New Year, New Estate Plan
New Year, New Estate Plan
Welcome to 2020! A new year is a time for optimism and new opportunities. It is a time to start fresh and take a look to make sure you are headed in the right direction. But making New Year’s resolutions is not enough: you must take action now to ensure that you and your family or loved ones are prepared for the future!
Create a New Estate Plan in the New Year
A new year is a great time to take positive steps that will enhance your life, including putting an estate plan in place. There are many reasons why having an estate plan is beneficial. Having a comprehensive estate plan designed with the help of an experienced estate planning attorney can provide substantial peace of mind, both for you and for the loved ones you will eventually leave behind. In addition, you can put plans in place for your own care if you become unable to care for yourself. By having a well-thought-out estate plan, you can avoid:
- Decisions inconsistent with your wishes about who will receive your property and money after you pass away or who will make decisions on your behalf if you are unable to make them yourself. Even if you do not write a will or trust of your own, you already have one: written by the State of California. If you do not take specific steps to name the people you want to receive your money and possessions, they will be given to the people determined by the Probate Code—which may not be the individuals you would have chosen. In addition, you should name a person you trust to act on your behalf if you become too ill to make decisions for yourself using a financial power of attorney and an Advanced Directive. Without these tools, someone you do not have confidence in could be appointed by the court in a proceeding very similar to the public probate proceedings discussed below.
- Confusion and disputes over who will care for your children or other dependents. If you have minor children, you should name a guardian you trust to provide care for children or dependents in your will. Otherwise, this decision will be up to a court without any guidance from you—the Court may appoint someone you would not have chosen to care for your children. In addition, if you choose to create a trust—instead of giving the caretaker the money outright to be used for your children’s benefit, you can include provisions that ensure that funds are only distributed for the children’s In the absence of a trust, there is no guarantee the named caregiver will use the money in the way you would have wanted. In addition, if the caregiver has any debts, giving them your money could make it vulnerable to claims by their creditors. If you create a trust, you can ensure that your money will be used only in the way you have chosen and will be protected against creditors’ claims.
- Costly, time-consuming, and public probate proceedings. If you do not have an estate plan or only have a will, your money and property will likely have to go through a court-supervised process to transfer ownership to your heirs. Even for smaller estates, this process could lead to thousands of dollars in attorneys’ fees and court costs. In addition, California probate frequently requires court approval for every step in the process, which takes many months or years to complete, especially if any disputes arise. Like all court proceedings, probate hearings and documents are accessible to the public, so anyone can look at your will or find out details regarding a family dispute. This can usually be avoided if you have a revocable living trust. With a revocable living trust, you transfer your assets to the trust before your death, making the trust their legal owner instead of you and, if done correctly, rendering the court proceedings unnecessary. In addition, if you name yourself as the trustee, you can retain complete control over the money and property during your lifetime. Not to mention, as the current beneficiary of the trust, you also retain complete enjoyment of the money and property.
- Depletion of your estate by creditors. If protecting your money and property from future creditors’ claims is one of your main concerns, transferring your property to certain types of irrevocable trusts can achieve this goal. Similarly, if you are concerned that your heirs may have creditors that will look to money or property they inherit from you to satisfy their claims, you can make your heirs the beneficiaries of a trust instead of making outright gifts to them. Because the trust owns the property and money, and the trustee controls when and how much the beneficiary receives, the beneficiaries’ creditors will not be able to reach it unless a distribution is made to them.
- Family discord. During the estate planning process, you have the opportunity to explain to your family why you have made certain choices about how and to whom your money and property will be distributed when you die and who will act on your behalf if you are sick or unconscious, which may help to avoid disputes between your children or other family members. This is especially important if the gifts are not equal or if there are certain family heirlooms that more than one heir is interested in receiving. In addition, if you choose to utilize a trust, individuals that you choose not to include may not have access to the trust document and will be less likely to contest it. If you are concerned that naming one of your children as the executor or trustee will lead to squabbles or be an imposition, we can help you choose an impartial third party to act in those roles.
- High estate taxes. Under the tax reforms enacted in 2017, the amount that you can give away both during your lifetime and at death without incurring transfer taxes is quite large (for 2020, the lifetime exemption for an individual is $11.58 million). In addition, a surviving spouse can benefit from the unused exemption amount of their deceased spouse’s estate if a timely IRS Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Form is filed. For 2020, the exemption is $23.16 million per couple. However, this increased exemption amount will revert to a much lower figure in 2026 unless Congress acts to extend it. California does not currently impose an estate tax or an inheritance tax; however, several estate tax proposals have been floated by legislators in Sacramento. Should any of those proposals be enacted, California estate taxes would likely apply for much smaller estates. We can help you implement strategies that maximize your tax savings.
Review an Existing Estate Plan
It is important to review the estate plan you made in the past, whether that was 20 years ago—or even one year ago—to ensure that it will still accomplish your estate planning goals.
- Think about what has changed in your life and if there are aspects of your estate plan that are no longer relevant or need revision. Change is a constant in life: If you have experienced a change in your marital status, a new child has been born, your financial status has improved, a beneficiary has died, the person you have named as trustee is ill, or other similar changes in life circumstances have occurred, it is important to update your existing estate plan. Even if you are not certain that anything has occurred that would affect your plan, it is wise to meet with us on a regular basis to ensure that your plan will still meet your goals: A change you think is insignificant may have an unexpected impact on your plan.
- Changes in the law may impact your estate plan. As estate planning attorneys, we stay up to date about changes in state or federal law, especially tax law, that may affect your estate plan. It is important for us to periodically meet to review your plan to ensure that changes in the law have not reduced the ability of your plan to achieve your goals. For example, one major change in the law was effective in January 1, 2020, with the enactment of the SECURE Act as it relates to retirement accounts.
Let Us Help You Make a Great Start to the New Year!
The new year is all about new beginnings. You can take steps today to make sure plans are in place for your own care and to provide for your family. Call us to set up a meeting. We look forward to helping you start the new year heading in a positive direction.