California Estate Planning FAQ

For many California homeowners, this is where estate planning becomes important.

A house that was purchased years ago for a relatively modest amount may now be worth $1 million, $1.5 million, or considerably more. The owner may not think of himself or herself as wealthy, but from an estate administration standpoint, that homeowner may have a substantial estate.

A properly prepared and funded living trust can allow real estate and other trust assets to be administered after death without a full probate proceeding. It also creates a mechanism for someone you choose to step in and manage those assets if you become incapacitated.

The point of the trust is not simply to own another legal document. It is to create a workable system for what happens to your property when you can no longer manage it yourself.

A will is important, but a will does not ordinarily accomplish the same thing as a funded living trust.

A will tells the probate court who should receive property passing through the estate, nominates an executor, and can nominate guardians for minor children.

What it generally does not do is keep substantial individually owned assets out of probate.

That distinction surprises many people. A will is not a probate-avoidance document. In many circumstances, it is the document that tells the probate court what to do once probate begins.  Therefore, only having a will is a ticket directly to probate court.

A living trust can avoid probate for assets properly held in the trust, but simply signing a trust does not magically place everything you own inside it.

That is why funding the trust matters.

If you create a living trust and then leave your house and significant accounts outside the trust, your family may discover after your death that the trust did not accomplish what everyone thought it would.

Estate planning should therefore address both the documents and the ownership of the assets.

Funding a trust means connecting the appropriate assets to the estate plan.

For California real estate, that commonly involves transferring title into the trust through an appropriate deed. Certain non-retirement financial accounts may also be titled in the trust.

Other assets work differently.

IRAs, 401(k)s, life insurance and other beneficiary-designated assets ordinarily require coordination of beneficiary designations rather than simply changing title into the trust.

The question should not be, "How do I put everything into my trust?" The better question is, "How should each asset pass?"

It depends upon what you own and how it is titled.

Some property may pass through joint ownership or beneficiary designations. Other property may require court administration.

If property becomes part of a probate estate, a will may control its disposition. If there is no valid will, California's intestate succession laws determine who inherits.

That means California law effectively supplies the estate plan you never created.

Sometimes the result resembles what the person would have wanted. Sometimes it does not.

Probate is not simply a matter of filing a form and transferring the house.

It can involve appointment of a personal representative, notices, creditor procedures, inventory and appraisal, management or sale of property, tax issues, court filings and ultimately distribution.

Even an uncontested estate can take many months. A complicated or contested estate can take much longer.

One of the major attractions of a properly funded living trust is that administration generally occurs outside the full probate process.

That does not mean nothing needs to happen after death. Trust administration still requires work. It simply uses a different legal structure.

Probate expenses can include court costs, publication expenses, appraisal expenses, professional fees and compensation for administering the estate.

California also provides a statutory structure for ordinary attorney and personal representative compensation based upon the value of the estate accounted for in probate.

For a California homeowner, that can matter.

A house does not need to produce a lot of cash to create a valuable probate estate. Its market value alone can make probate an expensive way to transfer property.

That is why the cost of estate planning should be compared not merely with doing nothing today, but with the eventual cost and burden of administering an estate without proper planning.

Because solving one problem can create several others.

Adding a child to title is a present transfer of an ownership interest. That can raise issues involving property taxes, income-tax basis, creditors, divorce, control of the property and what happens if the child dies before the parent.

It may also produce a very different tax result from allowing the child to inherit the property at death.

Putting someone's name on a deed is easy. Understanding everything that happens after you do it is the important part.

Not necessarily.

California's Proposition 19 significantly changed the rules concerning certain transfers of real property between parents and children.

Whether a transfer qualifies for an exclusion from reassessment can depend upon the type of property, how the parent used the property, how the child will use it, applicable value limitations and compliance with the required procedures.

A rental or investment property can receive very different treatment from a qualifying family home.

This is an area in which an estate plan created many years ago may produce a different result today than the family originally expected.

That should ideally be addressed before the parent dies.

A trust that merely says "divide everything equally among my children" can leave the successor trustee with a difficult practical problem.

Should the house be sold? Can one child buy out the others? How is the price established? How quickly must the decision be made? Who pays the mortgage, taxes, insurance and repairs while the decision is pending?

A thoughtful trust can give the trustee a framework for resolving those issues rather than leaving the children to invent one while they are grieving.

They can. That does not mean they should.

An inheritance that would feel modest to a 50-year-old can be life-changing to an 18- or 21-year-old.

A trust can allow assets to remain managed while still permitting money to be used for education, housing, health, support and other appropriate needs.

