What is an Estate Plan and Do I Need One?
Many people mistakenly believe that they are not wealthy enough to need an estate plan. As a matter of fact, every person already has an estate plan, whether or not they know it. For those of you who haven’t planned, the government has a plan for you – it’s called Probate.
What Is Probate?Probate is a government and court supervised process that takes place after a person passes away. It's the legal process that must occur in order for your assets to transfer from you to your loved ones after your death. There are very good reasons to want to avoid the probate process:
Time: the probate process takes approximately 1 to 2 years in California
Cost: probate is expensive, generally costing anywhere from 5% to 10% of the fair market value of your estate. For example, if you died leaving behind a $500,000 home, the cost of probate could run anywhere from $25,000 to $50,000.
Headache: a big reason to avoid probate is to protect your family from the hassles and headaches of the court system
How Do I Avoid Probate?So now you know what Probate is, but how do you avoid it? The safest and surest way to avoid probate is through a Living Trust. With a Living Trust, your assets could be distributed to your loved ones very soon after you pass away -- without the time, cost or headaches of probate. With a Living Trust, you get to decide (1) who is in charge of distributing your assets when you pass away, (2) the amount(s) that you would like to leave to your loved ones after you pass away, and (3) at what age or ages you would like your loved ones to inherit your assets after you are gone.
A Living Trust has many advantages, and the cost of setting it up is a fraction of the cost of putting your loved ones through probate. To discuss the details of how a Living Trust works and how it can benefit you, you may call my office at (714) 282-7488 to schedule a free consultation.
What Other Documents Are Part of an Estate Plan?The Living Trust is often the key component to an estate plan, but an estate plan generally includes a number of different components, such as a Living Trust, Will, Power of Attorney and Healthcare Directive - which are explained further below. These documents are distinct and separate but, together, they comprise your estate plan and are designed to protect you and your loved ones at all stages of life, that is - when you are alive and well, if and when you become incapacitated, and/or when you pass away.
Every Living Trust should be accompanied by a Will. The Will is important because it allows you to designate where personal property items go after you pass away (i.e. jewelry, collectibles, furniture). Most importantly, the Will is where you nominate a guardian to raise your minor children in the event that you pass away.
The Power of Attorney is another incredibly helpful tool designed to allow others to act on your behalf in the event you lose capacity and can no longer manage your financial affairs. For example, your Power of Attorney may authorize your agent to pay bills, file your taxes, deal with retirement accounts, manage investments, etc.
Finally, the Healthcare Directive allows you to name one or more individuals to make medical and end of life decisions should you be unable to make such decisions for yourself. The Healthcare Directive is also accompanied by a legal document that authorizes your medical information and health history to be released to your loved ones, such as your spouse and/or children. Without these documents, it can be difficult for your loved ones to make medical decisions or access your medical records.
What Should I Do Next?Hopefully this guide has shed some light about the importance of estate planning. I can't take the next step for you, but I am here to help you every step of the way. As you now know, an estate plan is not just for wealthy individuals - it's for everybody. Call my office at (714) 282-7488 and schedule a free consultation - we can discuss how an estate plan can benefit you and your loved ones for years to come.