What are The Estate Planning Basics? What Goes in an Estate Plan?

What are the estate planning basics? Do I really need an estate plan? What happens if I don’t make an estate plan? How much does it cost to make an estate plan? Does an estate plan avoid probate? Do I need a Living Trust?

By James L. Cunningham Jr., Esq.

Do you need an Estate Plan, and what are the estate planning basics? Believe me, if you’re even asking the question, the answer is yes, you need one. In fact, I advise everyone over the age of 18 to create some form of estate plan. Welcome to estate planning 101!

Think of estate planning as a safety net for the financial future of yourself and your family. It’s your plan for what happens after you’re gone, if you become incapacitated, when you are close to death—and much more.

One key part of this plan is a Living Trust, which holds your assets while you’re alive and passes them on when you’re not. The best thing about a Living Trust? It can help people skip the long and costly court process called probate.

An Estate Plan is also a map for your loved ones, guiding them through a tough journey without you.

In a world full of uncertainties, a well-crafted Estate Plan is one certainty you can provide. It’s not just a stack of legal documents—it’s peace of mind. And that is priceless.

In this family estate planning guide and in the accompanying webinar, I want to lay out the basics in one place—and give you links to key related information on our website.

At CunninghamLegal, we provide expertise in California Estate Planning, as well as help with Trust Administration and Probate after a death. Please set up a call with us to learn more.

What Is Probate?

Let’s this estate planning guide with a major challenge you want your family to avoid when you pass away: It’s called probate.

Probate is a formal, court-supervised legal process that occurs after death or incapacity if there’s no valid estate plan (which usually means a plan that includes a well-crafted and funded Living Trust). Notice that I say “Estate Plan” and not “Will.” A Will is not an estate plan, and in most cases, it will not prevent your family from going to probate in California—and here in The Golden State, probate can be a complex, time-consuming, and costly process, typically lasting 16-24 months due to court backlogs.

The fees can range from 4%-8% of the total estate value, regardless of debt. For example, if an estate is worth $1 million but owes $900K, the probate fees and court costs could be about $50K, leaving only $50K for the inheritors. That’s because these fees are based on gross total market value, not value minus debt!

It’s true that if the total assets of an estate are very low, a full-blown probate may not be required. In 2022, the limit for a small estate affidavit in California is $184,500. But in Nevada, it is only $20,000!

Remember that the payout of an inheritance will come only at the very end of Probate. Loans against an inheritance may be available, but these tend to be very expensive.

If you have property in different states and no proper estate plan, probate may also be required in each of these states. For instance, if Dan, a resident of California, dies leaving only a will and owns property in California, Oregon, and New York, three separate probate processes would likely be required.

If you are faced with Probate after a death in the family, I strongly suggest you get a highly knowledgeable lawyer on your side, as there are many quirky laws and processes involved. Contact us to learn more.

I also suggest you click here for a full discussion of the many steps for probate in California. You can also use our calculator to get a sense of the attorney and executor fees that are likely to occur.

What Is in an Estate Plan?

An Estate Plan is a comprehensive strategy that manages and distributes your assets. It’s about safeguarding your wealth, minimizing taxes, avoiding arguments, and taking care of personal and financial matters if you become incapacitated or pass away—avoiding Probate Court if at all possible.

Here are the key documents most often included in an Estate Plan, as part of estate planning basics. All are discussed extensively elsewhere on this website, but here’s a quick overview. You can find more detail on our Estate Planning Practice Area page, and if you have significant assets, you may also want to take a look at our page on avoiding Estate Taxes.

