What is Estate Planning?

Estate Planning is the creation of a written plan for the management and distribution of your property.  An estate plan can be a simple Last Will and Testament or can include a Revocable Living Trust, Pour-over Will, Durable Power of Attorney for Financial Affairs, Durable Power of Attorney for Health Care/Advanced Health Care Directive, and Nomination of Guardianship for those with young children or Nomination of Conservator for more mature clients.  What is most important is that you have the opportunity to discuss the different estate planning documents with your attorney and have your questions answered so that you understand how each document affects you and can make an informed decision.
Some people think having an estate plan is only for those with great wealth, like Bill Gates.  Even individuals or couples with modest estates should have an estate plan.  If directions for distribution of an estate have not been set down in writing, the estate will still be distributed, but to the deceased individual’s heirs according to the Probate Code and under the direction of the Court.  This may or may not be as that person would have wanted, but at that point it is too late.  Several years ago a client appeared whose husband had died unexpectedly.  He did not have a will.  He did have three children from prior relationships.  As a result, when the intestate probate of his estate (a probate proceeding in which there is no Last Will and Testament) was finished, his three children shared two-thirds of his estate and his new widow received one-third.

What is a Special Needs Trust?

A Special Needs Trust is a trust created for the purpose of providing supplemental care and support for an individual who is unable to adequately care for themselves.  The need for a Special Needs Trust (SNT) may arise if a family member, typically child or grandchild has a disability, whether physical or developmental which will prevent him or her from being self-supporting and leading a normal life; if a family member suffers from mental illness which prevents him or her from being self-supporting and participating in society at large; or if a family member has suffered a traumatic brain injury through accident or illness and can no longer care for himself or herself. An SNT may be created by a third party, such as a parent or grandparent or may be created under an order from the court for the management of an award arising from an accident which has resulted in serious and irreversible injury.  Most commonly these individuals are recipients of support from one or more public agencies, such as Social Security Disability Income.  This support provides for the basic necessities of shelter, food and medical care, but often leaves little or nothing beyond covering those immediate needs.

A properly drafted SNT will allow the Trustee to enhance or supplement the beneficiary’s life by providing for health care beyond what is otherwise available, such as dental care, non-money gifts such as special clothing, TV’s or radios, and trips which would not be available to the beneficiary with the amount of public support she or he is receiving and which may not be part of the activities provided by the facility in which she or he is lodged.

An SNT is most often drafted to include specific language stating that the benefits of the trust are intended only to supplement and not supplant any publicly funded benefits which the beneficiary is receiving, and further that if any action is taken by any public agency to make a claim against the SNT intended to replace the benefits which the trust’s beneficiary is receiving, the SNT will terminate and the trust assets will be distributed to other designated beneficiaries.  This clause is included to prevent the Grantor of the SNT or the trust itself from distributing a sum of money to the intended beneficiary, which would disqualify the beneficiary from receiving public support.  The result of that distribution would be that the beneficiary would be required to spend down the gift to a level at which she or he would qualify for public benefits, and have to go through the often long and complicated re-application process.

What else is involved in an Estate Plan?

An Estate Plan can include several different documents intended to address all of the circumstances which may arise in your life.

Pour-over Will:  A Pour-over Will is a Last Will and Testament created by the person who has also created a Revocable Living Trust, called the Grantor or the Settlor.  One of the primary purposes of the trust is to avoid the cost of probate.  If the value of the estate assets which are not included in the trust is less than $ 150,000.00, it is possible to use the summary adjudication of small estates provisions in the Probate Code.  However, property may be acquired which will bring the value of the non-trust assets over that amount, for example if a new home or a vacation home is purchased and not yet transferred into the trust.  A Pour-over Will designates the existing trust as the beneficiary of any property which has not been placed in the trust, so that all property will be included in and distributed according to the terms of the trust. It also will repeat the distribution plan of the trust, to insure if property outside of the trust is not of great enough value to require probate, it will still be distributed according to the Testator/Grantor’s directions.

