Estate Planning

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What is estate planning?

What is a Will?

Do I really need Estate Planning?

What is Probate?

Why Do We Hear So Much About The Horror's Of Probate?

What is a Trust?

Is Estate Planning only for the rich?

Who Gets Your Stuff if you Pass Without an Estate Plan?

How do You Avoid the Government Taking Everything?

Do Pet Trusts Exist?

How Does a Probate System Work?

How do you Avoid Fighting Over Personal Property Inheritance?

What Happens if No Will Can Be Found?

Is Hiring an Estate Planning Lawyer Worth It?

What are Three of the Biggest Misconceptions About Estate Planning?

What Should You Ask Before Hiring an Estate Planning Lawyer?

How Important is Asset Protection?

How Old Do You Have to be to Start Planning?

How do you Get Started with Estate Planning? What is the First Step?

A Loved One Has Died. When is the Right Time to Address the Estate Issue?

What is The Most Difficult Aspect About Estate Planning?

Do You Have Any Estate Planning Horror Stories?

Basically, Estate Planning is the ongoing process of accumulation, enjoyment, and protection of your assets during your lifetime, followed by the orderly, efficient, and cost-effective distribution of those assets to your loved ones after your death.

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Wills are the traditional documents used to name individuals or charities to receive your assets upon your death, and to name the Executor of your estate. The Executor works under the supervision and control of the Probate Court to manage your estate, pay all debts, taxes, and expenses, and then ultimately distributes the remaining assets to the beneficiaries.

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Regardless of the size of your estate, you should designate the person who, in the event of your incapacity, will have the responsibility of managing your assets and your care. For larger estates, Estate Planning can help preserve your assets for your designated beneficiaries and reduce or postpone the amount of income and death taxes that might otherwise be due upon your death.

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Probate is the court-supervised administration of an estate of a person who did not leave a Will. Actually, even the estates of persons that did leave a Will go through Probate.

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There are several important disadvantages of Probate. First, since Probate is a court proceeding, everything is out in public and there is no privacy for the family. Virtually anyone that’s interested can go to the courthouse and see the court file and read the Will. Other personal information may be found out also.

Second, Probate can take a long time. Because of the many court filings, petitions, notices, appraisals, reviews, and claims, the average Probate in California is estimated at 18 months! It’s not at all uncommon to see Probates take many years to complete, if there are any complicating factors such as business interests or contesting beneficiaries. Marilyn Monroe’s estate, for example, was in Probate court for over 20 years.

Lastly, the legal fees for Probate attorneys and Executors is set by law, and is based upon the gross value of the Probate assets. Typical attorney fees for an estate of $1 million dollars could be as high as $50,000. The Executor of the estate is entitled to collect $50,000 also.

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A Trust is an agreement that creates a special relationship whereby one person, called the Trustee, holds the legal title to an asset for the benefit of another person, called the beneficiary. The person that sets up the Trust is called either the Settlor, Trustor, Creator, or Grantor.

Trusts can be used for many purposes such as avoiding Probate, minimizing Taxes, and providing Asset Protection.

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The term “estate” gives people the impression that you have to have some sort of a mansion or a castle, but that is not true. Anybody that owns assets needs to plan out what’s going to happen with them, so if you have a home, a car, a bank account, stock or mutual funds, or insurance or retirement plans, any of those things are considered assets. No matter how valuable they are, you need to plan for those things whether you are rich or middle class or not. Estate planning is not just for the rich, it’s for everybody.

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If you don’t do any estate planning, the State of California has a plan designed for you. It’s called “Intestate Succession” and is governed by the probate court. The state’s plan may not be a plan that you agree with. It depends on whether you have children, whether you’re married, whether you have any separate property, and if you have any community property. For example, if you happen to be married and you don’t do any estate planning, if you don’t have a will, at least, and you pass away, then half of your assets will go to your children, not your spouse.

That may not be the way you want it to be. In fact, if your parents are living, they are going to be included as beneficiaries as well under the probate court. So, I don’t know about you, but most people think that they know better than the State of California as far as who will get their stuff and the way to make sure that the people that you want get your things is by doing some estate planning and not leaving it up to chance.

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The government never takes it all. That is a myth, but the government does take a chunk. We first look at the state government, which deals with the probate court here in California.
Every state has their own rules about how estates are handled through their respective probate courts. In California, the probate process is very expensive and lengthy and public and, therefore, most people want to avoid that if they can but if they can’t or if they don’t do some basic estate planning and the estate is administered through the probate court, the estimated expenses are about 4% to 5% of the gross value of the assets that are being administered through the probate court.

