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California Estate Planning Blog

Estate planning options to protect family assets

If you have elderly parents and you are concerned about their estate plan, or lack thereof, you might be wondering what you can do to protect their assets when the time comes for them to move into a nursing facility or when they pass away. Like most people, you probably want to help them keep their assets and heirlooms within the family. The last thing you will want is to watch everything your parents have worked for get liquidated to pay off taxes, creditors and other expenses.

Fortunately, with a little estate planning, you and your parents can protect the family assets. Here are four estate planning strategies that can help your family.

Probate court monitors and oversees administration of the estate

Probate technically means to "prove a will." When a person dies testate in California -- that is, with a will -- the will is filed in the probate court in the county courthouse. The filing and administrative work is done by the executor, who is the personal representative appointed in the will. When filing the will, the executor takes an oath to act as a faithful fiduciary in the interests of the estate during the probate process.

At the top of the hierarchy in the probate courts is the probate court judge. A probate judge does not have to participate in the administration of each and every will but will be there in case a dispute or complication arises. In most estates, the executor works with the estate attorney to process all the papers, pay the appropriate bills and ultimately to distribute the assets to the beneficiaries slated in the will.

Wills, trusts and other powers require strategic planning

Estate planning in California is a necessary protective measure that residents can use to support a more secure and sound financial status. The trusts, wills, powers of attorney and other documents that make up the process must be part of a strategic plan that takes into account all of the person's financial circumstances. Setting up a system of legal protection for one's assets and financial goals is far better than the alternative, which is to allow the courts to decide how and where a person's assets will be distributed after death.

When preparing an estate plan, a person may be well-advised to consider some preparations for personal and financial care if and when the person becomes incapacitated. If staying in one's home is a primary concern, purchasing long-term care insurance early can be beneficial. Premiums will be smaller, and one can strategize with the estate planning attorney on the options available.

Living trusts must be funded for full operational effect

Trusts are often a key element in one's estate plan in California and elsewhere. After reviewing one's financial situation with an experienced estate planning attorney, a plan will be agreed on that may include testamentary and/or living trusts. The creation of a revocable living trust may be a central focus of the estate plan.

However, some people make the mistake of not funding the trust, which results in a wasted effort and basically the defeat of the intended estate plan. Funding, therefore, is an absolute essential to making the trust operative. The attorney will start that process by making up a new deed for all real estate that is earmarked for the trust. In most instances, the deed simply transfers title from the owner back to himself or herself as trustee for the trust.

In addition to wills, other asset distribution tools are popular

In California, there is a basic body of legal instruments that the estate planning attorney will recommend. While the estate plan of a married couple contains several recognized documents, such as wills, powers of attorney, trusts and health care directives, one's estate planning tasks are not yet completed. The couple must do a final search of all assets to determine how they are titled.

They must also check all of the beneficiary designations in life insurance and retirement accounts. IRAs, 401(k)s, and 403(b)s must have beneficiary designations in order to take advantage of all of the benefits attributed to these funds. With life insurance, prior beneficiaries who have since died must be replaced by a current choice. In addition, vigilance is recommended to assure that a former spouse from a dissolved marriage does not still appear as the current beneficiary. All policies and accounts with beneficiary designations must be checked to update the appointments.

Does your parent still have testamentary capacity?

As parents age, they can begin to lose their mental faculties more quickly than they realize or want to accept. While in some instances this is merely confusing, in other cases it may pose a serious threat to their own well-being and the best interests of those around them.

This is particularly true when dealing with estate planning. Creating a will requires a clear mind and a reasonable understanding of the legal matters involved. If your parent creates a will while in a suggestible or unfit frame of mind, he or she may complicate their legal future. It's frustrating for everyone involved when it's time to carry out his or her wishes but the testator's capacity is called into question.

Changing wills and trusts is important for separated spouses

In the aftermath of two tragic and very high-profile deaths by suicide, it's important to consider what both individuals had in common. Kate Spade and Anthony Bourdain were both separated from their spouses but not yet divorced. That means that, unless other provisions were made, their surviving spouses will both have the ability to benefit from and manage all aspects of their considerable estates. Whether or not that was what the parties intended is unknown, but it does underscore the importance of creating updated wills and other documents during a California separation. 

A will can clearly outline which assets are intended to pass down to which heirs. During a separation, a spouse can name his or her partner and can designate a portion of assets to pass down, if desired. Or, the bulk of assets can be passed to other loved ones or even charitable organizations. 

Open communications must accompany wills and other instruments

A major purpose of estate planning in California and elsewhere is sometimes misunderstood. An important goal is often to preserve the assets and make them available to improve the lives of another generation of one's family. At the same time, it important to preserve family harmony in the process of wealth transfer, which is a subject to which wills and other estate documents can be helpful if accompanied by the proper measure of information and open communications.

In order to prevent various common problems from interfering with the smooth transfer of wealth and the premature dissipation of assets, certain steps should be followed. First, one should carefully decide the intended distribution of assets. Although people want to distribute their estate equally and fairly, the reality is that the children are not necessarily equally responsible or capable.

Wills, trusts and other documents must be shared with heirs

California estate planning is a forthright process, but it does not prevent obstacles from arising during the post-distribution phase. No matter how effective the planning measures contained in the trusts, wills and other planning tools, the lack of follow through or the inability to manage wealth by the heirs can result in various critical obstacles, including a rapid depletion of the assets. Part of the problem may be related to the heirs' lack of financial management knowledge and skills.

It is this crucial for the heirs to acquire some training in wealth management prior to receiving the cash and other assets. Where the size of the asset base warrants it, people should have regular family meetings to discuss with their heirs the skills that go into handling, preserving and growing financial assets. In some cases, it may be appropriate for parents to hold family retreats or workshops where their financial advisers give teaching sessions on these important issues.

What not to put in your will

Anyone of sound mind can create their own will fairly easily. To make a legally binding will in California, you must put your wishes in writing and get the document signed by two witnesses—who are not required to read it. Then you sign and date it. If you draft your will be hand—known as a holographic will—then you can circumvent the witness signature requirement.

Although making a will may be simple, it’s still possible to make mistakes in your will—which could impact the possibility of fulfilling your wishes once you’re gone. In this article, we examine a few common errors of self-made wills:

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