The Twelve Facets of a Quality Estate Plan

There are twelve facets to any estate plan that is a loving, complete and effective Estate Plan. We help each client make sure that all twelve facets are included in their Estate Plan. Everyone should have an Estate Plan that accomplishes the following …

1. Keep control over your healthcare decisions, even if you become disabled or incapacitated.

The following documents are critical, and should be included in every estate planning portfolio…

  • The Advance Healthcare Directive
    This document authorizes another person, usually a spouse or a mature child, to make healthcare decisions for you, if you are unable to make those decisions for yourself. Without an Advance Healthcare Directive in place, it is often necessary for a judge to make these choices for you, but not until lengthy, expensive and public proceedings have been concluded.
  • The Living Will
    Your Living Will gives your end-of-life instructions. This extremely important and powerful document provides binding instructions to your family, attending physicians and your other medical care providers. If you were in an irreversible coma, a persistent vegetative state, or if you were terminally ill with no medically reasonable chance of recovery, what kinds of medical treatment would you want to have, and just as importantly, NOT want to have? We live in an era of advanced medical science, and so it is critical that your Living Will answers these questions. End-of-life decisions should be made with a family’s sense of repose and agreement, and not with agitation, disagreement or legal trouble. And of course, we help each client ensure that their Living Will reflects their moral, spiritual and religious beliefs.

2. Provide your loved ones with the right to access your medical information.

Federal law (HIPAA) makes our medical information strictly private. Medical privacy is highly desirable, but it is also a “two-edged sword.” Under the law, your family, close friends and spiritual advisors would be cut-off from knowing about your medical situation, usually at a time when this information is needed the most. The following document can be extremely important, particularly during a medical emergency …

  • The HIPAA Authorization
    This document is a waiver of your medical privacy rights, but only for the persons whom you want to have access to your medical status and information. Our law firm can help make certain that your HIPAA Authorization, Living Will and Advance Healthcare Directive are available 24-7 to any hospital administrator or physician who requires copies of these documents.

3. Make sure your medical retirement plan is in place.

Quality estate planning begins with a medical retirement plan. Many of us will face very large expenditures late in life for nursing home and assisted living care. If we do not account for the risk that our estates might be much smaller at death than we had anticipated, then our estate planning will not be optimal. We have several options …

  • Medi-Cal Planning
    Medi-Cal is a needs-based program. It will pay for nursing home care only for persons who have virtually no income or “countable assets.”Our firm provides clients with legal and ethical strategies, so that they might deliberately “impoverish” themselves, in order to more quickly qualify for Medi-Cal coverage. In some cases, we can also help prevent family assets (in particular the family home) from being lost to Medi-Cal liens after the Medi-Cal recipient has died.
  • Disability Insurance
    We work with our clients’ financial planners to make sure that adequate and affordable levels of disability insurance are in place.
  • Long-Term Care Insurance
    In our opinion, every person or couple over the age of 40, who enjoys good health, should obtain an appropriate levels of “Nursing Home” (Long-Term Care) Insurance. We work with our clients’ financial planners to make sure that the financial plan (including major insurance purchases) is coordinated with the Estate Plan.
  • Self-Insurance
    For many clients, particularly those who have substantial wealth, or who are in poor health, the best option may be to set aside a large, “long-term care contingency fund” within their financial plan. Then, the Estate Plan must take this contingency fund into consideration, particularly if it is intended for the long-term care of both spouses.

