Planning for the future: this phrase has different connotations for everyone. For some, the future seems uncertain – and for others, the process can seem overwhelming. Although it’s true that you can’t control your future, you can plan ahead to provide for and protect the people you love through estate planning. It’s essential to understand the components of an estate plan, especially in California, where some laws are unique.
In California, estate planning goes far beyond just creating a will. In fact, “just a will” is no longer sufficient! An estate plan should include wills, trusts, powers of attorney, healthcare directives, and more. Whether you’re looking for a relatively simple plan or have more specialized needs (such as special needs planning or protective planning), we have created a guide that will help you better understand your options.
Cookman Law is based in the Bay Area in northern California, but we serve families and individuals throughout the state of California. We handle both very simple and very complex estate planning, as well as trust administration services – our team is here to guide you through the process!
Wills
Historically, a will has been the foundational piece of any estate plan. Times have changed though – in California, a will is still required to go through the court process, so it’s not the preferred planning vehicle. It does still serve some very important purposes, though!
A revocable trust is now the cornerstone of most California estate plans, yet it can’t do everything – that’s where a will can fill the “gaps”.
If you forget to title one asset or another into your trust, a will can be written to act as a “pour over” document to get that asset back into the trust.
If you have minor children, your will can confirm who you want to act as guardian. While the court still needs to approve of your choice, your nomination can speed up the process so that your children can be placed with the people you wish to raise them, should something happen to you.
Your will can also name who you wish to be the executor of your estate, or the person who will manage certain items, such as filing tax returns, after your death.
There are some very important things to be aware of when it comes to your will:
- A will only takes effect after you die. (You may have heard of a “living will”, which is actually a type of advance healthcare directive – we’ll cover this later in the guide.)
- While you should have a will, this document will not keep your estate from going through the probate process. In California, this tends to be a very lengthy and expensive process. Probate proceedings also become part of the public record.
While we include a will as part of every estate plan, we do not create will-only plans for this reason – they don’t protect your family from having to go through probate. Our goal is to help you create a plan that provides the best possible protection for your family.
Trusts
A trust is a powerful tool that can both allow you to manage your assets during your lifetime and easily distribute them after your death. There are many different types of trusts available in California, and each is designed for a different situation. Our team deals with complex trusts on a daily basis and can help you determine which type(s) of trust is right for you and your family.
These types of trusts include:
- Revocable Trust (sometimes called a “living trust”) – this is a type of trust that the owner can revise as needed throughout their lifetime.
- Irrevocable Trust – once established, it is very difficult to change this type of trust; however, it can offer strong asset protection and tax advantages in some situations.
- Special Needs Trust (SNT) – this type of trust is designed to provide for the needs of a person living with disabilities or other special needs. It allows the individual to be supported with consistent funding without endangering their eligibility or access to public benefits like SSI, SSDI, or Medi-Cal.
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- Charitable Trust – this type of trust allows you to receive an income stream during your lifetime, then leave a portion of your estate to a charitable cause while potentially reducing estate taxes and capital gains tax exposure.
- Dynasty Trust – a dynasty trust can preserve assets for several generations, allowing you to pass assets down for decades to come. This is also known as a generation-skipping trust.
- Qualified Personal Residence Trusts (QPRTs) allow you to transfer a primary or vacation home to heirs at a reduced tax rate.
Powers of Attorney
There are many misconceptions about powers of attorney; one of the main misconceptions is that by completing one, you are giving control of your legal, financial, or healthcare decisions over to another person.
In reality, you can determine when a power of attorney (POA) becomes effective: it could be immediately when you sign, or it could only go into effect if you are somehow incapacitated or legally unable to make your own decisions.
There are a few types of powers of attorney:
- Medical Power of Attorney
- Durable Power of Attorney for finances
- Power of Attorney over Specific Assets
Let’s dig into these one at a time.
Medical Power of Attorney
While none of us likes to think about what would happen if our health declines or we are involved in a traumatic accident, the reality is that if either of those situations happens, someone will have to make decisions about your care – and if you don’t decide beforehand, those decisions could end up being against your wishes.
In addition, without a medical POA, if something were to happen, your family may be called upon to make life or death decisions. If they don’t know your wishes, it could just add to the trauma and stress they could be feeling.
A medical POA, also known as an Advance Healthcare Directive, will allow you to express your wishes – whether you want nursing home or rehabilitation care, whether you want life-sustaining treatment like nutrition and hydration through a tube, and other decisions. This document takes the ambiguity out of your care for both your healthcare provider and your family, allowing your wishes to take precedence.
Durable Power of Attorney
A durable POA allows you to choose someone you trust to handle your financial decisions, should you become unable to make them for yourself. Again, this document can take effect when you decide: immediately upon signing or only if you are somehow legally incapacitated.
Power of Attorney over Specific Assets
This type of POA is less common, but it allows you to give your legal power of attorney over a specific asset you may own. For example, it could allow someone to act as your agent in buying, selling, and leveraging property – something that can be beneficial for elderly people, people with various disabilities, or people who live out of state but own property in California.
Advance Healthcare Directives
Your advance healthcare directive details your wishes and the decisions you wish to have made about your healthcare – along with who you wish to make those decisions, should you be unable to.
The decisions included in this document includes:
- End of life care
- Your wishes surrounding life-sustaining treatment
- Your wishes regarding disposition of remains, i.e. burial or cremation
- A HIPAA release that will authorize your chosen representative to access your medical records and communicate with your healthcare providers
- Naming a healthcare proxy
These documents are designed to provide peace of mind for both you and your family in emergency situations.
Guardianship Designations
If you have minor children, naming a guardian in your estate plan will ensure that your children will be cared for by someone you choose and trust, should something happen to you.
Without your express designation in your estate plan, the court will need to guess who would be the best person to care for your minor children if you are unable to. If a close relative is available, the court will often choose them as guardian, though close friends can also apply to take the role. In the absence of a close family member or friend, the state could appoint a guardian.
By including this document in your estate plan, your wishes regarding guardianship are likely to be honored.
Beneficiary Designations
One of the most important – yet also most overlooked – areas of your estate plan is updating your beneficiary designations. These can change throughout each stage of your life, so it’s a good idea to review them periodically with your estate planning attorney.
Some documents that require beneficiary designations include (but may not be limited to):
- Life insurance policies
- Retirement accounts
- Payable on death (POD) or transfer on death (TOD) accounts
We recommend discussing all of your assets with your estate planning attorney to make sure nothing is left out. When you work with the Cookman Law team, this is something we will ask you about.
Planning for Estate Taxes and Asset Protection
For high net worth individuals, tax planning and asset protection are critical parts of a complex estate plan. California does not impose a state estate tax, but there are other taxes that you will need to be aware of. Your attorney can help you identify these taxes, and along with your financial adviser or tax planner, help you plan for and potentially mitigate them.
Tools such as certain types of trusts and gifting strategies can help reduce estate tax exposure. In addition, if you or your spouse are in a profession that is prone to legal risks, estate planning strategies can also be used to better protect your assets. While we do not specialize in these sophisticated planning steps, we can refer you to attorneys who do and coordinate our planning.
Working with Cookman Law
Whether you need a simple plan or a complex estate plan that involves multiple trusts, tax planning tools, or special needs considerations, working with an experienced attorney to create a plan that works for your family is vital. At Cookman Law, we are committed to crafting estate plans that are tailored to your unique needs, ensuring security and protection for your family both now and in the future.
If you would like to discuss your estate plan or learn more about how we can help you, click below to schedule a consult. Together, we can create a plan that secures your legacy and provides the peace of mind you’re looking for.