It doesn’t matter whether it’s a small fortune or something sentimental – we cherish the things our loved ones leave behind for us, and we want to protect them. Sadly, there is a lot to protect them from. The value and worth of inherited property may be diminished or affected by divorce, taxes, and even litigation.
Sufficient protection can help ensure that your inheritance is kept safe and may be passed on to your loved ones without interference, whether from creditors, the government, or even other (and former) family members. That is what an estate plan represents.
Estate plans aren’t just relevant to the rich and famous. The moment you have anything to leave behind – whether it’s the beginnings of a business venture, or a pile of student debt – you will have to think about what might happen to your financial legacy if you died. We can’t take much with us beyond the grave, save for our Sunday’s best and some jewelry.
How do you protect what you’ve inherited from an estranged spouse? How do you ensure that your personal financial risks or business ventures won’t affect the family fortune in a negative way? How do you minimize the impact of the dreaded “death tax”? While estate planning is still most popular among the elderly, an increasing number of financially conscious millennials and even younger adults are beginning to think about saving up for retirement, putting money aside for their kids, and setting up trusts and other instruments to protect their inherited wealth, and ensure that its value is kept within the family.
There is more to an estate plan than the last will and testament. Estate planning encompasses several documents, techniques, and legal tools dedicated towards wealth management, particularly in lieu of financial legacies, bequeathments, and the management of intergenerational wealth.
Estate planning tools include the will, the trust, medical directives, powers of attorney, guardianship documents, beneficiary designations, retirement accounts, and more.
Without an estate plan, your belongings are distributed as per state law, via intestacy rules. These are rules that apply when a person dies intestate, or without testament.
The process of determining what happens to the remnants of your financial estate is called probate. An estate plan works in and around probate. While probate encompasses everything you own after death, there are ways to exclude items from the probate process, expedite their bequeathment, and minimize your estate’s tax burden in the process.
An estate’s value may be diminished by a hefty tax rate applied on death, legal fees and litigation, probate costs, and even divorce. Inefficient or poor estate planning can result in confusion and anger between surviving relatives, unexpected bills in the mail, or money left on the table due to poor valuation choices.
Estate planning also encompasses financial decision-making regarding your own inheritance. For example, if you are married and have received an inheritance, you may want to avoid transmutation by keeping your inheritance separate from current and future marital assets.
For example: Money received from your aunt’s death may be entirely yours, even if you are married in a community state – but that fact changes as soon as you use the money to put a downpayment on a home for yourself and your spouse. At that point, the inheritance is tied into a marital asset, and part of any potential divorce proceedings. Keeping that money safe for your children (as a college fund, windfall, or future inheritance) keeps it safe from a financial split.
No two estate plans have the exact same needs or considerations. Individual circumstances matter – such as the financial details of your relationship, whether or not you plan on having children, the size of your estate, state tax laws and inheritance laws, and more.
In some cases, an estate plan does not need to be more complicated than a will and a few documents concerning potential palliative care or end-of-life considerations. In other cases, a person may want to consider utilizing a trust to separate their inheritance or any wealth earmarked for the kids from their financial risks or investments.
Here are a few different estate planning tools you may want to consider incorporating.
The most commonly implemented estate planning tool is the last will and testament. A will constitutes a set of instructions for a designated executor to follow throughout the probate process. In addition to determining who gets what, a will can also be used to appoint guardianship of minor children.
There are limits to what a will can do. Assets that exist outside the scope of probate cannot be distributed through a will. Anything gifted before death, for example, is no longer owned by the decedent. But more importantly, this includes assets and accounts with designated beneficiaries. A boat with a transfer-on-death clause or a retirement account with a beneficiary will be paid out or transferred before probate begins.
Because the contents of a will are subject to probate, the courts dictate the pace of the process. It may be months, if not years before an estate is fully distributed. In addition to determining bequeathment, probate is also used to settle arguments between inheriting beneficiaries, and to provide a venue for creditors to lay a claim against the estate (for unpaid debts). As a general rule, the larger an estate, the longer it takes to distribute via probate.
Trusts work outside of probate. A trust document transfers ownership of an asset into the hands of the trust itself. A trustee is assigned to manage the trust, and its contents, for both the trustor and its beneficiaries. Revocable trusts can be altered and controlled by the trustor, so they count as part of the trustor’s estate. Irrevocable trusts are separated from the trustor’s control and cannot be undone, so they’re no longer part of the estate. Irrevocable trusts can be a great way to ensure that certain assets are protected from creditors, for example – or to reduce the total value of an estate, for tax purposes.
Not all estate planning tools go into effect upon your death. Powers of attorney and advance directives are two examples of common estate planning tools that exist to function only while you are still alive. A power of attorney allows a chosen agent to perform certain tasks under your name, either for a general purpose, or a narrowly defined and limited task.
Powers of attorney can be used to ask a trusted friend to sign off on the purchase of commercial property in a different state, for example – or they can be used to give someone you trust or love the ability to make crucial financial or healthcare decisions for you, should you be incapacitated.
Advance directives, such as a living will, provide medical professionals with an account of what you would and would not like to go through, should you be unable to communicate your wishes.
Setting up an estate plan is as much about protecting what you have in life, as it is about ensuring that your legacy is strong in death. But it can be an overwhelming topic. Estate planning expertise involves accounting, investment, personal finance, wealth management, family planning, and family law. Working with the right estate planning professional is crucial.
Founded in 1975 by L. Rob Werner and serving California for over 48 years, our dedicated attorneys are available for clients, friends, and family members to receive the legal help they need and deserve. You can trust in our experience and reputation to help navigate you through your unique legal matters.
Whether you need help creating a living trust or navigating probate, our living trust law firm's compassionate team of estate planning lawyers and probate lawyers are here to help you and ready to answer your questions.
Our goal is to make your case as easy as possible for you. Hiring a lawyer can be a daunting task, but it doesn’t have to be. From the moment you contact our firm, through the final resolution of your case, our goal is to make the process easy and understandable. We cannot change the fact that probate is a long and complicated process, but through our Werner Law Firm Difference, we strive to go out of our way to keep you informed of your case through every step of the way. We are constantly refining our processes and procedures for a more streamlined and calm client experience. Our goal is to have you feel like a burden was lifted from your shoulders, and that we made the whole process an easy one
If you're dealing with a legal matter, we urge you to schedule a free initial appointment today and join the many satisfied clients who have contacted Werner Law Firm.
23 Corporate Plaza Dr., Suite 150
Newport Beach, California 92660