Outright distributions can occur later, perhaps in stages such as ages 25, 30 and 35, or under another structure appropriate for the particular beneficiary.

The objective is not to control an adult child forever. It is to recognize that financial judgment develops over time and that a substantial inheritance should not have to become someone's first major financial mistake.

They do not necessarily need identical inheritance structures simply because they are siblings.

One beneficiary may be perfectly capable of receiving property outright.

Another may have creditor problems, an unstable marriage, poor financial judgment, special circumstances, or simply benefit from additional time and structure.

Equal treatment does not always require identical treatment.

A trust can be designed around the people who will actually inherit the assets rather than pretending every beneficiary has the same circumstances.

This is the part of estate planning people often overlook.

Death is not the only event that can make an estate plan necessary.

An accident, dementia, serious illness or other incapacity may leave someone alive but unable to manage investments, pay bills, maintain or sell real estate, handle legal matters or make health care decisions.

A complete estate plan therefore addresses incapacity as deliberately as death.

The living trust, durable power of attorney and advance health care directive each perform different functions in that plan.

A successor trustee is not simply the person who distributes property after death.

Depending upon the trust and circumstances, a successor trustee may have to step in during incapacity and manage the trust creator's property.

That can mean paying expenses, managing investments, handling bank accounts, maintaining real estate, dealing with tenants, arranging repairs and sometimes making difficult decisions about whether property should be sold.

Choose a trustee based upon judgment, reliability and ability, not simply birth order.

Because not everything in your financial life is necessarily owned by your trust.

The trustee controls trust property.

An agent under a durable power of attorney can potentially deal with financial and legal matters outside the trust, subject to the powers granted in the document and applicable law.

The two documents are designed to work together.

It allows you to identify the person you want making health care decisions if you cannot make them yourself and to express important health care preferences.

Without planning, relatives may know what they believe you would have wanted, but knowing someone's wishes and having legal authority to act are different things.

Estate planning is partly about eliminating that uncertainty.

Because your estate at death may be much larger than your estate today.

Life insurance is an obvious example.

A young parent may own a home with substantial equity, retirement accounts and investments and also carry significant life insurance.

Death can create an estate overnight.

The important question is not simply what you own today. It is what will exist for your family if something happens to you.

Retirement accounts are generally handled differently from ordinary trust assets.

They commonly remain in the participant's individual name during life and pass according to beneficiary designations.

Those beneficiary designations matter enormously.

They should be coordinated with the estate plan rather than completed once when the account is opened and forgotten for the next 20 or 30 years.

Sometimes that may be appropriate. Sometimes it can create unnecessary complications.

Retirement accounts have their own income-tax and distribution rules.

Whether a trust should be named as beneficiary depends upon the beneficiaries, trust terms, tax considerations and what the estate plan is intended to accomplish.

This is one area where "just put everything into the trust" can be poor planning.

The fact that a trust remains legally valid does not necessarily mean it remains a good estate plan.

Consider what has changed since it was signed.

Have children become adults? Have trustees died, moved away or become inappropriate choices? Have you bought or sold real estate? Has a marriage ended? Have relationships changed? Has the value of the estate substantially increased? Are the assets actually titled correctly?

An estate plan should reflect the life you have now, not the life you had when the binder was prepared.

Not necessarily.

Some older trusts need only targeted amendments. Others benefit from a comprehensive restatement that keeps the existing trust framework but replaces outdated provisions with a coherent updated document.

The first step should usually be review, not automatic replacement.

The important question is whether the plan still accomplishes what you want it to accomplish.

A basic revocable living trust may still be an important part of the estate plan, but larger estates can require additional planning beyond probate avoidance.

As an estate grows, issues involving asset structure, future appreciation, business interests, substantial real estate holdings, lifetime transfers and planning for multiple generations can become more important.

For clients with substantial estates, planning should begin with a broader review of the assets, family circumstances and objectives rather than assuming that a standard living trust alone is sufficient.

Not the thickness of the binder.

A good estate plan works.

It identifies the right people to act for you. It addresses incapacity. It coordinates the house, financial accounts, retirement assets and beneficiary designations. It anticipates how children or other beneficiaries should receive property. It reduces unnecessary court involvement. And it gives the people left behind clear instructions when they may be dealing with one of the hardest periods of their lives.

A trust is a document.

An estate plan is the strategy that makes all of those pieces work together.

Yes. Flexible payment arrangements are available for many estate planning matters. Depending on the scope of the plan, fees may be divided into scheduled payments rather than being due entirely at the outset.

Payment arrangements are discussed in advance and confirmed as part of the engagement process. For more information, see the firm's page on flexible payment options.