Passing It On Before You Pass On: Estate Planning’s Growing Importance As We Age

As we age, thinking about death and how our legacy will be passed on is important. It is natural and normal to wonder about how to ensure our assets will be protected and passed on, which is what the field of estate planning is all about.

But estate plans are also designed to take care of us as we age and ensure the end of our lives are comfortable with the medical care we need and deserve. With key advice from experienced estate planning attorneys, this article will help you understand:

• Why you might not want to choose your children for fiduciary roles, even if you trust them.
• How to plan your estate with aging parents or your own aging health care needs in mind.
• Three reasons why everyone in California should avoid probate (and one estate planning trick for doing so).

Who Can Aging Parents Trust To Ensure A Smooth Transition Of Wealth To Their Heirs Through Estate Planning?

While it can be natural to think first of your children when choosing who to nominate for fiduciary or trustee roles in your estate plan, it might not always be the best choice. While kids can perhaps be trusted, they are also more likely to run into conflicts of interest.

A child may want to inherit the estate, while their parents may be more concerned with funding their elder care, or vice versa. As a result, it can often be preferable to nominate people into roles, especially fiduciary roles or power of attorney roles, that have no vested interest other than your instructions and wishes in mind.

This may involve nominating a professional who may charge a fee for their services when most kids are willing to do the role for free. However, if your child is in one of these roles, you are imposing on them a cost of time and effort.

In addition, you are putting them in a situation where they may have to choose between their interest and yours, and they may feel entitled to choose their own because of the effort they are putting in. Most professionals are not free, but if you really want your wishes honored, you need to nominate people that you can trust to do what you have asked to be done.

It is also essential to have a tight estate plan that is well detailed and then discuss carefully what you want to be done, especially with an attorney, even if you plan to leave everything in the hands of your children. For example, if you have multiple children and you pick a certain child to be your trustee, detailing why that person was chosen and what they should do with that power can help ensure that there is no fighting after they accept their role.

I Am The Primary Caregiver For My Parents; What Estate Planning Do I Need If I Die Or Become Incapacitated?

A good estate plan is all about thinking ahead, and that can include the eventuality that a child dies or becomes incapacitated when they are already caring for an elderly relative, especially a parent.

As a result, you should always have a contingency plan. With all estate plans, it is recommended to have at least two people in every role. Thus, if you have a primary choice for a role and they’re unavailable, it can go to a secondary person. That contingency can help avoid a situation where a child passes away with power of attorney, or who is a trustee for a parent’s estate, leaving them in deep trouble.

If you have an adult child who is caring for you and then suddenly passes away, you certainly don’t want to be left high and dry with no care. You need a backup plan. If you have two kids and one of them is housing you, make sure the other knows that if the first dies, you will need the help of the second.

If that is not possible or the other child lives in a different area, you may need to involve a professional service that offers in-home healthcare or something like that. Such measures can be planned for in your estate plan as well by setting aside funds for that eventuality, which may be temporary or permanent.

How Can Aging Adults Ensure That Their Financial Wishes Are Honored Through Estate Planning In California?

Whenever you are concerned about the future of your assets or legacy, it is vital to plan ahead and then review whenever the situation changes. This starts by determining what your assets are.

Next, you should set a strategy for how to transfer each asset. For instance, if you have a large estate or maybe a business, you could probably gift that during your life to your kids without giving up control. This allows you to make your estate smaller by gifting assets to your children and to transfer wealth gradually over a period of years.

It also helps create a smooth transition because you have not given up control even if they own it, avoiding any issues or conflicts. The easiest way to do so is probably some type of family-limited company or family-limited partnership.

It is also important to nominate people that are appropriate for each role. If you get dementia, which son would you rather have as your trustee? Your oldest, who is a modest janitor, or your youngest, who is an ambitious banker. You can think about their competence and/or their character and choose whichever is better suited to the task.

If you are looking for a smooth and conflict-free transition and legacy, it is often advisable to have one person making decisions. If you choose two people as co-trustees and they do not act together or see eye-to-eye, nothing will get done unless a court gets involved.

Some clients worry too much about fairness or are unwilling to make a choice. They might nominate three kids, but in doing so they really just created a committee that someone might end up getting voted off of. That is when trust starts getting challenged, and the transfer of wealth is anything but smooth.

Another possible danger to the transfer of wealth comes from the probate process, which we will now explore.

What Strategies Can Parents In California Use To Minimize Probate And Ensure Their Assets Are Distributed According To Their Wishes?

Probate is required when any assets remain in your name when you die, in order to transfer their ownership. The process comes with a whole host of problems, most notably the time it consumes and the possibility of conflict and challenges. In California, the best way to avoid problems with probate is to avoid probate at all costs.

We have been to the probate court in Los Angeles and it is an absolute paddle call. The probate hearings are insane. They set 30 hearings for 8:30, 50 more hearings at 11, and then 50 hearings at 1:30. Each one is called in, and then they divide up multimillion-dollar estates in five-minute hearings. It is pure madness. For stress alone, it should be avoided if at all possible.

Beyond that, in California, probate fees are set by statute, which means substantial losses to your estate. The numbers are in probate court statute 10810, which determines compensation for conducting ordinary proceedings. 4% of the first hundred thousand dollar value, 3% of the next hundred thousand dollars, and then 2% on the next $800,000 value.

That’s $23,000 for a million dollar estate. If you own a house in California, there is a good chance that equity is worth at least a million, so the minimum that will need to be paid to an attorney to probate that estate is $23,000.

Alternatively, you could do a revocable living trust, retitle the house to the trust, and have the trustee issue a deed to the beneficiaries. That will certainly cost you less than $23,000. Thus in California, probate should be avoided at all costs, for example, with a revocable living trust. Which also allows you to determine the terms of distribution clearly.

The distribution terms for your wealth and assets can be laid out in the living trust, and the successor trustee has a fiduciary duty to follow instructions in the trust. And just in case you think there might be issues with the trustee following what you have written, there is a concept called a trust protector. That is a separate nomination, for someone to have some oversight over the trustee to make sure they follow the directions you established in the trust.

Overall, without an attorney to review your estate plan and propose and supervise such arrangements, it will be very difficult to ensure either a smooth or cost-effective transfer of wealth between generations. For more information on Asset Protection For Aging Parents In California, an initial consultation is your next best step.