Newman Law Group

Tustin Estate Planning Law Blog

Probate explained

Estate planning in California can seem like a large, complicated process that is filled with unfamiliar terms. Words like power of attorney, wills, executors, trusts and probate can sound intimidating if one doesn't understand what they mean. Perhaps one of the less understood terms is probate.

Probate is the process by which a will is proven to be legitimate and valid. The steps needed and the process taken to make that determination depend to a large extent on the size and complexity of the estate of the deceased. Typically, a person, often a family member, will be named as executor of the deceased's will. If one is not familiar with the role or its responsibilities, one may have many questions.

An FLP's impact on reducing estate taxes

A wealthy family in California may be considering moves that can be taken to preserve family wealth from taxes with the advent of the new tax laws. There are mechanisms that can be used when reducing estate taxes. The current exemption of $11.18 million went into effect in 2018. This means that an estate valued at less than that is not subject to the federal estate tax.

One mechanism that wealthy families employ to reduce estate taxes is called a Family Limited Partnership, (FLP). An FLP allows a family to establish a partnership with family members and then gift to them shares in the partnership. For example, if someone invests in a real estate venture valued at $4 million and gives the FLP 90 percent of the value, it reduces the principal's share by 90 percent, with the principal retaining a 10 percent interest. This also allows wealth to be transferred to another generation without incurring estate tax expenses.

Trust preparation can facilitate estate planning

Estate planning is seldom a happy topic. It's not pleasant to contemplate ones' death in California, or any other state for that matter, and it's good to keep in mind that one can't foresee becoming incapacitated. Planning for such an eventuality can make life easier for family and loved ones, and trust preparation can clarify one's wishes for such an eventuality.

A trust enables a person to designate who will govern one's affairs and make decisions should the author of the trust become incapacitated and unable to do so. Life is unpredictable, but knowing that a person has provided for such eventualities as an accident or illness can bring peace of mind. A trust can also help ensure that a person's final wishes are carried out and can facilitate that process.

Estate planning review for a surviving spouse

The death of a spouse is perhaps one of the most difficult and trying times in a person's life in California. After the funeral, much of the focus may be on settling the late spouse's estate. While this is certainly very important and must be taken care of, an estate planning review on the part of the surviving spouse is also very important.

Documents that were drawn up previously may have designated each spouse as the other's beneficiary. This may be true of insurance policies, retirement accounts, bank accounts, and other accounts or assets. Powers of attorney may need to be revisited. Spouses will frequently name each other as powers of attorney in the event that one is unable to make financial or other decisions. The surviving spouse may also wish to review his or her existing will and trust documents to verify that final wishes will still be carried out as intended.

Power of attorney: What is it?

Estate planning is something that's been in the news in California a lot lately, especially with so many celebrities with sizable estates having recently passed away without having a will or trust in place. It may cause others to think they should establish a plan but the number of documents and the process itself can seem a little daunting. One term that is heard a lot but may not be understood is power of attorney.

A power of attorney document grants one person, sometimes identified as the attorney-in-fact, the authority to act on another's behalf. The person who grants the POA is sometimes identified as the principal. There are different types of POA documents.

Power of attorney should be carefully considered

Estate planning is not just for the rich and famous. However, the rich and famous are not immune to estate planning mistakes. From failing to have an estate plan to being exploited by the people to whom they granted power of attorney, they have taken missteps that others can learn from in California.

Granting a power of attorney is very important, but even more important may be the matter of to whom a power of attorney is given. People frequently choose family members, and while this often works out just fine, it can also lead to abuse in certain circumstances. One of the earliest and worst examples of this was the case of Brooke Astor. In her later years she suffered from Alzheimer's. She had granted power of attorney to her son and suffered financial abuse because of it.

Lack of a trust can result in probate

One does not need to be a celebrity in California to recognize that if a person has a sizable estate, that person should have an estate plan in place. The plan typically includes a will and appropriate trusts. If trusts are used in place of a will, this may allow the estate to be kept out of probate at the time of the author's passing and allow the details of the estate to remain private.

Aretha Franklin, the Queen of Soul, recently passed away and she apparently did not have a will or a trust in place at the time of her passing. The tax implications alone may be very complicated. If her estate exceeds the $11.18 million threshold for a single person, there could be a 40 percent tax due on the estate. An estate plan could have reduced the amount of the tax owed.

California, wills and child guardianship

More and more people are becoming aware of the need to establish an estate plan in California and are taking steps to do so. Establishing an estate plan is very important once a family grows to include children. Having wills enables parents to ensure the continued care of their children should the parents become incapacitated or die prematurely.

While the eventualities set up will normally provide for long-term care of the children, there may be a more immediate need that perhaps should be addressed. A recent article brought up this point and called it "micro estate planning." When parents pass, a court will look at their will and at the designated guardian instructions for the long-term care of their offspring. But what about immediate care?

Trust administration in estate planning and the opioid crisis

In 2017, opioid-related overdoses were the leading cause of death for Americans under 50, and 12 percent of families acknowledged that they have a drug-dependent relative. In California and elsewhere in the country, this is becoming an issue of significant concern for families putting together estate plans. While families want to provide for the well-being of their family members, they are aware of the pitfalls of giving money directly to a substance abuser. The answer may be a fund that is set up as a trust. The trust administration is also an important component.

Leaving a person assets that can easily be turned into cash can be problematic for a person suffering from addiction. The temptation to feed a habit, particularly at a time of grief and increased stress, may be hard to resist. Establishing a trust that provides for recovery costs can be beneficial. Costs for therapy, rehabilitation, doctor's bills and other expenses can be provided through a trust that does not provide cash directly to the addict. How the trust is administered may also impact the long-term success of the trust's intent.

Wills and trusts: What are the differences?

More and more people are becoming aware of the need to have an estate plan in place in order to protect their family and ensure that their final wishes are carried out in California. However, a plan can consist of a will, a living will and/or a trust. What should be included, wills or trusts, depends on certain factors.

Wills can take care of distributing assets that are held solely in the name of the author of the will as long as those assets don't exceed $150,000. An estate over that amount becomes subject to probate. A trust can be put in place to administer the assets that may eliminate the probate requirement, and it can also help maintain a family's privacy. When a will goes into probate, it becomes public information available through the court. A trust is kept private.