4. Protect your dependents and children.

For those of us who have children or grandchildren under the age of 18, there are special considerations that must be in our estate planning. These special considerations include …

  • Guardianship Nominations
    Every parent of a young child must nominate a guardian for each child. That nomination should be stated clearly and unequivocally in each client’s Last Will & Testament. If both parents should go missing, become incapacitated or die, then the Judge must appoint a legal guardian for the children. If the family (usually the two sets of grandparents) should disagree as to who should be the guardian, then serious legal disputes are frequently the result. Guardianship Nominations prevent virtually all disputes, which might otherwise arise during guardianship proceedings. Guardianship disputes can be very damaging emotionally to the surviving children. In our view, it is parental “malpractice” not to do something about this risk, even though it is a remote risk.
  • Children’s Trusts
    Children under the age of 18 are conclusively presumed to lack the competence to own substantial property in their own names. If we have children or grandchildren under the age of 18, and we would want them to inherit from us, then we must set-up special trusts for this purpose in our estate plans.Simple (“CUTMA”) trusts are usually adequate for small gifts. But for larger gifts, we help our clients set up Enhanced Children’s Trusts. Each Enhanced Children’s Trust should be tailor-made. The trust should have special provisions if, for example, the child has a disability or significant personal problems, or if the child is expected to continue into higher education, or if it is desired that the child should be encouraged to engage in public or religious service.

5. Keep control over your property and finances when you are disabled or incapacitated.

If we ever become disable or incapacitated, and we have not prepared for this possibility in our estate plan, then it will be necessary for a judge to appoint a conservator, who will manage our legal and financial affairs.

The avoidance of conservatorship should be one of the primary objectives of every estate plan. In essence, a conservatorship petition is a lawsuit brought against you, usually by someone in your family, in order to prove, in public, that your are either too incompetent or too incapacitated to manage your own affairs.

Conservatorships are very complex proceedings. They are notoriously expensive. Worse, if the proceeding should be contested by you, or by someone else in your family, then serious and potentially very damaging family litigation would likely result.

The following estate planning documents are used to avoid conservatorship …

  • The Power of Attorney
    A Power of Attorney is a document in which you appoint a trusted family member (or professional) to act as your “attorney-in-fact.” The person you chose to have your “durable and general” power of attorney, will have the legal authority to act in your place, sign your name, and make financial decisions in your best interests, especially if you became unable to do so yourself. No judge is needed and no on-going court oversight is required.Our firm produces only enhanced (highly detailed) Powers of Attorney, because simple, general forms are much less likely to be honored by financial institutions. We also ensure, for our clients who are members of our LegacyPlanTM, that a new Power of Attorney is signed every two years, because “stale” documents are also likely to be dishonored.
  • The Nomination of Successor Trustees
    A well-drafted Living Trust not only avoids Probate, it avoids Conservatorship. If you should become unable to act as the Trustee of your own Living Trust, then the person whom you’ve selected to be your “Successor Trustee” simply steps-in. No court order or judicial oversight is required. The Successor Trustee is pre-authorized to manage all of the assets that are being held “in trust” (typically, your residence, investment accounts and all major assets).

6. Establish a comprehensive Wealth Transfer Plan, which does not require probate.

The avoidance of Probate should be one of the primary objectives of virtually every estate plan. Probate proceedings are expensive, time consuming and aggravating, especially in California.

Why do we need probate? It is common sense that people who have passed away cannot continue to own property. Probate is a complex legal process, which involves a series of court orders, and which has the effect of transferring property from the hands of the dead, into the hands of the living.

Probate is expensive. For example, if the family home were valued at $750,000, the probate fees for probating just the home would be $36,750.

For smaller assets, probate can be avoided (or postponed) through the use of joint ownership, pay-on-death (“POD”) accounts, and similar methods. For larger assets (in the case of 95% of our clients), we strongly recommend the creation of …

  • The Living Trust
    A Living Trust is nothing more than another way for people to own their property. Instead of owning the property in their own names, they own it instead as the “trustees” of their own living trust. The secret to Living Trusts is that people die, but trusts don’t die. After we die, the person whom we’ve named as the “Successor Trustee” simply steps-in, and must distribute the trust assets to our spouse, children or other heirs, in accordance with our instructions. No involvement by the Probate Judge is needed!

7. Eliminate or defer your Estate & Gift Taxes, GST Tax, Capital Gains and IRD Taxes, to the fullest extent legally possible.