For example, if you have a million dollar estate, 4% or 5% of that is $40,000 to $50,000, which is what is going to erode the estate for probate costs. Then we look at the federal government, specifically the IRS and that’s really not going to affect too many people unless your net estate is worth over $5.4 million.

There aren’t that many people that fall into that category but for those who do, it’s a very heavy tax. It’s 40% of everything over that and so, for people that own businesses or farms, a lot of real estate investors, developers, people like that, the federal estate tax is very onerous and a major part of estate planning is dealing with those wealthy families to try to minimize that 40% tax.

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Most people that have pets love them very much and they do take it seriously. It’s very important to them that their dog, cat, bird, turtle, or whatever is taken care of because the pet is family for some people. So yes, we are very serious about pet trusts for some clients, because what would happen to your cat if you weren’t there to feed it, take care of it, change the litter box and so forth? It could be a real big problem, so for people that do own pets, we always like to put some provision in their trust to take care of those family members.

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Every state is different. California has the worst probate system because we are the biggest state. We have very complicated laws and probate courts are very busy. For the typical probate case in California the average length is one and a half years, during which time the family members can feel that they are in purgatory or even hell. It is not a good place to be, it’s very expensive and worse than that, it’s a sort of limbo and people want to move on with their lives and wrap up these legal affairs but probate cases sometimes linger on and on.

One time when I was in court on a probate case and the judge was calling all the cases out there and he called an attorney for his case. The attorney went up and the judge told the lawyer, “This case has been going on for a long time. I see that you are requesting a fee of $500,000. Can you explain that?” As soon as he said “$500,000” everybody in the courtroom kind of perked up to see how this lawyer can justify a $500,000 probate fee! He explained to the judge (and everybody was listening) that this particular probate case had been going on for 25 years because it was very complex.

There were businesses involved, lots of real estate, disputes among the family members, and this lawyer had been working on this probate case for 25 years and never gotten paid until at this point when he was requesting his statutory and extraordinary fees. Probate cases can go on forever. It is like a living hell, it’s horrible.

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One of the most common sources of friction among people that inherit an estate is the personal property. It could be an estate worth $10 million and they are splitting the money and it’s not a big deal, but boy! One sibling wants this statue that’s in the home or piece of artwork or piece of jewelry, ring or necklace or watch and that becomes a big fight and that’s just human nature. People get attached sentimentally to particular items and they focus on those things but in order to avoid that it’s pretty much like everything else.

You need to communicate. The parents need to either specify in their will or trust who gets these things or if they don’t, then they should probably say that all those personal assets are to be sold off and the cash simply split among the children. That way there is nothing to argue about because people argue about that too but sometimes these disputes are unavoidable but in my experience, the best way to cut them off is to very clearly designate who you want to get those things ahead of time.

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If you think that the decedent had a will but you can’t find one, then obviously that’s a problem. If it ultimately is never found and all you’ve got is this hunch that there is a will, that’s not enough and you are going to have to go to probate court and disclose that you don’t have a will. I have had a couple of cases where the person had a will, they knew that they had signed a will, but they didn’t have the original will, they had a copy of it and that’s not exactly good enough either unless you can show at least some bare minimal evidence that the original will was never revoked.

If you have a will, you need to make sure that it’s safe and not discarded or lost. You should inform your family members or loved ones where the will is kept. If you have an attorney, the attorney should have a copy of it and that way we avoid this situation where you have to go to probate and just rely on the probate court, which is the system of laws that govern inheritances according to state law, which may not correspond to the way that the purported will was supposed to distribute the assets. Don’t lose your will.

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Absolutely! The difference in price between doing it yourself and hiring the most expensive estate planning lawyer in town is probably only a couple of thousand dollars. But the difference in cost, if you do it wrong yourself, is potentially hundreds of thousands or maybe millions of dollars and so if you look at the risk-benefit analysis like that, intelligent people almost always choose to use an attorney to do their estate planning.

I’m not saying that you couldn’t do it successfully on your own, but I’ve never seen anyone that has done it. I’ve seen many attempts that have gone horribly wrong and have either led directly into probate court and all the associated costs and expenses and delays with probate or they haven’t planned for the federal estate tax and cost the estate hundreds of thousands or millions of dollars. It’s very foolish not to use an attorney if you have assets.

You have zero chance of doing your own estate planning correctly without a lawyer and it’s not going to save you that much money. In fact, it will probably cost a lot of money. So, it is absolutely worth it to hire competent counsel.

