Estate Planning in California

Dan Quane

If you need help with a Trust & Estates issues, fill out our easy questionnaire to get started: Estate Planning Questionnaire

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Give your family the protection they deserve. 

Estate Planning

Estate planning is the process of preparing the documents which set forth a person’s wishes when they become incapacitated and upon their death.  The documents will state the manner in which a person’s assets will be distributed upon their death and nominate the person(s) to be in charge of their trust and estate.  Estate planning also includes the preparation of documents directing who will manage the person’s financial affairs and medical decisions when they are no longer able to do so.  Additionally, documents will be prepared to state the person nominated to care for their children in the event they die prior to their children reaching the age of eighteen.

1. What do you need?

Most clients need a core Estate Plan that includes:

  • Revocable Living Trust
  • Pourover Will
  • Nomination of Guardian for Minor Children
  • Advance Healthcare Directive
  • Durable Power of Attorney for Assets
  • Community Property Declaration
  • Certification of Trust
  • Assignment to the Trust
  • Trust Transfer Deed Conveying Real Property into Trust

2. Why do you need this type of Estate Plan?

A Revocable Living Trust: There are two reasons that a Revocable Living Trust fits most Estate Planning needs. First, the Revocable Living Trust facilitates probate fee avoidance. Probate fees can exceed $40,000.00 for an estate with a gross value of $1,000,000.00. Any assets that are transferred into the trust during the life of the client are not included in the probate estate and avoid inclusion in the probate fee calculation. Second, trust administration is usually simpler, faster and more private than estate administration through a public probate process.

Clients frequently ask if managing assets during their lives through a trust is more complicated than not doing so. The answer is no, assets held in a Revocable Living Trust are managed the same way that assets that are not in a Trust are managed. Assets are transferred into the name of the Trust and from that point on are accessed, spent, saved, moved just as the assets were before the transfer. Revocable Living Trusts are very common and very main-stream. Banks and financial institutions are completely familiar with the Trust method of holding assets and are very accommodating in helping clients to change title to their assets.

Pourover Will: The Pourover Will provides testamentary treatment of assets that may not have been transferred to the Trust and need to pass through probate. The Pourover will provides that any such assets should be distributed according to the distribution instruction of the Revocable Living Trust.

Nomination of Guardian: Most parents of minor children rest easier knowing that their desires for the care of their minor children are set forth in writing. A nomination of guardian gives guidance to the Court in case a decision has to be made regarding who the minor children’s physical guardian will be in case the parents are gone before the children are adults. The nomination of guardian, along with a Children’s Trust for Assets included in the Revocable Living Trust, provides a comprehensive plan for the physical care and financial needs of the children.

Advance Healthcare Directive: The Advance Healthcare Directive gives another person, usually a spouse or loved one, the authority to make decisions for medical care and treatment (or the withholding of treatment if desired) should the first person becomes incapacitated.

Durable Power of Attorney for Assets: The durable power of attorney (DPAA) gives a person the authority to conduct business affairs for another person if he or she becomes incapacitated.

3. What Will it Cost?

A married couple can expect legal fees for their Estate Planning design and documentation to be $2,500.00. A single person can expect legal fees to be approximately $2,000.00, depending on the complexity of their estate disposition instructions. More complicated estate plans, developed for clients with taxable estates, multiple properties, special needs or desires, may cost more.

4. How Long Will the Process Take?

It takes approximately thirty minutes to fill out our factual questionnaire. The first meeting with the attorney takes one to one and one-half hours, in order to learn more about estate planning and to talk about specific distribution options. The attorney then drafts the estate planning documents over the next week. A second office meeting of an hour to an hour and one-half takes place about one week later for final questions, changes, and signing.

Our office will remain available over the years to assist you in your estate planning or other legal needs. It is our goal to make you feel comfortable and confident with our ability to address your Estate Planning and other legal needs.

5. Do I need to update my current estate plan?

There are a number of events which may require you to update your estate plan. A change in your family relations, economic position, employment status, and external factors requires an evaluation of your estate plan to determine whether it should be changed. It is especially important for married couples with estate plans executed prior to 2012 to have their estate plans reviewed in light of the introduction portability of the deceased spouse’s unused estate tax exclusion.  Many estate plans drafted before this change require the mandatory funding of a bypass trust upon the death of the first spouse which may lead to unnecessary administrative expenses and taxes.

