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A Beginner's Guide to Estate Planning

Advance Healthcare Directives

Also known as a “Durable Powers of Attorney for Healthcare”, an Advance Healthcare Directive (“AHCD”) is an essential part of any well-rounded estate plan. An AHCD is a document wherein you grant someone (you’re “agent”) the authority to make healthcare decisions for you. You can either make the power effective immediately or reserve that power until you become incapacitated, known as a “springing” power.

Some people prefer to make the power effective immediately, in which case they make someone else the main point of contact and decision-maker for their health care decisions right away. Others prefer to retain the power to make their own healthcare decisions until a medical event prevents them from doing so. Either way, it is important to carefully consider the person that you choose because they will have the important role of interfacing with doctors and the medical team and may have to make difficult decisions.

Likewise, you may choose to designate multiple people to act on your behalf, either in succession, jointly, or severally. Be sure to consider that when naming multiple people, there is the potential for conflict arising. Speak with your estate planning attorney and medical team ahead of time to come up with solutions to potential disagreements.

Powers of Attorney

A Power of Attorney (“POA”) is a document wherein you name someone else as your “attorney-in-fact”. They don’t actually have to be a licensed attorney, but can be anyone you choose. Hopefully, someone you have spoken to beforehand and trust to oversee your personal and financial matters. As such, this person will have the ability to represent you and conduct business for you with banks, institutions, and other third parties. Powers of Attorney are valuable and necessary in the event that you cannot interface with third parties yourself. For example, if you are traveling abroad or become physically or mentally incapacitated and cannot go to the bank, sign loan documents, or understand or care for your own finances. There are several different types of Powers of Attorney; Limited, General, and Durable.

A Limited Power of Attorney only applies to specific circumstances or powers that are specifically referenced in the document. Usually, these are utilized for a specific situation and do not exist for an extended period of time or apply to the entirety of powers found in a General or Durable Power of Attorney.

General powers of attorney encompass more powers and authority to act than limited powers of attorney. They are usually broader by definition and extend for a longer period of time than their limited counterparts. General powers of attorney usually exist for a specified time and just like a limited power of attorney, it will cease being effective upon your mental incapacity. That is why it is important to consider executed a durable power of attorney.

A Durable Power of Attorney (“DPOA”) is similar in scope to a General Power of Attorney in that it includes a broader delegation of powers to your “attorney-in-fact”. The main difference is that a DPOA will remain in effect even after you become incapacitated. That is the main benefit of executing a DPOA versus a Limited or General Power of Attorney. In order to remain effective, the DPOA must explicitly state that it will remain effective during any subsequent mental or physical incapacity. Moreover, due to this key difference, you may choose to make your DPOA “spring” into effect upon subsequent incapacity. That means, you could plan ahead for such an event, choose who you would like to act on your behalf, decide which powers they will have, and most importantly, hold back that power until your treating physicians state that you are incapacitated. Only then, will the springing POA become effective.

Will

Everyone, at the very least, should have a Will. A Will is a legal document that designates how you want your property and assets (“Estate”) distributed after you die. There are certain legal formalities that must be met in order for your Will to be effective. Accordingly, it is vital that you seek legal advice and guidance when drafting and executing your Will so that your wishes are carried out and legally enforceable. It would be truly unfortunate if your wishes are frustrated due to incorrect drafting, execution, or implementation.

The default rule in California, is that every estate must go through Probate if the gross value is equal to or greater than $166,250. For many people, that is a very low bar. And, contrary to public opinion, Estates equal to or greater than $166,250 must still go through Probate, even if you executed a valid and enforceable Will.

Accordingly, everyone should have a Will, if for no other reason than to memorialize their wishes and provide a clear path forward for those they leave behind. This is about taking control over your wishes and by properly drafting and executing a Will is essential.

Trust

If you own assets greater than the Probate limit referenced above, you can execute a Trust that will allow your Estate to avoid Probate. But it is only effective if stringent legal formalities are met and assets are transferred to the Trust prior to your death. If the Trust is properly executed and your assets are transferred to the Trust, then your loved ones will not have to go to Court and engage in the lengthy and costly Probate process. The Trust will be administered privately and directly between the Trustee, their attorney, and your named beneficiaries.

A Trust is a legal document similar to a contract. It is in essence, a contract between you (the “Settlor”) and the person you charge with overseeing your Trust Estate ( “Trustee”). If you execute a “Revocable Trust”, then you can remain the Settlor as well as the initial Trustee while you remain alive and have mental capacity. During that time, you usually do not have to answer to anybody else or report on your actions. After your death, your Successor Trustee oversees the assets held by the Trust and acts as a Fiduciary to the people you leave assets to (“Beneficiaries”). You as the Settlor can retain certain powers for yourself while you are alive and then designate many different structures for holding and distributing assets after you die. It is much more flexible than Probate and keeps the ultimate decisions out of the hands of the Court and Judges provided it is properly executed and administered.

Just like a POA and Will, a Trust can come in many different forms and fulfill different purposes. Although there are platforms out there that purport to “draft” documents for users, the mere fact that you can draft your own Trust does not mean that you should. A Trust designates broad powers and specific instructions which require an understanding of complex legal requirements and machinations with which the average person may not be familiar.

Usually, a Trust does not require additional ongoing expenses but it really depends on the type and purpose of the Trust. Likewise, simply drafting a Trust is not by itself sufficient. The Trust must be properly executed, comply with formalities, and receive title to assets in order to become effective.

When properly drafted and executed, a Trust can be a very powerful tool in protecting yourself and your loved ones for generations to come.

Certification of Trust

If a Trust is drafted and executed, a Certification of Trust will also be required. Similar to an “executive summary”, the Certification of Trust is a document that proves who the Settlor and Trustee is and details the main powers granted to them by the Trust. In order to conduct Trust business and transfer assets to the Trust, the Trustee can present the Certification of Trust to banks, title companies, and financial institutions to prove that they have the authority to transact and conduct trust business. The California Probate Code allows the Trustee to present the Certification of Trust in lieu of presenting a full copy of the Trust and thereby avoid the disclosure of private information that the Settlor may prefer to keep private.

Funding

A Trust can only control and protect assets that are properly transferred to it. Many people stumble when creating their own documents because they miss this vital step. Funding is the process of transferring assets to a Trust after it is created. If you take the time and effort to draft and execute a Trust but do not transfer your assets to it during your life, then your property will still be subject to Probate after you die. And the main point of establishing your Trust will be frustrated, costing your loved ones time, money, and stress in dealing with Probate.

Depending on the type of asset and your ultimate wishes, there are different strategies for funding the Trust; including changing title or updating beneficiary designations. However, there are important tax and other implications that accompany such transfers. That is why it is important to discuss the proper drafting, execution, and funding of your Trust with a qualified professional.

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Hedemark Law

Hedemark Law provides initial consultations at no charge. Whether you are interested in learning about the benefits of estate planning, facing probate, or are in need of legal advice pertaining to real estate and property litigation, the initial consultation is complimentary.  

 

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San Francisco, CA 94104 

Tel:  415-692-1503

Email: justin@hedemarklaw.com

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