  1. Living Trust: Picture a Living Trust as a bucket. It holds your assets during your lifetime and distributes them upon your death, usually designed to allow you to bypass the winding road of probate. Most Living Trusts are “revocable,” meaning you can change them as often as you wish before you pass away. You fully control your Living Trust while you are alive.
  2. Pour-Over Will: A Pour-Over Will works in conjunction with a Living Trust in estate planning. It acts like a safety net for any assets that may not have been directly transferred into the Living Trust before a person’s death. The Pour-Over Will “catches” these assets and directs them into the trust upon the person’s death.
  3. Powers of Attorney: “Powers of Attorney” do not generally refer to lawyers. Instead, they allow you to entrust someone, such as a spouse or a child, to make crucial decisions on your behalf if you’re alive, but incapable of acting on your own for whatever reason. Importantly, Powers of Attorney cease once you pass away.
  4. Beneficiary Designations on Other Assets: Some assets, like your life insurance or retirement accounts, require you to name a beneficiary at the institution holding the asset, and are often kept outside of the Living Trust. This person will be the direct recipient of the asset upon your passing.
  5. Advance Healthcare Directive: This legal document empowers someone you trust to make medical decisions on your behalf when you’re unable to express your own medical wishes. This is also sometimes called by the confusing term “Living Will.”
  6. “HIPAA” Authorization: This document gives someone you trust the ability to access your health records. Think of the HIPAA authorization as a companion to the Advance Healthcare Directive—they go together like peanut butter and chocolate, each enhancing the other. They’re typically bundled together in any solid estate plan, so your health matters are in trusted hands.
  7. Deeds to Your Properties for Funding: In order for a property to become part of your trust, you need to have a deed that clearly shows that the property is now owned by the trust. The title on the deed should clearly state the names of the trustees, the name of the trust, and its date. This key step in Estate Planning is something our office does on a regular basis. You can contact us if you need assistance. For more information on how to Fund a Living Trust, please see our webinar and blog on Five Ways a Trust can be Funded!

What Kind of Planning Goes Into “Estate Planning”?

Understanding the basics of estate planning isn’t always straightforward. Let’s take “Hal and Wanda.”  With foresight in their estate planning, this responsible couple created a Living Trust. They transferred their home into the trust and similarly moved their bank accounts, brokerage accounts, LLC units, stocks, and bonds (which is no easy feat).

But Hal and Wanda’s savvy attorney explained to them that not everything goes into a Living Trust! There are specific tax considerations related to life insurance, annuities, and retirement accounts, which also generally have “designated Beneficiaries” attached to them, rather than being moved into a Living Trust.

In our example, Hal named Wanda as the primary beneficiary for their life insurance and IRAs, with their children Sam and Deb as secondary beneficiaries. Their 401(k) followed the same pattern. In doing this, they intentionally left out their IRAs, life insurance, and annuities from the trust.

They also left detailed instructions to their children on handling these specialized accounts so they didn’t make mistakes when withdrawing the money—because doing it wrong can mean a huge hit in taxes. A well-thought-out estate planning checklist can ensure your financial affairs are in order and that they provide real and lasting benefits to your loved ones. You can establish an asset transfer plan that provides flexibility and minimizes taxes.

This kind of planning should be done with the help of a savvy, qualified attorney who specializes in estates. Please contact CunninghamLegal to learn about our services.

Why Are Living Trusts So Long?

Wondering why a Living Trust is so long? It’s because life is complex and unpredictable. Each part of the trust is there to answer questions like, “What happens if the person in charge can’t do their job?” or “How are things handled if I can’t make decisions?” The language can be long and complex so there is no question or ambiguity in the interpretation later on. In essence, a Living Trust should “stand alone” and give your “Successor Trustee” clear instructions and proper authority to get the job done without going to Probate Court.

What Does It Mean to Fund My Trust?

Think of creating a Living Trust like getting a new, empty bucket. To make it useful, you need to fill it up, right? That’s what funding a trust is—it’s putting your stuff, like your home or money, into the trust. It’s like fueling up a car—without it, the car (or trust) won’t go anywhere.

If you don’t fill up the trust, it might lead to delays, extra costs, and even your personal affairs becoming public. Assets not placed in a trust or without a beneficiary designation are part of the decedent’s estate and must go through probate (see above), the potentially costly and lengthy legal process for asset distribution. In contrast, assets in a trust or with designated beneficiaries bypass probate, enabling a quicker and more private transfer. Therefore, comprehensive estate planning is essential for avoiding probate. So, funding your trust is a key step to making sure your wishes are followed and your privacy is protected.

In order to fund a trust, assets must be titled to the trust. If you are interested in learning more about this step, we have plenty of materials to guide you through how to fund a Living Trust.