Changes in Family Relations:

  • Marriage.
  • Dissolution of Marriage.
  • Death of a spouse.
  • Changes regarding child, grandchild, or other beneficiary:
  • Birth of a child.
  • Death of a child.
  • Marriage or dissolution of a child.
  • Adoption of a child.
  • Medical issues of a beneficiary.
  • Substance abuse issues of a beneficiary.
  • Financial irresponsibility of a beneficiary.

Changes in Economic Position and Employment Status:

  • Asset values substantially increase or decrease.
  • Change in insurability.
  • Change of employment.
  • Change in business interests.
  • Property acquired.
  • Change in health or health of spouse.
  • Retirement.

External Changes:

  • Changes in laws.
  • Change of residence out of state.
  • Death of executor, trustee, or guardian.

6. Why do I want to avoid probate?

Probate is the legal process of passing property from a deceased person to their beneficiaries or heirs. Probate is necessary to transfer title to property such as bank accounts, real property, and automobiles which the decedent owned at death. A personal representative, an executor if named in the will or an administrator if appointed by court, will be approved by the court to probate the decedent’s estate. The personal representative’s duties include notifying all creditors of the decedent’s death, filing an inventory and appraisal listing all assets, and the court appointed referee will appraise the assets. The personal representative also must file the decedent’s tax returns and pay any taxes from the estate. Approximately a year after the probate process in initiated, the personal representative will file a final petition for probate along with a final accounting and if the court approves, a final order of probate is entered.

The probate process can be very cumbersome, time consuming, public, and expensive. A properly created estate plan can avoid the process in its entirety and save the decedent’s beneficiaries a great deal of time and money. The probate process generally takes a year to complete so long as the procedures detailed in the paragraph above are properly completed. An additional drawback of the probate process is that probate entirely lacks privacy as the filings with the probate court are a matter of public record. Most importantly, the probate process can be very expensive, especially in the case of larger estates.

The probate code provides for a sliding scale for attorney and administrator fees. Probate Code Section 10810 provides that the attorney for the personal representative shall receive fees equal to four percent of the first $100,000 of the estate; three percent on the next $100,000; two percent of the next $800,000; one percent on the next $9,000,000; one-half of one percent on the next $15,000,000; and a reasonable amount to be determined by the court for all amounts above $25,000,000. Probate Code Section 10800 provides that the personal representative is also entitled to fees in the same amount. Additional fees may be awarded for extraordinary work.

The chart below demonstrates the combined attorney and personal representative fees for difference size estates:

Estate ValueCombined Attorney and Personal Representative Fees

A properly drafted and executed estate plan can avoid the probate process. The deceased person’s assets will be in the trust and the successor trustee will have the task of distributing the assets according to the trust’s instructions. This process is referred to as trust administration and although it is not without some cost, it will generally result in substantial savings when compared to the probate process. The trust administration is also carried out in private and it is not made public record like a probate. There are no statutory waiting requirements to distribute assets of a trust unlike probate’s requirements. Also, there is no court supervision so the successor trustee does not have to go to court and receive permission before acting.

7. Will I have to pay taxes upon my death?

The federal estate tax is levied at a rate of forty percent. The estate tax is applied against the deceased person’s gross estate which is defined as everything the decedent has a beneficial ownership in at the time of their death. The assets of a revocable living trust are included in the gross estate and subject to estate tax. Assets that transfer to a spouse or charity escape payment of estate taxes. Estate taxes are levied upon the assets in the estate which exceed the lifetime exclusion (unified credit) amount which is set at $11,200,000 for 2018 and indexed for inflation.

The federal gift tax is also levied at a rate of forty percent. Every person has a $11,200,000 gift tax exclusion for 2018 and indexed for inflation thereafter which allows transfers up to this amount without incurring gift tax. As a person uses up their gift tax exclusion, their estate tax exclusion is reduced at a dollar for dollar rate.  Additionally, an annual gift tax exclusion allows for gifts up to $15,000 for 2018 and indexed for inflation per recipient to be made without incurring gift tax. Gifts to a spouse and charity are also exempt from gift tax. The gift tax is preferable to the estate tax because the gift tax is exclusive while the estate tax in inclusive.

The generation skipping tax (GST) is levied at a forty percent rate on transfers to grandchildren or more remote heirs. Every person has a GST exclusion which allows for transfers up to this amount to grandchildren and others of a “skip” generation without incurring tax. The GST exclusion for 2018 is $11,200,000 and it is indexed for inflation thereafter.