What happens to you after you die is between you and your beliefs, but what happens to your estate, the sum total of what you have earned and saved, is determined entirely by your estate plan. By working with an experienced estate planning attorney, you can avoid a whole host of problems, costs, and roadblocks between what you leave behind and those whom you have chosen to receive it.
This article briefly overviews a number of these problems and some of the solutions, including:
- How and why to avoid probate in the state of California.
- How to protect your estate from creditors and taxes.
- The advantages of creating a revocable or irrevocable trust in addition to your will.
How Do I Avoid Probate For My Family After My Death?
Perhaps the most common question asked by Californians who have seen their relatives or friends suffer through prolonged and expensive probate procedures is how to avoid them entirely.
On the surface, it is a numbers game. In California, there is a limit of $184,500 on the total value of your estate; above that, it must go through probate. Thus, avoiding it means setting up estate planning measures to lower the assets and wealth in your name so that your estate falls under the bar.
This is not always easy when you know that the average home in California alone is worth several times that limit. Instead, your estate planning attorney will help you set up living trusts or direct ownership transfers upon death, such as on IRA or 401k accounts and life insurance.
Which tool and technique need to be used for which is the realm of expertise of estate planning lawyers. The good news is that even if you only have the most minimal estate planning, your wealth and assets will not be seized entirely by the state.
How Do I Make Sure That My Estate Does Not Go Back To The State Or The Government?
It is a popular misconception that the government is going to seize your estate if you do not ensure otherwise. Fortunately, this is only a danger if you have absolutely no living relatives, no matter how far removed.
Even in the most extreme of cases, it is easy to prevent it from falling into the hands of the government. All you have to do is bequeath it to one or more beneficiaries of your choice in a will that any estate planning attorney can help you draft up.
A will, however, is not sufficient to protect your assets from seizure by government agencies should you be indebted to one such as Medicare.
Can Estate Planning Keep My Assets From Being Seized By State-Funded Programs?
While your estate is not likely to go automatically to the state, if you owe considerable money to state-funded programs, they do have a “clawback” provision to seize assets from the probatable estate. This means that the money they “spent” on your medical care or end-of-life care can be seized or clawed back from your estate upon death.
However, assets that are in a trust or that have an automatic beneficiary designation can be protected from those clawback provisions. This adds one more important reason for avoiding probate in the first place!
Ordinary creditors, however, can be much more tenacious, and your estate planning attorney might have to get crafty to help avoid your estate falling into their hands.
How Do I Make Sure I’m Protected From Creditors?
There are many ways a creditor can try to get at your assets, but there are also many tools to prevent them, including many different kinds of trust.
The most common, though, revocable living trusts will not do much to protect against creditors. Since they are revocable, you essentially still own the assets, and thus, anyone with a judgment against you can lay claim to them.
An irrevocable trust, on the other hand, requires the creation of an entirely separate entity with its own tax ID number to which you give the assets. As a result, they are not yours anymore, making it incredibly difficult for creditors to access them.
However, this does come at the cost of control over the assets during your lifetime.
Do I Need A Revocable Or Irrevocable Trust?
For the large majority of individuals, probably 95%, all you will ever need is a revocable living trust. Assuming there are no active judgments or large creditors pursuing you, a revocable trust is almost always going to be the best option.
It gives you flexibility during your lifetime to make changes. You can freely move assets in and out of the trust, but it becomes irrevocable upon your passing. That means the decisions you made about beneficiaries and management are going to be locked in after your death.
Aside from creditor protections, the main incentive to go with an irrevocable trust is to avoid that federal estate tax limit. By putting a portion of your wealth and assets into an irrevocable trust, they are taken out of your name for IRS purposes, minimizing federal estate taxes.
However, given that those taxes only kick in when your estate is over the $12.92 million limit for an individual (double that with a spouse), it is unlikely to be the case for most people.
I Have A Will In Place Already, Is That Enough?
While a will remains one of the most popular and fundamental elements of most estate plans, it is a misconception to think that it is “enough.” Unless your estate is under the very low probate limit, your family will still have to go through probate.
The only difference a will makes at that point is that the court has to follow your preferences in terms of beneficiaries rather than the default “intestate” ones for those who die without a will. This usually means down the line (spouse, then children, then grandchildren), then up (parents, etc), then across (cousins, and so forth).
While a will is great for avoiding those default beneficiary designations, it does nothing else to protect your estate from probate, creditors, or taxes.
How Do I Minimize Estate Taxes?
Now we arrive at one of the most complicated and delicate aspects of estate planning. Avoiding estate taxes requires more bespoke or niche strategies involving certain irrevocable trusts.
For example, if there are businesses in their earlier stages, there are mechanisms to lock in a lower appraised value so you get the advantage of not paying the capital gains on the value that it grows to at the end of your lifetime. There are plenty of others, of course, but such situations will require unique solutions because each estate, at that level, is unique.
Therefore, if you are worried about losing a portion of your estate to taxes, you should contact a skilled and experienced estate planning attorney.
For more information on Estate Planning In The State Of California, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (951) 262-8811 today.
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