For medium-sized to larger estates, the various “death taxes” can be devastating. They can potentially consume 50% or more of family wealth at each generation.

Our law firm does both simple and advanced tax planning, including the following …

  • A-B Trust Planning
    For our married clients, we do A-B Trust Planning, which sets up the A and B “sub-trusts” that become effective upon the death of the first spouse. It has the effect of doubling the amount of the marital estate that is exempt from the estate tax. For example, if the exclusion amount were $2 million at the time of death (the exclusion amount varies according to changes in tax laws), then a married couple could shelter a combined estate of up to $4 million, before they would be exposed to any further estate tax. Other common names for the A-B Trusts are the Marital Trust and the Family Trust, or the Bypass Trust and the QTIP Trust.
  • Life Insurance Trusts
    Life insurance is not subject to income tax (when it is received by the beneficiary), but it is subject to the Estate Tax! This fact is not widely understood. (This lurking estate tax on life insurance is one of the significant “traps” that quality estate planning can avoid.) Except for small estates, life insurance should be transferred out of our estates (where it is subject to the estate tax) and into an Irrevocable Life Insurance Trust (“ILIT”). For many estates, ILITs can save hundreds of thousands, and sometimes million of dollars in life insurance death benefits.
  • “Intentionally Defective” Grantor Trusts
    An “Intentionally Defective” Grantor Trust (IDGT) is frequently used for advanced tax planning. It is a means of taking property “out of the estate” for estate and gift tax purposes. It is frequently combined with leveraged gifting and methods for “freezing” the value of appreciating assets. We can assist you with various forms of “split-interest” trusts, designed to provide you and your family with a highly tax-efficient estate.
  • Dynasty Trusts
    Dynasty Trusts are designed to provide for multiple generations, without ever being subject to the Estate Tax or the Generation Skipping Transfer (GST) Tax!A Dynasty Trust can serve as a family nest egg for generations. They are usually designed with conservative distribution provisions. They should also have very carefully crafted governance provisions and the client’s well-considered incentive clauses (to encourage higher education, entrepreneurship, public service, etc.). Of course, they also usually include divorce protection, “creditor and predator” protection, and other means of asset protection.

8. Give your family a lifetime of Inheritance Protection and asset protection.

Inheritance Protection Trust Planning is always advisable when the client’s child or heir is not yet ready to manage and control a large inheritance. And of course, it is imperative to include an Inheritance Protection Trust in your estate plan for any loved-one who may have self-destructive or compulsive behaviors, or who may be at risk of undue influence.

But an Inheritance Protection Trust is not only for protection against these inside threats. “Bad things can happen to good people.” Our children may be mature, educated, well-grounded adults, but what about –

  • Divorce
    Frequently, up to one-half of our children’s inheritance will be taken by an ex-spouse.
  • Creditors, Judgments, Bankruptcy
    A properly designed, Inheritance Protection Trust, will protect family inheritances from being seized by creditors, judges and bankruptcy trustees.

Advanced Asset Protection Trust Planning is offered for our clients who own investment real estate or substantial other assets, or who engage in high financial risk professions, for example, physicians and architects. We design an appropriate array of Asset Protection Trusts, LLCs and Family Limited Partnerships, in accordance with the client’s desires for control and protection, and always with a minimum of complexity.

The protection of your family’s wealth is a matter of good stewardship. No one should allow themselves, their spouse of their children to go through life as a “deep pocket.” We can help you with legal and ethical asset protection solutions, which are tailored to your needs.

9. Let your retirement accounts produce tax-deferred family wealth for generations.

Your IRA and 401k, and other tax-deferred retirement accounts, if property handled for your spouse and children, can continue to generate tax-free, compound growth for decades after your death. For all families, this is a very important source of potential wealth creation, which must be protected.

Frequently, however, technical errors in estate planning cause all of the deferred tax to become payable shortly after the death of the original owner, and so the surviving spouse and the family must pay a large tax bill, while also losing the ability to “stretch” the tax-free compound growth for as long as possible.