General Durable Power of Attorney for Financial Affairs: In general terms, a Power of Attorney is a document, by which the Principal, the person signing the Power of Attorney, gives his or her Agent the power to manage financial and business matters for the Principal.  This power will extend for as long or limited a time as the Principal designates and can be very broad or very narrow and allow only certain matters to be managed by the Agent.  But, a simple Power of Attorney is revoked as a matter of law if the Principal becomes incapacitated through either illness or accident and cannot make competent decisions regarding his or her affairs or on the Principal’s death.

A Durable Power of Attorney expressly states that when the Principal has lost the capacity to manage their own business affairs, either by dementia as a result of age, illness such as cancer or a stroke, or a traumatic accident caused injury, the Agent’s power and authority will then take effect and will continue despite the Principal’s incapacity to make decisions.  The authority under a Durable Power of Attorney for Financial Affairs may be as above, very broad and general or limited to certain matters, but that authority will continue until the Principal regains the capacity to manage their own business or dies.

A Durable Power of Attorney for Financial Matters can be an important part of an estate plan where the Principal has business or financial interests which have not been transferred into his or her Revocable Living Trust or where the Principal has only a simple Will.

Durable Power of Attorney for Health Care/Advance Health Care Directive/Living Will:  A Durable Power of Attorney for Health Care also called an Advance Health Care Directive or a Living Will designates an Agent who has the power to make medical decisions for you when you cannot make them for yourself.  Your Agent can talk to your health care providers, have access to your medical records, consent to or deny treatments including invasive surgery, consent to or deny use of medication, including for pain relief, and most importantly for many people, demand or deny the use of artificial life support, nutrition and hydration if you are in a coma and there is no reasonable expectation you will revive from that state.

A Durable POA for Health Care is a similar but entirely separate document, both by law and subject matter, from a Durable Power of Attorney for Financial Matters.  The two subjects may not be included in one document.

A Durable POA for Health Care gives you the right to decide what powers your Agent has and what decisions she or he can make for you.  You can decide in advance if you do or do not want to be placed on extended life support; if you would like pain medication even if use of such medication could hasten the end of your life; if you would like to consent to or deny an autopsy or have your body donated for research or medical school instruction.  Your Agent is obligated to follow your instructions, whether he or she agrees with those or not.

Nomination of Guardian/Conservator:  If a couple or individual has a child or children under the age of 18 years, should the parent(s) die, the child or children will need a guardian.  The court will appoint a Guardian of the person, will have authority over where the child or children will live, their health, welfare, education and religious upbringing and a Guardian of the Estate who will have control and management of any assets which the child or children received from the parents’ estate or otherwise.  These may be but are not always the same person.  As part of their estate plan, the parent(s) can sign a Nomination of Guardian, which will nominate a trusted adult, usually a sibling of a parent, sometimes a close and trusted friend, to serve as their child’s guardian should the parent die before the child reaches majority at age 18.  The actual appointment is subject to approval by the court and acceptance by the proposed guardian but the signed and notarized nomination carries substantial weight in the court’s decision making process.

A Conservator fills the same function for someone who is an adult as the Guardian does for a minor.  One of the options as part of an estate plan is for an individual to sign a Nomination of Conservator by which she or he nominates someone, usually their spouse or a child to serve as their Conservator should they become unable to care for themselves due to age and illness.  As above, the court may appoint one person as Conservator of both the person and estate of the Conservatee or separate Conservators of the person and estate.

Will my estate have to go through Probate?

Whether your estate must go through probate depends on the value of your estate and whether you have a valid trust.
The Probate Code provides for a Summary Administration of Small Estates, which eliminates the requirements of probate.  If you have an estate which is valued at less than $ 150,000.00, it is possible to avoid probate by having an affidavit prepared stating that you are either the person entitled to receive certain property which the decedent owned, for example a bank account, or you are the nominated executor/personal representative of the decedent’s estate and are collecting the asset for distribution according to the decedent’s last will and testament. The affidavit is presented with a certified copy of the death certificate and a copy of the will if there is a will.  It is not advised that this method of settling the distribution of an estate be tried without first consulting a lawyer.  It is necessary that the affidavit contain the correct language and the signature is notarized.  Further, part of the probate process is giving the decedent’s creditors a chance to submit a claim and be paid, if there are assets.  Anyone who collects assets of an estate under the summary administration provisions, even though legally entitled to that property, may be liable for payment of the decedent’s debts up to the amount of the property claimed.

