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The Essential Components Of A California Estate Plan

  • Published: March 30, 2023
The Essential Components Of A California Estate Plan

This article covers:

  • The types of trust you might need for your assets in California.
  • The different types of will you should consider during the estate planning process.
  • How different financial assets are handled during the end-of-life legal process.

What Are The Most Common Types Of Trusts Used In California And What Are Their Purposes?

There are five primary types of trusts commonly used in California law and estate planning:

  • Revocable Living Trust (Common, can be changed)
  • Irrevocable Living Trust (Infrequent, very difficult to change)
  • Charitable Remainder Trusts
  • Pet Trusts
  • Special Needs Trusts

Let us cover them each in turn in more detail…

What Is A Revocable Living Trust?

Revocable Living Trusts are the most common type of trust used in California. Revocable means that you can change it or cancel it at any time so long as you are the Settlor (creator) of the trust.

These are the go-to Trusts for the majority of families and California law firms and are more than sufficient for the vast majority of cases.

What Is An Irrevocable Living Trust?

Although an irrevocable living trust can be beneficial in certain circumstances, it cannot be canceled without a court order. These trusts are often put together for tax purposes and for asset protection.

These trusts are uncommon for most Californians because they are a lot more complex to set up and often unnecessary. Furthermore, once you create it and put assets in it, they are a lot more complicated to make transfers from or dissolve.

What Is A Charitable Remainder Trust?

Charitable Remainder Trusts are frequently set up to support charitable causes (and for tax purposes). These are trusts in which you put a considerable amount of money or a high-value asset, and thereafter a portion is distributed on a set schedule. Usually, this is done on a quarterly basis.

At the end of the trust’s lifetime, which is usually the end of your lifetime or a set timeframe, such as 20 years, the remainder of the trust asset(s) is distributed to the indicated charity.

What Is A Pet Trust?

These are trusts you can create for the benefit of your pet, to pay for their care and other expenses should you pass away. A Pet Trust also designates a care giver to care for your pet.

What Is A Special Needs Trust?

A Special Needs Trust is not as common, but quite important kind of trust, set up for the benefit of someone with special needs, such as a severe handicap.

Special Needs Trusts in California are created with assets that are held in trust to take care of a designated beneficiary and pay for their expenses. A trustee is then appointed to watch over those particular assets for the benefit of the beneficiary with special needs.

Which Trust Do I Need?

Which trust you may need depends on your assets, those you will designated to care for and distribute them, and your preferences.

The best way to find the right type of trust for you is to consult with an experienced estate planning attorney who can guide you in the right direction.

What Is A Will? Are There Different Types Of Wills That Can Be Used In California?

A will is a document prepared before you pass away to ensure that your assets are distributed to beneficiaries according to your desires. The two main types of will used in California are

  • A Last Will and Testament – for limited non-property assets
  • A Pour-Over Will – used in conjunction with a trust

The last will and testament is a standalone document that you would use if you don’t need a trust, i.e. if you don’t have any major assets — particularly a house or real property. The last will and testament ensures that your wishes for your distribution of your assets are set out and provided for your beneficiaries. You will want to make sure that you articulate who your beneficiaries are, as well as what you want them to receive.

A pour-over will, on the other hand, is used in conjunction with a trust, as the two are created together. The Pour-Over Will states that anything that is not articulated as an asset in your trust should “pour over” into your trust. It ensures that any assets not stated in your trust will be included in it and distributed as per the terms of your trust.

Can I Just Give Assets Away To Avoid Estate Tax?

You cannot just give away assets to avoid the estate tax. Unfortunately, there is a gift tax threshold, so the recipient, if they are over that threshold, will be taxed with a gift tax. It is important to be aware of this and to refer to a specialized tax attorney or accountant when making such decisions.

The laws do also frequently change, such as the provisions for the transfer of real property from parent to child under Proposition 19. Previously, such transfers of property from a parent to their child used to be tax-free, thanks to an exemption. Now there are a lot less exclusions to those exemptions and thus far more taxes now on the transfers of real property, even if it’s from parent to child.

Do not make the mistake of assuming that inherited property is “free”. Whether you are planning on receiving or giving such a distribution, be sure to consult a specialized attorney to avoid unpleasant surprises.

What Is The Importance Of Beneficiary Designations In Estate Planning?

It is crucially important to carefully name all beneficiary designations when going through the estate planning process. The two most important cases for beneficiary designations, other than in your trust and your will, are retirement accounts and insurance. If you do not have accurate beneficiary designations for your retirement and insurance accounts, you might end up causing a great deal of strife and harm.

For example, if you just name one person, but you meant to name four, when you pass away there could be a very large, expensive, and emotionally damaging dispute. So it’s crucial to name and verify your designations on accounts with beneficiary designations, and it is one of many benefits of going through the estate planning process with a qualified and experienced attorney.

As a final note, it is recommended in California that you name the trust as the last beneficiary as a failsafe whenever possible. This is not done to have the trust receive a portion in conjunction with the other beneficiaries, but to act as a “net” if for some reason all the other beneficiaries fail.

Does A Beneficiary Designation Override A Will Or A Trust In California?

Yes, the beneficiary designation overrides the will or trust. Hence the importance of naming beneficiaries of your retirement accounts and insurance beneficiaries. The funds from those accounts will specifically be distributed to whoever you put as a beneficiary designation for each account regardless of what you put as the designation in your will or trust.

What Components Should Be Included When Creating A Plan For Long-Term Care In California?

Medicare and Medicaid planning is a huge part of long-term care planning in California. What’s more, this is a highly specialized area of the law, as you can only have a certain amount of assets and a certain amount of income in order to receive Medicare and Medicaid.

Many dealing with estate planning will not qualify, as they are over the wealth or income limits. Though, if you are benefiting from these programs, you should still create the healthcare documents (advanced care healthcare directive, HIPAA waiver, Power of Attorney, etc.) should the need arise.

Failing to address later-life medical and financial needs with long-term planning can have drastic consequences. You might not qualify for key benefits, and potentially you would have to pay back any benefits that you received if you accepted them and you have the resources available to pay for your own insurance or medical benefits.

Long-term planning can help ease what will inevitably be a very stressful time for friends and family by avoiding financial hold-ups, costs, and stressors. Be sure to seek the services of qualified and experienced attorneys to help you protect your assets and your family.

For more information on Components Of An Estate Plan In California, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (714) 881-5200 today.

September Katje, Esq.

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What Makes Attorney September Katje Uniquely Qualified To Represent You?

Ms. Katje earned her Juris Doctorate at California Western School of Law, San Diego, California, graduated Cum Laude and was a Dean’s Honor List recipient. She was also a recipient of the American Jurisprudence Award in Contracts I and Contracts II. Ms. Katje was a member of the Law Review and International Law Journal at California Western School Law, where she was an Associate Editor.

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