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The first one is that if you have a trust, your assets are protected. They might be protected from taxes, but they are most likely not going to be protected from lawsuits or creditors. A revocable Trust is not an asset protection device.
The second myth about estate planning is that you do it once and you’re done. Unfortunately, that’s not true because situations change. The more realistic approach actually is that you do your estate planning from time to time every few years and you keep it up-to-date and you make sure that it’s correct and that it will work when the time comes.

The third myth about estate planning is that it’s only for when you die, when you pass away and your assets go to your children or grandchildren or charities or so forth. Half of estate planning concerns what happens when you’re alive, if you become incapacitated, if you have a stroke, if you have to go to live in a nursing home or assisted living facility. How are things going to be handled, who is going to be authorized to make medical decisions on your behalf if you are incapacitated?

Not everybody becomes incapacitated but probably half of all people do at some point in their lives, so estate planning is not only for death.

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The first thing should be, what percentage of your practice is estate planning? Do you do this every day? Is it just something that you dabble in just once in a while? You want somebody with experience.

In California, we have a State Bar Board of Legal Specialization that actually certifies lawyers that have at least five years of experience as attorneys and that have demonstrated a certain level of proficiency to state bar, eight hundred or so lawyers in California that have attained the certified specialization certificate and that would be something that actually demonstrates to the consumer that that particular lawyer has the requisite experience and skill and background and education in estate planning.

Obviously also you want to talk to an attorney that was referred to you by somebody, one of his or her clients or one of your trusted advisors such as a CPA or financial advisor, real estate broker, banker, or somebody like that. They usually tend to know good experienced estate planning attorneys, so I think that’s probably the best way to start and once you meet that particular attorney, find out a little bit more about his or her background and volume of experience with cases such as yours.

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Everybody is really concerned about asset protection because there are a lot of frivolous lawsuits being filed each and every day, especially in California. What we mean by asset protection is different for every particular family. Some people think of asset protection as being protection from nursing home costs and that’s a very real threat to a lot of folks. A nursing home here in Orange County costs $7000 or $8000 a month and if you think that you’re going to be in a nursing home for three or four years, that’s $100,000 a year or so, so it adds up and people are very, very concerned about that.

Asset protection for business owners means something else altogether. They have employees, they have customers, and there are plenty of opportunities to get sued over certain business deals or employee matters. People are very worried about that and want to protect themselves. Professionals are targets for lawsuits as well and so asset protection is really a component of each and every estate plan that we do. One size does not fit all; you have to really dig into the details and see what sort of assets there are that the client needs to protect.

There are statutory exemptions, classes of assets that are, by law, protected and some things that are not, so we just need to sometimes move things around but it all starts with an analysis and a strategic session where we get to build the asset protection plan into the estate plan.

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Some of my clients are as young as 18 years old. They are very thoughtful young people who understand that they are adults and if something were to happen to them and they needed to make or they needed to have somebody make medical decisions or financial decisions for them. If they become incapacitated, well, they should have a durable power of attorney or healthcare directive. These are very important but very simple and straightforward legal documents that every adult should have.

Aside from that, people have young children and they may not have much in terms of assets like houses and money and things like that but their kids are certainly very precious to them and so an estate plan for a younger couple like that would involve setting up guardianship for the kids: who is going to raise them, where are they going to go to school, how are they going to be educated, what sort of religious upbringing do the parents want for their kids if something were to happen to both parents?

Most of my clients are middle-aged but a very high percentage of them are much younger because they have young, growing families and they want to make sure that God forbid, if something happens to them, their kids are going to be raised by the right people.

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are, what your objectives are, whether there are young, minor children or if you’re an older couple, if you’re concerned about nursing home expenses and qualifying for Medi-Cal, just kind of gather your thoughts and put down in writing what your goals and objectives are, then make an appointment with a competent attorney who you’ve gotten a referral to.

Most of the time that meeting is complimentary and I certainly don’t charge for the initial meeting because I want the clients to be comfortable and able to ask all kinds of questions and get educated about what this process is like. But that’s basically the first step, we meet with the clients, we ask them a series of questions about their family and their assets, find out what’s important to them, how they want to design their plan and then we can make recommendations, we can spot issues and offer some solutions.

But it all starts with the clients just kind of getting an idea in their head of what they want to do with their own estate plan because after all, it’s their family, it’s not mine, it’s the client’s.