We can also help our clients with the process of funding a trust. Please contact us to learn more.

Is Estate Planning Important If I Am Incapacitated?

Estate Planning can be just as important for dealing with incapacity as it is for a death—sometimes more important. About 80 percent of Americans will pass through a period of incapacity before they die. Who will be given a “Durable Power of Attorney” to handle your affairs when you cannot? How should those powers be limited? What about long-term care insurance, Medi-Cal eligibility, and handling government benefits programs? Who will make healthcare decisions for you, and what instructions do you want to communicate to your loved ones and to medical personnel while you still can? All of these issues are part of a good Estate Planning process with a professional. Contact us on any of these issues, and check out my webinar on Incapacity: Savvy Planning for “the Inevitable.”

What Different Kinds of Trusts Are There?

When it comes to the fundamentals of Estate Planning, consider that there are many different kinds of trusts that serve different purposes and needs. You may ask, “Just how many types of trusts are there?” The answer: A lot!

So far, we’ve only been talking about Revocable Living Trusts—so named because you as the original Grantor or Grantors can change the trust whenever you want.

We also handle Irrevocable Trusts, which are a bit more set in stone but can help with tax benefits and protecting your assets. Depending on your special circumstances these may include Dynasty Trusts, Irrevocable Life Insurance Trusts, Charitable Trusts, Special Needs Trusts, IRA Legacy Trusts (also known as SRTs), and a whole bunch more. Each one is designed to do something unique in the big picture of Estate Planning, whether it be wealth preservation, asset protection, or planning for loved ones with special needs.

Do High Net-Worth Families & Homeowners Need Special Planning?

Families with significant assets, business interests, and real estate holdings may benefit from advanced tax planning and other wealth-preservations techniques from CunninghamLegal. Indeed, anyone holding property should also consider professional legal guidance on issues related to property taxes, including Proposition 13 and Proposition 19 in California. Please contact us today.

How Does a Living Trust Work After Death? What Is Trust Administration?

When you are alive, you (or perhaps you and your spouse) are the original “Grantors” and Trustees of your Living Trust. That means you control all the assets pretty much just as if they were in your name.

When you write the Trust, you name a “Successor Trustee” who then becomes the new Trustee after you pass away. This can be a single person or “co-trustees.” I strongly suggest you look at our blogs and webinars on choosing successor Trustees, educating them, and alerting them to the pitfalls of being a Trustee.

When you die, your Living Trusts changes from being “revocable,” to being “irrevocable,” which means in most cases it cannot be changed by the new Trustee without the help of a Probate Judge or what is known as a “Trust Protector.”

Then begins the work of “Trust Administration” by the new Trustee, only at the end of which all the trust’s assets are distributed, and generally the trust is dissolved.

Trust Administration involves managing the trust’s assets, collecting income, making distributions, dealing with taxes, and handling legal documents. It’s a complex job that needs expertise and knowledge of the trust and laws. Our firm provides complete Trust Administration services. We have an entire team dedicated to Trust Administration here at CunninghamLegal. Please contact us for Trust Administration Services.

What Is the Responsibility of the Trustee to the Beneficiaries?

When a Successor Trustee takes over as the official Trustee of an estate, their job is to execute the exact wording of the trust on behalf of the Beneficiaries. This is a weighty responsibility, and it falls pretty much entirely on the Trustee—the Beneficiaries can basically sit back and enjoy the work of the Trustee in sorting out the finances and distributing the assets of the estate. Often the Trustee is also one of the Beneficiaries, which can lead to some unease on behalf of the others—and sometimes complaints or even lawsuits.

In essence, Trustees have duties, and Beneficiaries have rights. Indeed, a Trustee can be held personally responsible for proper management of the estate after someone dies. Were the assets properly invested? Were actions taken in a timely manner?

Importantly, Trustees can decline to serve and may choose to pass on their responsibility to the next successor in the line. Check out this important webinar and blog on Trustee Risks & How to Avoid Common Pitfalls.

What Happens If I Have No Estate Plan?

