There are many tools and strategies to consider when designing and implementing an individualized estate plan. Typically, a compressive estate plan will consist of the following four key documents: 1) Living Trust; 2) Pour-Over Will; 3) Power of Attorney for Financial and Personal Affairs; and 4) Power of Attorney for Health Care (Advanced Health Care Directive)
Trusts: Revocable Living Trusts, Irrevocable Trusts, Testamentary Trusts, Special Needs Trusts, etc.
Trusts can serve a variety of legal, personal, investment or tax planning purposes. At its most basic level, a trust is a legal entity holds title to your property. All trusts typically name at least three parties: the trust-creator (grantor/settlor), the trust administrator (trustee), and the trust beneficiary(ies). Often, one individual or married couple is simultaneously the grantor(s), trustee/co-trustee, and beneficiary(ies). For example, a married couple (grantors) can create a trust, name themselves co-trustees and make themselves the beneficiaries.
Depending on the situation, there may be many advantages to establishing a trust, including avoiding probate court. In most cases, assets owned in a revocable living trust will pass to the trust beneficiaries (or heirs) immediately upon the death of the trust-maker(s) with no probate required. Certain individuals can utilize Irrevocable Life Insurance Trusts (ILITs) and Marital Trusts, which can offer tax advantages both for the creators of the trust and the beneficiaries. Spendthrift trust may be used to protect beneficiaries from themselves or their creditors and Special Needs Trust can be used to give individuals an inheritance without affecting their eligibility for public benefits.
Your Last Will and Testament
A last will and testament is just one part of a comprehensive estate plan. If a person dies without a Will they are said to have died “intestate” and the California rules of Intestacy will determine who gets to share in your estate.
A will has no legal authority until after death.
A will does not help an estate avoid probate. A will is the legal document that must be approved by the Court.
A will is a good place to nominate the guardians of your minor children. The failure to nominate guardians for you children could result in a custody battle for the care of one’s children.
Power of Attorney for Financial and Personal Affairs
A power of attorney is a legal document giving another person (the attorney-in-fact) the legal right to act on your behalf. There are generally two types of durable powers of attorney: a “present” durable power of attorney in which the power is immediately transferred to your attorney in fact; and a “springing” or future durable power of attorney that only comes into effect upon your subsequent disability as determined by your doctor. Without a properly drafted power of attorney, it may be necessary for your family to apply to a court to have a guardian or conservator appointed to make decisions for you when you are disabled. This guardianship process is time-consuming, expensive, emotionally draining.
Power of Attorney for Health Care (Advanced Health Care Directive)
An advance directive is a document that specifies the type of medical and personal care you would want should you lose the ability to make and communicate your own decisions. Anyone over the age of 18 may execute an advance directive, and this document is legally binding in California. Your advance directive can specify the Health Care agent who will make and communicate decisions on your behalf, and it can set out the circumstances under which you would not like your life to be prolonged; if, for example, you were in a coma with no reasonable chance of recovery.
A document that goes hand-in-hand with your advance directive is an authorization, given to your medical providers, allowing specified individuals to access your medical information. Without this authorization, your doctor may refuse to communicate with your hand-picked Health Care Agent.