Certified Specialist in Estate Planning, Trust and Probate Law
The State Bar of California Board of Legal Specialization
Frequently Asked Questions
about Estate Planning in California
What is Probate?
In the narrow sense, probate is the court process that oversees the management and distribution of a person's estate following death care. Its purpose is to appoint a personal representative, prove the validity of the decedent's will, oversee the payment of creditors and taxes, and order the distribution of the decedent's estate. Probate proceedings can be expensive and time-consuming. Additionally, the court proceeding and associated documents are all a matter of public record. Many people choose to avoid probate in order to save money, spare their heirs a legal hassle, and keep their personal affairs private.
What is Joint Tenancy with Rights of Survivorship?
This is the most common form of asset ownership between spouses. Joint tenancy has the advantage of avoiding probate at the death of the first spouse. Assets owned in joint tenancy form pass to the surviving joint tenant on death. Great care should be used in adopting this method of avoiding probate. Holding assets in joint tenancy form may subject those assets to the lifetime debts of the joint tenants. Joint tenancy planning also may result in unnecessary death taxes on the estate of a married couple.
What is "Community Property?"
For married couples, there are two property law systems in the United States: Common Law and Community Property. The majority of states follow a Common Law system. However, Alaska (a couple must opt-in), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin (with some exceptions) follow a Community Property system. Although the general approach to estate planning is the same under each system, there are significant differences.
For example, in contrast to the Common Law system, each spouse domiciled in a Community Property state such as California has a vested one-half interest in any property acquired during their marriage. [Note: An exception is made for property either spouse receives by gift or inheritance, but only if they carefully maintain the character of ownership as Separate Property without commingling.] Additionally, unlike under the Common Law system, appreciated Community Property enjoys a unique tax benefit upon the death of one spouse.
Subject to special rules that will apply only in the year 2010, upon the death of one Community Property spouse, the surviving spouse receives a stepped-up basis on both the one-half interest in the Community Property inherited from the deceased spouse and also on the surviving spouse's one-half interest in the same Community Property. This means the surviving spouse will recognize no capital gains taxes on any subsequent transfer of such Community Property up to its fair market value on the decedent's date of death. In a Common Law state, only the interest of the deceased spouse receives the stepped-up basis. However, even Community Property couples can forfeit this unique tax benefit when they relocate to a Common Law state without proper planning.
Some assets do not qualify for the stepped-up income tax basis, such as retirement plan benefits, IRAs, annuities, and gains attributable to an installment sale.
What is a Will?
This is the commonly used document a person signs to provide for the disposition of his or her assets after death. Wills do NOT avoid probate. Wills have no legal authority until the will maker (testator) dies and the original will is delivered to and admitted by the Probate Court. Special testamentary trust provisions in a will can provide for the management and distribution of assets for one's intended beneficiaries. Additionally, assets can be arranged and coordinated with provisions of testamentary trusts (trusts created under the will) to minimize death taxes.
What is a Living Will?
In some states, a "living will" is the document used to express your desires and directions regarding the use of life-sustaining measures if you become terminally ill. California no longer allows the use of "living wills." In California, a "Durable Power of Attorney for Health Care" or an "Advance Health Care Directive" is used instead. These documents allow you to appoint someone to make health care decisions for you if you are unable to make those decisions yourself. They also allow you to express your desires regarding what types of medical life support measures you prefer to have, or have withheld/withdrawn, if you are in a terminal condition (without reasonable hope of recovery) and cannot express your wishes yourself.
What does Intestacy mean?
If you die without a Will (intestate), the legislature of your state has already determined who will inherit your assets and when they will inherit them. You may not agree with their plan, but roughly 70 percent of Americans currently use it.
What are Beneficiary Designations?
You may avoid probate on the transfer of some assets at your death through the use of beneficiary designations. A beneficiary designation specifies who is to receive these assets on death. Laws regarding what assets may be transferred without probate (non-probate transfer laws) vary from state to state. Some common examples of these assets include life insurance death benefits, annuity proceeds, retirement plan and IRA death benefits, and bank accounts.
What is a Financial Durable Power of Attorney?
A financial durable power of attorney is a document that appoints someone to act on your behalf in the management of your assets if you become incapacitated. The use of this form of durable power of attorney may make it unnecessary to have a conservator appointed by the court in the event you become incapacitated.
What is a Revocable Living Trust?
This is an agreement involving three parties: the person who creates the trust (often called the trust-maker, settlor, trustor, or grantor), the Trustees (the manager of trust assets), and the Trust Beneficiaries (those who are to receive the benefits of the trust assets, such as trust income). The overall purpose of the revocable living trust is to provide for the management of assets during lifetime and to direct the distribution of the trust assets on death. For example, a husband and wife may serve as all three of these parties in the creation and management of their trust. Further, "back-up" managers can step in under the terms of the trust to manage the assets should the couple become incapacitated or die. With proper planning under the trust, the couple can also minimize or eliminate death taxes on their estate. The revocable living trust may allow the couple to accomplish all this outside of any court proceeding.
Who Should Have a Revocable Living Trust?
Whether you are young or old, rich or of moderate wealth, married or single, if you desire to avoid court supervision at your death or incapacity, you may want to consider the use of a revocable living trust.
Redlands, California Estate Planning Attorney Daryl Carlson assists clients with Estate Planning, Wills, Revocable Living Trusts, Life Insurance Trusts, Trusts for Minors, Generation-Shipping Transfer Tax Planning, Gift Planning, Trust Administration, Estate Administration, Beneficiary Designations for Retirement Plans and IRAs, and Business Succession Planning in the Redlands community and throughout Southern California, including Lake Arrowhead, Yucaipa, Orange County and the Inland Empire of Riverside and San Bernardino County.
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Daryl H. Carlson, Attorney-at-Law | 114 W. Vine St. | Redlands, CA 92373