The value of an estate in both general terms and under the summary administration statutes includes the value of real estate.  Real estate is valued at the Fair Market Value; there is no deduction in the valuation of the real property to account for loans or other encumbrances against the property.  Because of the value of real property in Sonoma, Marin, Napa and much of Mendocino and Lake counties, that will usually cause the estate to be valued at an amount over the $ 150,000.00 limit.

If you have a properly drafted Revocable Living Trust, the estate is not subject to probate.  The final administration, distribution and winding up of trusts is handled privately and is not subject to court administration or open to public inspection.

What is Probate and how does it work?

Probate is the court supervised process established by law to oversee the distribution of an estate when someone passes away. The purposes of probate are to manage the collection and preservation of the property of the decedent to allow creditors to be paid out of the decedent’s assets and the remaining assets to be distributed according to the wishes of the decedent in his or her will or according to the Intestate Estate provisions of the Probate Code if there is no will.

When a will is written the Testator (the person for whom the will is written) names one or more persons to serve, in order, as the executor/personal representative/administrator of the estate.  All of these titles serve the same function. The executor cannot represent himself or herself in court.  The law assumes that there will be creditors of the decedent and beneficiaries of the estate.  Therefore the law imposes fiduciary duties on the executor to act fairly in regard to everyone who may have an interest in the estate, and requires that the executor be represented in court by a lawyer.

The executor completes a Petition for an order appointing himself/herself to that position.  The petition, with a copy of the will attached and a notice of hearing must be filed with the court and a copy served on everyone who is named in the will and may have an interest in the estate. The notice of hearing must be published in a local newspaper.  When the petition comes before the court, if it is granted an order appointing the petitioner as executor is issued along with Letters Testamentary.  These documents give the executor authority to collect all of the decedent’s property, settle claims against the estate, take legal action to collect property or contest debts or claims if necessary and sell or otherwise dispose of estate property.
A notice must be sent to all known or suspected creditors, who have four months in which to file a claim against the estate. The executor must also communicate with the court assigned Probate Referee who will appraise and value the estate property on an Inventory and Appraisal form, which is filed with the court.  When all claims have been settled and all of the estate assets collected, the executor and attorney prepare and file a final accounting and a petition for approval of payment of compensation, final distribution and closure of the estate.

Do I need a Revocable Living Trust?

A Revocable Living Trust is, in lawyer-speak, a ‘legal entity’. In other words, it is a legal plan which you create which can own your property and manage it for you.

A Revocable Living Trust can serve several purposes:
-Your trust can own your property and earn income from investments, managing rental property or running a business. This income is distributed for your benefit or the benefit of your family.
-Your trust will avoid Probate. Without a trust, whether you have a will or not, your estate will have to go through Probate, unless it meets certain specific criteria. Probate is carried out under the supervision of the court and the court’s file is a public document. Therefore it is open to anyone who wants to go to the court clerk’s office and read the file. In the case of a probate that includes a copy of your Will if you have one, and information about your assets, debts and who your estate will be distributed to. Also, probate of a decedent’s estate requires payment of court filing fees, attorney fees, fees to the executor/personal representative of the estate and other administrative costs. Final administration of a Trust is not open to the public. It is a private matter and is much less expensive that a probate proceeding.
-Your trust can continue after you have passed away to provide for your spouse, children or grandchildren. It is possible and common to structure a trust to continue for a period of years to provide for the support, education and welfare of a child or grandchild who the Trustor (the person creating the trust) wishes to benefit but who may be a minor or who the Trustor believes needs time to mature before being given a substantial sum of money.
If the Trustor has a child or grandchild who has disabilities and requires support from public agencies, such as Social Security, a Special Needs Trust can be created which provides for special support to enhance the existing support from the public agency but which will not replace it.