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Everybody has different grieving processes that they have to go through. I’m not a therapist or a psychologist but most people are aware that there is a period of shock and denial and anger and so forth, so everybody needs to get over that but that’s different for each and every individual person. As far as the legal matters that need to take place, the sooner you can get on top of that the better. There are some things that are very important to do right away.

You need to secure the house, you need to maybe change the locks and safeguard the personal property that’s in the home, basic things like that, arrange for the funeral, so forth. There is a list of maybe a hundred different things that you need to do. Some of them are more important than others but none of them should be delayed.

Sometimes these things are very time-sensitive and the earlier that you can get a jump on it, the better. Many times, however, cases where the person who is supposed to be in-charge of administering the estate doesn’t do anything for sometimes years. As you can imagine, that kind of situation never ends up too well.

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Probably for most people, it’s just simply dealing with procrastination. It’s not particularly a fun thing to do but it needs to be done so you need to think about these things. You need to think about what’s going to happen when you die and for many people, that’s not a pleasant thought. However, I think for most people it’s very rewarding once they get it done. They get a sense of accomplishment and they get a sense of relief and peace of mind and that’s really the goal. So, the first step is the hardest but once you take that step, it’s going to be worth it.

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Most of the horror stories are mostly centered around people who don’t do it right. I’ll give you an example of a messy situation here. A gentleman was married, he got divorced from his first wife and they had a trust together.

When they got divorced, they didn’t go to a lawyer, they just handled the divorce on their own, so they crafted a settlement agreement between the two of them and they filed that with the court and certain assets were supposed to go to the husband, certain assets were supposed to go to the wife and there was a list of these various retirement plans that the husband had and the wife was supposed to get some of those and he was supposed to get some of those and so forth.

The divorce was finalized and then, very shortly after that, he remarried but he never revoked his trust, he never revoked his will and he never changed the beneficiary designations on his life insurance policies or on his retirement plans with his employer like he was supposed to do under that agreement in the divorce.

So, then he married and six months after he got married for the second time, the poor guy had a heart attack and died. That set up a nasty battle between his second wife (his surviving spouse) and his ex-wife because it was discovered after his death that there was a very substantial retirement plan that he had never told anybody about, even during the divorce case and on which he had named his brother as the beneficiary.

Not only was it a fight between the widow and the first ex-wife, the brother also became involved in this, so the three of them were fighting over this half a million dollar retirement plan and the insurance policies and so forth. Even though they had a trust, the whole thing wound up in court with protracted litigation, not only was it a probate court battle over whether the trust had been properly revoked and who the beneficiaries of the trust were and the will, but it also wound up in federal court because the retirement plan was an ERISA qualified plan, which is the federal law that governs certain qualified retirement plans.

So this whole thing got fought in Federal Court, cost everybody probably $300,000 or $400,000 to fight over a $500,000 retirement plan and ultimately, it was basically split between the brother and the first wife. So, that was a big disaster and the problem with estate planning disasters is that usually they really can’t be fixed because the person’s dead, they can’t correct things. So, that was a really messy one.

A more run of the mill type of thing would be a case where husband and wife had a trust, the husband had children from a previous marriage and he wanted to leave his small business to the kids if he happened to die first, and that’s what happened. He died first and he still was operating this little business but it was not incorporated and there was a big dispute between the surviving spouse who is the trustee of the trust and the children from the first marriage and the dispute centered on what assets were part of his business.

Was it the inventory in the shop, was it the bank accounts, was it the personal property that was in the garage, stuff like that? Personal property usually, if it’s not spelled out, becomes a big problem and that was a problem in this case, so we basically got to the verge of a lawsuit but, fortunately, were able to settle that and the two parties were able to extricate themselves from each other’s affairs and moved on.

Another typical case is where somebody does a trust on LegalZoom and they say in the trust that, “I want my life insurance to go to my nephew and I want my house to go to my niece and I want everything else to go to my brother or sister.” The problem is that they don’t understand how these things work together and an insurance policy isn’t governed by your will, it’s not governed by your trust, it’s governed by whoever is designated as the beneficiary.

In cases like that, and a case that I had like that, the beneficiary under the life insurance policy was not the same person as the beneficiary that was named in the trust as the beneficiary of the life insurance policy because the client didn’t have good advisors and she tried to do it herself.

So, the intended beneficiary didn’t get the life insurance policy, it went to somebody else altogether and not only that, but it had to be settled through probate. So, not coordinating the life insurance policies and the retirement plans with the rest of the estate plan is a big problem and it will lead to a disaster if the person who put together the plan doesn’t understand that. Most laypeople just don’t understand it.

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