Also, many younger adults do not fully appreciate that an inherited IRA is a “wealth-creation machine.” The mismanagement (or misuse) of tax-deferred retirement accounts is one of the most damaging financial mistakes that you or your loved-ones can make.

We have a solution …

  • The Retirement Benefits Trust
    We design our Retirement Benefit Trusts to ensure that there will be no large, lump-sum tax bill after the death of the original IRA owner. As a result, the surviving spouse and children can “stretch” additional tax-free, compound growth for their entire lives. We can also design our Retirement Benefits Trust to be an inheritance protection trust, to protect your heirs from possible bad decision-making, or from outside “creditors and predators” and other risks.

10. Make a special gift of your legacy, heritage and values.

Your estate planning is a special, once-in-a-lifetime opportunity to further instill your family’s legacy, heritage and values.

Traditional estate plans are sometimes little more than “property plans” – how do we transfer property from the deceased to the living, and how do we do it with maximum protection from taxes, fees, delays and complications.

We take our client’s legacy planning seriously, because a person whose Estate Plan is only about money, is also raising the risk of legal trouble. We also know that effective estate planning has, as its foundation, the true affinity and love that exists naturally in each family.

Legacy Planning is at the root of all of the other facets of Estate Planning. But there are many specific techniques of Legacy Planning.

  • Charitable Trusts
    Substantial gifts to charities, foundations and religious organizations are an effective means to pass on a family’s legacy, heritage and values. Good legal advice in this area is important, because charitable giving could either be designed to help ensure that your children will support and value these charities, and the family heritage they represent, or it can be done in a way that might invite your children’s lasting resentment.
  • Spendthrift Trusts, Incentive Trusts and Loving Conditions
    A family that values, for example, higher education, entrepreneurship, travel, religious missions or public service might instill these values with thoughtful, loving conditions placed directly into your children’s inheritance trusts. Or there may be children who, for various reasons, are not yet sufficiently responsible to manage the inheritance. In these cases, we can assist with the preparation specially tailored spendthrift clauses and appropriate incentive clauses, closely following the client’s beliefs as to what is best.
  • Statement of Values and Ethical Wills, Special guardian nominations
  • Intergenerational Meetings

11. Organize and consolidate your assets.

Our paralegal team makes it easy for you to organize your most important information and to consolidate your assets.

Nobody’s legacy should be “a big mess.” For example, executors frequently can’t be sure that they have identified and secured all of the assets. This causes legal complications, expense, delays and frustration. (But for our LegacyPlan Members, the estate assets are already identified and already secured.)

Do not die with your pin numbers in your head! As we go further into the digital age, the organizational tasks of estate planning are becoming more and more important.

  • Our firm puts a lot of attention into all of the essential organizational tasks. We do a lot to make the process easy and complete, and so can your financial advisor and CPA.
  • All of our estate plans are organized into Estate Planning Portfolios. The essential documents and information are kept in attractive, fully indexed binders.
  • Our highly secure Client Data Vault contains certified copies of all essential documents and information, two local backups and one remote backup.
  • Our LegacyPlan Members receive an updated CD ROM of their entire Estate Plan, which contains signed, certified and Bates-stamped copies of each legal document.

12. Making special gifts of your heirlooms and valuable personal property.

Every estate includes personal property that has great sentimental or monetary value. Unfortunately, the most common family legal dispute involves the distribution of heirlooms.

What we all need to avoid is the unwanted (and sometimes difficult) situation, where a grieving family must also “deal” over many items of property that may have great sentimental or financial value. This sort of “hovering about the deathbed” should not be part of any family’s legacy.

Our Personal Property Memorandum and related services provide our clients with an easy, very effective and “lawyer free” means to distribute family heirlooms. Our LegacyPlan Members have the additional security of knowing that their Personal Property Memorandum is always complete and up to date.

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