What’s the missing piece in your peace of mind?
If you’re worried about what happens as you age, or when you’re no longer able to handle your own affairs, or even when you’re no longer around, it’s easier than you think to put everything in order. Whether your concern is your own health care, finances, family, assets, or all of those things, there are solutions that don’t cost a fortune. And you’ll likely breathe a sigh of relief when you get it done.
The State Bar of California and my liability insurance require me to tell you that what I’m about to share isn’t legal advice and it’s not meant to substitute for legal advice. If you are not sure whether you need an attorney, ask one. Many estate planning attorneys will give you a limited consultation free of charge. And the hacks below may help you help yourself, especially if your assets are limited.
What you need while you’re still around
HEALTH CARE DIRECTIVE – Everyone, no matter how old or how healthy, should fill out this form. What happens, for example, if you get in a car accident and you want your significant other (to whom you’re not married) to be able to guide your care while you’re in the hospital?
This directive allows someone you choose, which can be a family member or not, to make medical decisions on your behalf when you are not able to do so. [See “Who will speak for you when you can’t speak for yourself?” on page XX for more on this.] It’s temporary, and only in effect while you are unable. Most hospitals will ask for this document when they admit you and it will help those closest to you make sure you get the care you need. Here’s the free form: bit.ly/AHCDirectivePDF
POWER OF ATTORNEY – A Power of Attorney allows someone you designate to handle your financial affairs for you when you are no longer able to do it yourself. It’s only in effect while you are alive. And yes, it’s another free form: Power of Attorney.
After you’re gone
Do you need to name who’s going to look after your child? Want to make sure your spouse inherits (or doesn’t)? You need a LAST WILL AND TESTAMENT. California has a statutory will, which is (you guessed it) a free form.
BUT, and this is a big BUT: If you only have a last will but not a trust, your estate will go through a court process known as probate. Many people believe that having a will means their estate won’t go to probate, but that’s not true in California. Probate can take years and is something to be avoided unless you don’t really have family or much in the way of possessions, or don’t care how long it takes for your will to be carried out.
Here’s what probate costs: 4% on the first $100,000, 3% on the next $100,000, 2% on the next $800,000, 1% on the next $9 million, and .5% on the next $15 million. If your estate (including your home) is worth, say, $1.5 million, you’ll pay $28,000 (lawyer) + $28,000 (executor) = $56,000 total in fees. Or you could avoid probate for less than $5,000, which is what it typically costs to have an attorney create a revocable trust and estate plan.
That’s right: $5,000 now or $56,000 later. Your call.
Your stuff — do you need a trust?
The first thing to figure out is the size of your estate: How much do you have? Your estate is the dollar value of everything you own, including your home, regardless of money that may be owed.
SMALL ESTATE
If everything you own totals less than $184,500, then you are exempt from probate, yay! Your heir (the person who has a legal right to inherit your stuff without a will, such as your son or daughter) will simply need to file a Small Estate Affidavit (that’s right, another free form).
SMALL-MEDIUM ESTATE
Let’s say your estate is worth more than $184,500, but less than $1.5 million, there are only a few items that you want to leave to certain people, and you don’t mind if it takes a few years for it to go through probate. If this sounds like your situation, then you may be okay with just a will. But make sure you have that will (see above) done, and tell someone where the original is kept.
MEDIUM-PLUS, LARGE-ISH OR LARGE ESTATE
If your estate is worth substantially more than $184,500, you need to avoid probate. The best way for most people to do that is a revocable trust. That does require an attorney, but many attorneys create revocable trust estate planning packages for a flat fee of less than $5,000.
The great thing about revocable trusts is that you can revise them as often as you want, or even revoke them and start over. They are also fully customizable for almost any situation and allow you to provide guidance to the folks you leave behind.
For example, maybe you want to pay for any of your grandchildren to get a college degree. Or perhaps you’d rather that your beneficiary didn’t get her or his inheritance all at once, but at certain specific ages or milestones. Or maybe you want to make sure your furry family members can continue living in the style to which they’ve become accustomed — then you include a pet trust. Or, let’s say you want to leave whatever is left over to your favorite charity.
There are infinite ways in which a revocable trust can be customized, and this is the E-ticket option for most people.
Jan D. Breslauer-Dowdall is an estate planning attorney in Orange County.
