The phrase “estate planning” is a phrase many people have heard but often do not understand. As this is not a topic many people are familiar or comfortable with, there are lots of misconceptions around estate planning.
Myth 1: Estate planning is only for the very wealthy
False: There are many reasons to utilize estate planning tools even if you have a smaller net-worth.
Avoiding Probate: One common goal in California is probate avoidance. In California, if you have assets valued at greater than $150,000 speaking to an estate planner is important. Generally speaking, estates valued over $150,000 will require probate upon an individual’s death. Probate in California can be a lengthy and expensive process and it is wise to avoid probate. If your estate passes to beneficiaries through probate, then you are also prevented from having any control on the distribution of your assets.
Incapacity Planning: Americans life spans are continuing to increase. There are many reasons incapacity can become an issue, including accidents causing brain injuries, dementia or Alzheimer’s disease. When a person creates a full estate plan (including a trust and power of attorney, and health care directive), they are appointing individuals who can manage their estate and make medical decisions for them. Without these documents in place, when the issue of incapacity presents itself, a friend or family member will be required to petition the court for a conservatorship giving the conservator the power to manage the individual’s assets and health care decisions. Conservatorships can be costly to obtain, and depending upon the needs of the conservatee, may include yearly or bi-yearly court oversight of the case. There is also a delay between when the need for assistance due to incapacity arises, and when the court issues the letters of conservatorship.
Medicaid Planning: The qualification process for Medicaid includes an asset test. If your assets are over a certain value, it will disqualify you from receiving Medicaid and the Long-Term Services and Support which helps with long term care and nursing homes. There is a specific process that must be followed if you intend to spend down your assets in order to qualify for Medicaid. It is also important to note that there is a 5-year look back period. If you believe you may need or want Medical in the future, and you have any question about qualifying, it is important that you speak with an attorney about your needs immediately. This will help ensure that any steps necessary to qualify begin as soon as possible.
Minor Children: If you are a parent with minor children, it is important to consider estate planning. The future is uncertain and an estate plan is designed to contemplate both the unknowns and the certainties within life. One thing important for parents to consider is what happens to their children should they pass before the children are legally adults. With an estate plan parents can nominate a guardian. The guardian nomination will only come into play if the other parent is either not alive, or does not have custody/parental rights to the child. The guardian nomination is not a complete 100% guarantee that the court will order the nominated person to serve as the guardian; however, this is a very clear and weighty way to notify the court of what you believe is in your child’s best interest. The court will take the stance that you, as the parent knew what was best for your child and take that into consideration.
Myth 2: If I create an estate plan I lose control over my assets.
Mostly False: There are forms of trusts, such as Irrevocable Trusts, that have very strict limitations on amendments. These trusts are often utilized by high-networth individuals to accompany detailed tax savings strategies. For the vast majority of Americans and Californians, the documents used to create an estate plan remain fully modifiable and revocable until incapacity or death. It is important that people realize they are not giving up any rights of ownership by creating an estate plan. The person is still able to sell any property, buy new property, encumber existing property, gift it, or do anything else that they might want to do with their property (so long as it’s legal). A Living Trust, Will or Power of Attorney, will not in any way hinder a property owner from exercising all of their ownership rights. In fact, the estate plan provides added control because it allows the owner to exercise control over the ultimate distribution of the assets after death.
Myth 3: Once I create an estate plan, I’m all done.
The only constant in life is change. The estate plan you create upon marriage or with the birth of your first child, or purchase of your home, may not be appropriate in 5, 10, or 20 years. Changes in your personal life can necessitate an update to your documents. So too can changes in the law. For example, the most recent tax reform passed by Congress had huge implications for estate planning. The estate tax exemption nearly doubled, meaning that many trusts included tax saving provisions that are no longer necessary. With the passing of the tax reform, it was appropriate for many people to update their documents creating flexibility within them so that they have less stringent provisions accommodating the higher estate tax exemption.
For your personal life, it is appropriate to do an internal check every 1-5 years to make sure that you still agree with the successor trustees and beneficiary designations. Aside from your personal wishes reflected in the document, it is appropriate to reach out to your estate planning attorney every 5-7 years to confirm if changes in the applicable laws warrant modifications to your documents.
Myth 4: My family will be fine and there won’t be any conflict.
Grief is a universally shared experience among humans. Unfortunately, no matter how many times we experience grief, it never gets easier or simpler to navigate. Many people have said that money brings out the worst in us, it is also appropriate to say that grief can bring out the worst in us as well. No matter how well siblings or relatives may get along during the best of times, the mixture of grief over the death of a loved one plus the confusion and stress of “what comes next” has the capacity to bring conflict to almost any family. Estate plans can help with this in a few ways:
First, with a health care directive, your wishes for your medical treatment are very clear. You also have the ability to be as detailed as you want about your wishes for treatment. The doctor can and will review this document and is then able to consult with your appointed agent about what medical treatment options match with your wishes and preferences.
Second, when you have a Trust, as opposed to only a will or no planning at all, there are different timelines and process for managing the estate and ultimate distribution. In addition to being time consuming and potentially costly, the Probate process can add extra layers of stress due to the strict deadlines mixed with waiting periods. The administration of a trust is much more gracious and complimentary of the grieving process. With very few exceptions, the Successor Trustee never needs to seek court involvement or guidance in the administration process.
Third, your wishes for your distribution are clear. If you have a favorite niece or nephew and want to leave them your car, or a specific piece of jewelry, your trust can state that clearly and in a form that is enforceable. Any verbal statements to family members about specific gifts are unenforceable in court as they cannot be proven up. It is each relative’s word against the other. Gifts need to be in writing to ensure they are followed and enforceable. If you have a child you want to provide for, but are worried that they cannot manage money, you can even leave beneficiaries monetary assets that are protected in a trust. These beneficiaries can have the benefit of the funds without having direct full and complete access to them such that squandering their inheritance becomes a concern.
In summary, there are lots of misconceptions regarding the purpose and practical components of estate planning. It is understandable that these myths persist. Hopefully, after reading this, you will recognize that estate planning is a multifaceted, nuanced process that can accommodate people with widely varying family and financial circumstances. Most estate planning attorneys provide complementary consultations. It is always worth speaking to an estate planner about your specific needs and life and see how estate planning can be an important part of your overall planning.
If you’d like to talk to an estate planning lawyer at Gomez Edwards Law Group, please contact us at [email protected]. We’ll be happy to help you with your estate plans.
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