Why Would A Married Couple Need an Estate Plan?

A friend of ours recently contacted us with a question that comes up frequently enough that we wanted to share it with you:

We are married and everything that we own is held jointly/as community property. We own a house, but we don’t have any kids and we don’t have debt. Do we need a will? Do we need a trust? Why?”

To the first question: Yes. You need a will whether you have a trust or not. (Click here to read our post explaining what a will does. And click here to read about intestacy.)

To the second question: Yes. Because….

1. Incapacity. Incapacity doesn’t just mean “coma,” (although that counts too). It could be that you went into surgery and had a bad reaction to the anesthesia so you can’t quite function as you ordinarily would. Or, it could be dementia. It could be temporary, it could be permanent. But a will doesn’t let you address incapacity situations. A trust allows you to plan for incapacity. It allows you to plan for who will take care of your assets and use your assets for your benefit when you are still living. Just because your spouse is on title doesn’t mean your spouse has all the necessary authority to care for you in the event of your incapacity. (Click here to read our previous post explaining incapacity.)

2. Contingency planning. Wills do not address all contingencies. But trusts allow for lapses and contingency planning. What if your spouse becomes incapacitated after you do? What if your intended beneficiary is still a minor (younger than 18 years old)? What if your intended beneficiary has a substance abuse or gambling issue later on? What if your intended beneficiary has special needs and requires means-tested government assistance? What if your beneficiary predeceases you? These issues can be planned for in a trust in advance.

3. Probate. You’ve probably heard the term “probate” with some negative connotation. (Click here to read our previous post explaining probate.) If you have a trust, you avoid probate. Probate takes about 18-24 months; it’s a public proceeding; and it’s expensive.

So even if you are married and hold everything jointly, that may only ensure that your spouse receives your assets upon your death. But so many other scenarios can occur. We might recommend you consider a trust given your situation and desires. All of our recommendations depend on your specific family and estate planning goals. To ascertain what is best for you we would need to meet with you, in a free consultation, to understand your goals, assess and explain your options, and provide you with a recommendation tailored to your situation. Call or email us today.

What is... Incapacity?

This is part of an on-going series of blog posts titled the "What Is..." series, where we attempt to explain, in simple terms, common estate planning terms and concepts. To read other posts in this series, click here.

When people talk about “estate planning,” many times the focus is on death. However, there is another event that we recommend planning for: incapacity. The first thought people have about incapacity is that it means being in a coma. To many people’s unfortunate surprise, incapacity can and will happen under much broader circumstances.

1. Incapacity can be a temporary condition

If something happened while you were under anesthesia and someone needed to contact your health insurance company or withdraw money from your bank account, do you have any documents in place to allow someone to do that? Most people don’t. Or what if you had a bad reaction to prescribed medication? Who has the legal authority to act on your behalf? If you’re married, and you’re relying on your spouse to step in, being married does not automatically allow your spouse to do these things for you.

We had a client recently who had a bad reaction to medication. He had to go to the hospital and was not exactly coherent during that time. Additionally, he did not WANT to have to make financial and healthcare decisions during that time. He did not feel able to do that. And, frankly, he had more important things to focus on. He’s fine now! But during that time period, he was incapacitated. He was very happy to have documents in place to allow for someone else to handle those other issues on his behalf.

2. Incapacity can happen suddenly

Think of any car accident you saw on your way to work. The people involved did not plan for that accident to happen. One of the people may have been hospitalized either short term or longer term, during which they may have been incapacitated. They certainly didn’t plan on needing the use of their powers of attorney that day, but that’s why it’s important to plan ahead.

3. Incapacity can be longer term, or even permanent

Yes, incapacity can also involve a coma or dementia or any number of conditions that simply do not improve. Some of these conditions can be seen from a distance away (e.g. a slow onset of dementia), and sometimes they can’t be (e.g. a stroke, or catastrophic brain injury).

The problem with waiting to know that a future incapacity will occur (like dementia/Alzheimer’s disease) before executing estate planning documents is that the person must have capacity to execute documents. If there is any question about an individual’s capacity to execute documents, it may require a doctor’s confirmation and/or further legal proceedings. It’s a bit of a catch-22: when we have capacity, few people feel like they’ll ever lose capacity. When you’re already incapacitated, it’s too late. Your loved ones are stuck.

Bottom line: plan while you can. Once you have your plan in place you have the peace of mind in knowing that you and your loved ones will be taken care of properly. Contact us for a free consultation to help you construct the plan that’s best for you.

What is... Probate?

This is part of an on-going series of blog posts titled the "What Is..." series, where we attempt to explain, in simple terms, common estate planning terms and concepts. To read other posts in this series, click here.

You’ve probably heard the term probate, and you know there’s something that’s not good about it. But what is it?

Probate refers to the division of the Superior Court of California that handles issues related to conservatorship/incapacity, guardianship, or death. Each county in California has its own probate division.

Conservatorship: Conservatorships are legal proceedings that refer to a scenario where an adult can no longer make her own decisions, such as in the case of dementia or coma. If a loved one becomes incapacitated (e.g. through a sudden car accident, or stroke), someone will need to petition the probate court to be granted the legal authority to act on the loved one’s behalf. With this authority, that person (called a conservator) is able to call the insurance company or handle your loved one’s finances. A few considerations:

• Conservatorships take time. Each county typically has only one probate judge. So if a crisis arises, and someone needs to be conserved, it can often take 6-8 weeks in a busy county to get that first court hearing.

• Conservatorships are also expensive. The conservator must show the court that the incapacitated person’s money is being wisely spent. These accountings can take $3,000-$5,000 to prepare. And they’re required to be filed every year, or every other year. That’s not even mentioning the legal fees for hiring the specialized attorney you would need for these types of proceedings.

• Conservatorships are also public court proceedings. It can often be humiliating to the person being conserved.

Thankfully, you can avoid the need for a conservatorship by planning ahead and creating a durable power of attorney and a trust.

Guardianship: Guardianships are legal proceedings that refer to minor children (anyone under 18 years old) who have either become orphaned or removed from their parents. Those children now need someone with the legal authority to act as the child’s parents. Only a court can give someone such legal authority. By planning ahead, you can nominate in your will who those guardians are in the event guardianship proceedings are necessary for your young children. You certainly do not want to leave such an important decision to the busy members of the probate court who do not know you or your children.

Death: When someone dies, the state needs to ensure that the person’s debts are handled (e.g., outstanding credit card debt, other loans, utilities, funeral and medical expenses), and that any remaining assets reach the dead person’s rightful heirs.

• Like any other court proceeding, this is a public forum in which your debts and assets are uncovered.

• Probate takes a long time. It often takes 18-24 months for heirs to receive any of the deceased person’s property. That means that if there are young children relying on their parents’ property to survive, it can take months or years before they see a penny.

• In addition to the lengthy time that probate takes, it can also be costly. Probate fees--the compensation due to the representative of the estate and her attorney--are set by statute and are calculated based on the gross value of the estate. For example, a $1 million estate in California may generate as much as $46,000 in probate fees!

Most people want to avoid the time, expense, and public humiliation associated with probate court. By creating a comprehensive estate plan, including a trust, will, and power of attorney, you can avoid probate altogether at a fraction of the cost. Don’t wait until it’s too late.