinations and the like.  There seems to be a lot to do, so you contact the estate planning attorney, who, after asking you a couple questions, says, “there’s nothing to worry about and nothing to do.  Take care of you, your family, and the final arrangements.  Then call me back in a couple weeks if you have questions, but the instructions should all be there…just don’t worry about it now.”  So this is what you do, as you start calling friends and family members and bracing for the days ahead.

Scenario two is that you arrive, and don’t know where anything is.  Does s/he even have life insurance?  Where are the bank accounts?  Was there a will?  Where is it?  You start tearing apart the desk, closets, cupboards,…and find nothing.  Now you’re grieving, in shock, have a million things to do, and now you can’t find anything.  This adds to your stress, so you call in other family members, who are now tearing apart the boxes in the garage.  Everything is chaos, and still no information.  It’s overwhelming to the family.

Which would you prefer your loved ones experience?

The former?  GREAT choice.  Now, here’s what to put in the file:

  1. Your estate plan, with trust and will.
  2. Your powers of attorney.
  3. Your life/long-term care insurance information.
  4. Your retirement information.
  5. Bank account information.
  6. Pre-need funeral planning documents.
  7. Investment account documents.
  8. Deeds of property, such as homes, vehicles and boats.
  9. Health, disability, auto and property insurance documents.
  10. Income source documents (social security, employment, investments, child/spousal support).
  11. Credit card statements and evidence of other debt.
  12. Important papers, such as marriage/birth/death certificates, passports, tax returns, military or genealogical records.
  13. Names/contact information of trusted professionals, such as accountants, lawyers, financial advisors, gardeners, house cleaners or caregivers, home repair professionals (electrician, plumber, roofer, chimney sweep, etc.).

And one final thought: make sure you have at least one trusted friend or family member who knows where it is and what’s in it.

Have step-children or a step-parent? Are you one? How to avoid disinheriting your family

Estate planning presents unique issues for blended families.  Blended families are families in which one or both parents have children from a previous relationship.  The problem comes when one spouse dies without an estate plan, or an old or outdated one.  Generally, when spouses hold property in California (or anywhere in the US), they hold it in joint tenancy.  When one joint tenant dies, the other one gets the entire property.

Can you see where we’re going with this?

When one spouse of a blended family dies, then the other spouse generally gets all the property of the couple, often by default.  When it comes time to distribute the assets at the death of the second spouse, the second spouse can essentially disinherit the first spouse’s children.  The second spouse, with all the property in his/her name, has control over the ultimate disposition of the property.  If there is a family rift between the second spouse and the step-children, if the second spouse is negligent in creating an estate plan providing for the step-children, or in other cases, then the children of the first spouse to die can be left out in the cold.

Don’t leave your children out in the cold by failing to provide for them with an estate plan.