- An estate plan isn’t just a living trust. There are many other documents that are necessary for a comprehensive estate plan, such as those that govern the “in-between zone” (between the time you write your estate plan and the time you pass away).
- Some of those “between-zone” documents include Powers of Attorney and Living Wills.
- Estate plans aren’t just for the wealthy. They’re for everyone. They are often essential for people who want to avoid probate (and the lack of privacy as well as the fees that come with probate).
Let me tell you about the most common misconceptions and misunderstandings about estate plans.
The number one most common misconception about estate plans that I hear is that an estate plan is only a living trust. This misconception couldn’t be further from the truth.
Many people come to me saying, “I only need a trust. I only want a trust, that’s all I need.” However, the fact of the matter is that a living trust only covers certain, limited, aspects of your estate plan. There are other documents, such as a financial power of attorney, that are necessary in any estate plan.
A financial power of attorney is a document that may be used when a person is incapacitated, whether temporarily or permanently, without being dead. Perhaps they had an accident, and are in a coma. Perhaps they have advanced dementia. No matter the reason, a financial power of attorney assigns a chosen person to represent the incapacitated person in financial matters (including anything having to do with the incapacitated person’s bills, money, and property) if they are unable to do so themselves.
A financial power of attorney or durable power of attorney, is an important document to have so that if the signer ever becomes incapacitated, the person that is chosen to represent the incapacitated person and their estate, can have access to the incapacitated person’s financial information and handle any financial issues.
The other kind of a power of attorney is what we call a medical power of attorney, otherwise known as an advanced medical directive. If you are in a situation where you can’t make decisions for yourself, either temporarily or permanently, a medical power of attorney gives an assigned person the right to make medical decisions for you.
A trust does not do any of that on its own. Documents like powers of attorney handle what I call the “in-between time”. This refers to the time between the creation of the trust and the estate planning documents, and your death. With these documents, I’m trying to cover all the contingencies that could possibly happen from the time you create the trust to when you pass away.
Other important estate planning documents include living wills. Living wills dictate your wishes for what you want to happen if you have an irrevocable medical condition—i.e., whether or not you want to be kept on life support if doctors have determined that you are brain dead. These documents are some of the structures that I put in place between the estate planning document of the living trust and the termination of life situation.
Another major misconception about estate planning is that only people who have a lot of money need an estate plan, and that’s just simply not true. Any estate in California that is not protected by a trust will automatically go to Probate Court. That means that a judge will wind up making decisions about what your wishes most likely were about how to distribute your assets. Probate also has a mandatory fee of a percentage of the value of the assets in your estate, which can sometimes take a major chunk out of the estate.
For example, if you have a million-dollar house and you have an $800,000 loan on that house, the Probate Court still considers the value of that home for purposes of calculating the mandatory fees to be a million-dollars, and those typically start at about 1% and go up depending upon the value. So, the reality is that in any situation where a person has a home or has minor assets—and even when they don’t—the cost of going through Probate is going to far exceed the cost of preparing any trust document.
In addition, in California, the Probate process typically lasts at least 18 months. Since COVID-19 and the ensuing effects of the pandemic, the average length of probate has been extended to at least 24 months. I’ve seen very straightforward Probate matters last as long as 36 months.
So, going through Probate is a long-term commitment, and the longer the case goes on, the more you have to pay in attorney fees and Court fees and various other expenses. How do you avoid all that? You create a revocable living trust in your estate plan.
An estate plan with a revocable living trust doesn’t require Court intervention. Rather, the estate is administered by what we call trust administration by the trustee of your estate. In other words, the person that you’ve chosen to basically take the place of the Court or the judge of your estate will disburse the assets in your estate according to the terms of your trust.
For more information on Misconceptions About Estate Planning in California, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (949) 287-8884 today.
Call For A Free Assessment Of Your Needs