Moravec, Varga & Mooney

       In California, everyone has an estate plan even if they have no Will or Trust.  That is because California law provides a detailed scheme of who is entitled to your property when you die.  However, very few people would be happy with the results under the law because the law does not take into account an individual’s wishes or family situation.  Regardless of who you are, how much money you have, who you want to inherit your estate or when you want them to receive distribution, your wishes are likely very different from the basic disposition provided under state statutes.  

     The law of succession for those who die without a will or trust, distributes your estate outright first to your children, if any, then to your parents, if any, then to your siblings, if any, and so on.  This can be a problem for those with minor children.  For example, if a couple with children died, California law provides that the couple’s property would pass to their children.  As such, the children would be entitled to full ownership of the property at age 18.  Most people consider age 18 far too young an age to receive a full inheritance.  With a well thought out Estate Plan you can make sure that your children are well cared for (food, clothing and schooling) by a responsible adult trustee and that they receive their inheritance at an age when they are more mature and less likely to blow through their inheritance on frivolous items.   

     Another pitfall with the no Estate Plan philosophy is that the basic law of inheritance does not provide for many common wishes, such as if you wanted to put some assets aside to care for a sick parent, uncle or aunt.  

    There is still another facet of the law which applies to those who die without a will or trust. Some assets pass by contract when the person who owns the asset dies. For example, a retirement plan such as a 401k account has a designated beneficiary.  As such those assets pass to the designated beneficiary.

    But many assets, including real property, do not automatically pass to anyone. Thus, California has a special Probate Court which exists to sort out who owns what, including, as you might expect, disputes over who owns what. There is nothing especially remarkable about Probate Court other than the cost and time it takes to open and close an estate. It can take anywhere from 6 months at a minimum to more than one year to close even a basic estate, and many acts require Probate Court approval, which in turn requires an appearance in front of the judge. In addition, all documents filed with Probate Court are public documents and fully accessible by the public. 

     A properly drafted Will and Trust can avoid both the application of the Probate Code default provisions and an unnecessary trip to Probate Court. Not only does this keep the estate administration private, but it results in much less delay.

     There are also transfer tax considerations. Gifts are not income to the person receiving the gift, but transfer taxes are imposed on lifetime gifts and gifts made at death above certain amounts. There is an exception which allows a person to make unlimited gifts to a spouse, and there is another exception which allows a person to make annual gifts to anyone as long as the value of such gift does not exceed a set amount per year ($13,000 in 2009). We advise our clients as to which of these taxes apply to them, and what steps they can take to minimize such taxes.

• Will. This Will is commonly referred to as a "Pour Over Will." The Will governs the property held in your name at your death. The Will provides for the administration of that property, and directs that the property remaining after the payment of your debts, expenses of administration, and estate taxes imposed on such property be added to your Revocable Trust.
• Revocable Living Trust. The Trust Agreement creates what is typically referred to as a "Living Trust." The Trust Agreement is entirely revocable and amendable by you during your lifetime. The Trust Agreement becomes irrevocable and not subject to amendment upon the death of the first spouse to die.
  
       Any property that you transfer to the Trust during your lifetime will avoid probate upon your death. Property that you do not transfer to the Trust will be subject to probate, but will pass to the Trust through the probate process.
  
      The Trust Agreement contains the provisions governing the disposition of your property upon your deaths. The Trust Agreement provides for gifts, creates trusts, names successor trustees, and sets forth your instructions to the trustees. Your important estate tax planning is also accomplished through the provisions of the Trust Agreement.
  
       You are the initial trustee of the Trust. Upon your incapacity or death, the person you have named to act as successor trustee will serve. You reserve the right to remove and appoint trustees during your lifetime and to designate who will serve as trustees in the future.
• Durable Powers of Attorney for Assets. Two aspects of this instrument are of strategic importance: (1) Simple printed forms may not work because the Courts - due to the potential for abuse - construe them narrowly.  Incidental powers are not necessarily inferred.  For example, the power to file income tax returns may not confer the power to receive the refund or litigate tax disputes; (2) They serve as a valuable alternative to expensive long term care insurance policies for those who cannot afford the premiums or cannot qualify. 
  

     But to so serve, they must give the agent certain powers to modify and revoke the family trust and make gifts.  Otherwise, the disabled client will be unable to shift long term care costs to Medi-Cal without first going broke.  The Durable Powers of Attorney for Assets name the individuals that you desire to serve as your attorneys-in-fact, sometimes called your "agents," to deal with matters affecting your property. Your agents are given the power to transfer property to your Revocable Trust. Your agents are also given the power to act on your behalf, as if you were present and acting, with respect to your property, all as set forth in the Durable Powers of Attorney. Being a "durable" power means that the agents are authorized to continue to act during any periods of time when you are incapacitated.

• Advance Health Care Directives. The Advance Health Care Directives identifies the individuals that you desire to act for you if you become unable to make medical decisions for yourselves. The most common decision involves when, and under what circumstances, extraordinary measures should be used to prolong life. There are also sections of the Advanced Health Care Directive which deal with whether or not you desire to be an organ donor.
• Nomination of Guardians. If a couple has minor children we also prepare a Nomination of Guardians to serve if both parents are deceased. A court proceeding in the Family Law court is required to formally approve a guardian and the court affords the written nomination of the parents great weight in making its decision.