At Modesto Bankruptcy Attorneys, we are passionate about helping our clients regain control over their financial futures. Bankruptcy provides those struggling with debt a life-changing opportunity to get a fresh start with their lives and to begin building a better financial future for themselves and their families. Often times, this fresh start to reevaluate one’s finances presents the perfect opportunity for our clients to focus in greater detail in securing their financial future by establishing an Estate Plan. At Modesto Bankruptcy Attorneys, our experienced attorneys can help set up an estate plan that is custom tailored to your specific needs and goal. Below, we will provide an overview of the estate planning process and just how it can benefit you.
What is an estate plan?
When referring to an estate plan, we are focusing on an individual or a couple’s goals for passing on their estate when they pass away as well as making certain decisions for themselves during their lifetimes. An estate plan is generally comprised of the following: a living trust or a living will, durable power of attorney for your healthcare directive and a durable power of attorney for your financial matters. We will discuss each of these in detail, however, before we do so, it is important to establish and understand a few fundamental ideas.
Testate and Intestate Succession
When a person passes away, their estate will be distributed to their heirs and/or beneficiaries via testate or intestate succession. Testate succession refers to someone who passes away with a will which controls how their assets are to be distributed upon their death and to whom those assets are to be distributed to. Intestate succession refers to someone who passes away without a will or other form of succession planning. In California, statutes control how who inherits when someone dies intestate.
Probate
Probate refers to the legal court process that is required to distribute the estate of an individual who has either died intestate or testate with a will. The probate process is conducted through the local superior court in the county where the person who died (decedent), resided at their time of death. In California, a person whose estate is valued at $166,250 or greater must have their estate go through the Probate process, regardless of if they have a will or not. Ordinarily, this would not be a problem, however, the Probate process is very slow and expensive. Generally, the probate process takes about a year to complete, and fees can range between 1-4% of the entire estate. Further, when valuing the estate, the fair market value at the date of death is determined without factoring in any debt against the estate assets. This can result in estates being forced to sell certain assets to pay the applicable fees.
Taxes
It is a common concern for clients to want to limit the amount of taxes that would be owed by their estate and or their heirs and beneficiaries. The good news is that currently, for most Americans, the federal tax code allows for the passing of an estate tax fee! That’s correct, most American’s can leave their entire estate to their beneficiaries and not have to pay any tax. Although it is possible for a person’s estate to be subject to tax, there is never a tax levied against the beneficiary. For 2022, the federal Gift and Estate Tax Lifetime Exclusion is $12.06 million dollars. This means that an individual can gift away dring their life and/or pass upon their death a total of $12.06 million dollars without having any tax levied against their estate. Further, a married couple can combine their exemptions and pass a total of $24.12 million dollars! In addition to the federal estate tax and exemption, some states also have a death or estate tax as well. However, in California, the state does not currently impose a death or estate tax. As long as an individual is under the above value, there is no concern for taxes.
The Living Trust
Although a living will is great for an individual to control how they want their estate to be distributed when they pass, the fact that a will passing over $166,250 must go through probate court is a major drawback for using it today. Instead, today it is much more common for practitioners to recommend their client utilize a living trust instead of a will. In it’s simplest form, a living trust operates similarly to a will, in that is allows for an individual to control how their estate will be distributed upon their death. However, the first major advantage of the living trust is that regardless of the value of the estate, a living trust is not subject to probate court for the estate to be distributed. The $166,250 limit that applies to a living will does not apply to living trust, regardless of the value. This is a major advantage in that a living trust can be distributed in a matter of months versus a year or longer of probate, and costs are significantly less. Additionally, a living trust allows one to exercise greater levels of control over how their estate assets are to be distributed. For example, a living trust can control what age someone inherits money or other asset or place a certain condition that a beneficiary must meet or control the specific purpose that funds can be used for (i.e., College tuition or purchase of home).
Revocable Living Trust v. Irrevocable Living Trust
When discussing living trusts, there are revocable living trusts and irrevocable living trusts. A revocable living trust is one that can be modified/amended as needed by the original trustor as long as they are living. This is the most common type of living trust and offers the ability to easily make changes such as to beneficiaries and trust assets. However, a revocable living trust does not offer any type of asset protection. On the other hand, an irrevocable living trust is one that cannot be modified/amended after its initial formation. Once trust assets are transferred into an irrevocable living trust, they are no longer in the control or possession of the original owner. Because the assets are no longer under your control, an irrevocable trust provides protection of the assets from lawsuits and creditors. It is possible to have both an irrevocable living trust to hold certain assets that you wish to protect and a revocable living trust to manage other assets directly throughout your life.
Durable Power of Attorney for Healthcare Directive and Financial Matters
Whereas a living will or a living trust is used to handle and manage your assets (i.e., Bank account and real property), it is also important to have documents prepared to handle your personal and financial decisions if you are unable to handle your own affairs. If we take an example of a person who is temporarily incapacitated (i.e., hospitalized from an auto accident), that individual does not have the ability to communicate what decisions they want made themself. In order to ensure that decisions can be made and taken on behalf of someone who is incapacitated, we prepare two documents for our clients, (1) a Durable Power of Attorney for Healthcare Directive and (2) a Durable Power of Attorney for Financial Matters.
The Durable Power of Attorney for Healthcare Directive allows an individual to nominate an individual or group of individuals, as well as alternates to have the immediate legal authority to make health related decisions on your behalf. This can be dealing with your doctors and other medical professionals as well as handling issues with your health insurance. Additionally, a Healthcare Directive allows one the ability to make certain decisions that must be followed. The biggest example is the ability to decide if one wants to remain on artificial life support or not. This is commonly the biggest example of how a Healthcare Directive can contain your written decisions and they must be followed by the attending professional medical staff.
The Durable Power of Attorney for Financial Matters allows an individual to nominate an individual or group of individuals, as well as alternates to have the immediate legal authority to make financial decisions on your behalf. The best examples of actions that your appointed power of attorney can take are accessing your bank accounts and paying your bills, mortgage and filing your taxes. The objective is to nominate someone who will keep your financial affairs in order until you regain capacity to handle them on your own.
Lastly, absent having your durable power of attorney documents in place, other than a surviving spouse, anyone who wants the authority to act as your power of attorney must first seek a court order. This process can take time and is costly. Given the immediate need for health related and financial decisions, we always recommend that our clients have durable power of attorney documents put in place ahead of time.
Guardianship Provisions
Lastly, for those with minor children (under 18 years of age), an estate plan gives you the opportunity to establish guardianship provision if both parents pass away. A parent or both parents have the ability to put in writing who they nominate to become their child’s legal guardian until they reach the age of majority. This is a critical step when planning for younger families, as absent the implementation of guardianship provisions, it is possible that a child may be temporarily placed in foster care until the courts sort out who is best fit to become the new legal guardian. Not only is it vital that a child remain with family or close friends, you also want to make sure they are staying with the person or persons that you feel are the best fit for them.
How can we help?
The estate planning process can seem rather intimidating and often leads to clients putting it off as long as possible. However, at Modesto Bankruptcy Attorneys, we provide a straightforward and approachable solution to providing your estate planning needs. Our experienced attorneys will offer you a free consultation, get your specific needs and goals, and recommend a custom-tailored estate plan solution that is best fit for you. If you are interested in further information, please click here to schedule your free consultation.