If a person dies without a Will, generally as part of a valid estate plan, it is known as “intestacy.” Your state’s laws then decide how to distribute the deceased’s property. Typically, it goes to the closest relatives like a spouse, children, or parents, but different states can have VERY different laws, so it’s important to contact an attorney in your state for a clear understanding of intestacy.

A Will is a part of an estate plan, but it’s not the whole plan—indeed, in California, a Will is little more than a letter you write to a probate judge expressing your desires. The judge will ultimately decide. Remember, an effective estate plan typically includes several other elements like trusts, powers of attorney, and beneficiary designations on retirement accounts or life insurance policies. All of these are vital, especially in California.

What Problems Can Intestacy Create in California?

How can poor planning create problems for the next generation? Let’s consider another example—this time Joe and Mary, who didn’t do the kind of planning done by Hal and Wanda.

Joe and Mary had three children—Able, Baker, and Charlie—but did not set up a comprehensive Living Trust-centered estate plan.

Able died before her parents, leaving two minor children. Baker, meanwhile, struggled with gambling issues after a divorce. Charlie had been disabled since childhood and relied on government benefits.

Upon their father Joe’s death, all of Joe’s community property would go to his spouse Mary, if she were still living, while his separate property would be split equally between his children and Mary. But the whole family would be going to Probate, which could cost anywhere from 4-8% of the total estate value.

For his children, the lack of a comprehensive plan meant that Able’s minor children inherited, but they had to go to the costly Probate Court in order to establish a Guardianship of the Estate. There, the Court attempted to follow the California rules for intestacy.

Unfortunately, Baker gained full control over her inheritance, which she gambled away given her issues. Considering Baker’s gambling problem and financial instability, a Spendthrift Trust could have been recommended with proper planning. This type of trust, controlled by an independent Trustee, could have protected Baker’s assets from her spending habits and her creditors.

Having been disabled since childhood, Charlie was reliant on government benefits such as Supplemental Security Income (SSI) and Medi-Cal. These benefits often have strict rules regarding income and asset limits. When Charlie received a large inheritance outright, it disrupted his eligibility for these crucial benefits. With proper planning, Charlie would have needed his share to be placed in a Special Needs Trust to prevent him from losing his SSI/Medi-Cal benefits..

A comprehensive Living Trust-centered estate plan could have prevented all or most of these issues!

Do I Need to Review My Estate Plan After a Few Years?

As an experienced estate planning attorney with approximately three decades under my belt, I’ve seen firsthand the significance of maintaining an up-to-date estate plan. It’s not merely about possessing legal documents; it’s about ensuring they align with your current lifestyle and desires. The plan serves as a guide for your assets to bypass legal complications, achieve tax savings, and bequeath your legacy as per your preferences.

So, it’s important to check and update your plan regularly, ideally every 3-5 years and definitely after major life events like a birth, death, or divorce. Remember, estate planning is an ongoing process. Keeping your plan current is a key step for your family’s future. Contact us for a thorough review of your current Estate Plan.

What Do We Do as California Estate Planning and Trust Administration Attorneys?

The lawyers and staff at CunninghamLegal provide a guide to estate planning for some of the most critical times in their lives and then guide them through when those times come. While the intricacies of estate planning might seem daunting, its importance is paramount. It essentially involves crafting a comprehensive strategy for the disposition of your assets after your departure. This well-structured plan not only aids in circumventing potential family disagreements after a major life event, but also allows for the avoidance of a lengthy and costly probate procedure.

Let us provide guidance for you and your family members beyond basic estate planning. We will help you navigate state and federal estate taxes, utilize estate planning tools, and ensure your legal forms are in order so that you can have peace of mind.

We have offices throughout California with expert estate planning, tax planning, and real estate transaction attorneys. We invite you to contact us for help and advice. We offer in-person, phone, and virtual appointments. Just call (866) 988-3956 or book an appointment online.

A key goal of our practice is client education. We invite you to keep updated with tax laws and regulations, as they often change. Subscribe to our YouTube channel and newsletter.

We look forward to working with you!

Best, Jim

James Cunningham Jr., Esq.
Founder, CunninghamLegal

We guide savvy, caring families in the protection and transfer of multi-generational wealth.

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An Estate Plan is also a map for your loved ones, guiding them through a tough journey without you.