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Fullerton Estate Planning Law Blog

Avoiding probate in California requires careful planning now

California is bright and beautiful, and it's no wonder why so many people choose to live her. However, for individuals with significant resources, or even just an owned home, the probate process can significantly drain the value of their estate if they do not or cannot build provisions to avoid it.

Here in the Golden State, estates that exceed a fairly low threshold (recently as low as $150,000) must pass through probate if they do not have protections in place ahead of time. As anyone who has looked at real estate anywhere in California can tell you, virtually no one who owns property here sits beneath that threshold.

Preserving government assistance for aging loved ones

As our parents and others we love grow older, their needs may change dramatically. Without careful planning for the future, even those who saved for a rainy day or who own significant resources may see all that they worked for drained away by the high costs of late-in-life care. To help cushion these costs, the government offers programs like Medicaid to those who qualify, but what if your parent has too high an income or owns too large an estate to use government assistance?

Many aging people fall into this donut hole between having the resources to pay for care out-of-pocket and qualifying for assistance to avoid financial ruin. In order to help some people out of the donut hole, the law allows senior citizens with ongoing medical needs to place assets in a special needs trust. This lowers their individual net worth below the threshold that qualifies them for government assistance.

Spendthrift trusts may protect beneficiaries from creditors

When one sets out to create a sound estate plan and protect assets for beneficiaries, careful planning is critical. It is important to consider the recipient of a particular asset and the difficulties he or she may face that could pose a threat to the asset itself. This is especially true for those who wish to leave assets to a beneficiary who already carries a great deal of debt or deals with creditors using collection tactics.

A commonly used solution to this dilemma is a spendthrift trust, which places significant restrictions on how the beneficiary may interact with the assets and the trust itself. Under a spendthrift trust, a beneficiary does not have the authority to sell interest in the trust and may not pledge away interest.

Is it time for you to open a Roth IRA?

Many people find that they simply don't know what estate planning and investment tools are a good fit for them, especially once they consider more complicated strategies and products that include both benefits and restrictions. One of the most commonly misunderstood financial products used today is a Roth individual retirement account, or Roth IRA.

When used properly, Roth IRAs offer incredible benefits that may help you build wealth and protect your assets from necessary taxation. However, Roth IRAs come with a number of restrictions that make it impractical for some individuals. Before you open up a Roth IRA and begin pouring your assets into it, make sure that you understand the benefits as well as the restrictions you face.

Does California have an inheritance tax?

While many people throughout the country envy California for our beautiful landscapes and wonderful weather, others wonder how it is possible to live here under what may look like excessive taxation compared to other states. This is sometimes a misguided notion, as California does not use all the forms of taxation available.

One excellent example is inheritance tax. Currently, California does not impose an inheritance tax, but that does not mean that residents in California can inherit freely without paying attention to the fine print. Doing so may result in some serious financial complications. If, for instance, you inherit property from a loved one or relative in another state like Pennsylvania, you must account for the inheritance tax that this state imposes.

Should you consider establishing a living trust?

For many people who realize it's time to put together some estate planning documents to protect their assets, a living trust provides both protection and flexibility. While there are many kinds of trusts, most offer protection at the expense of flexibility, or vice versa.

Living trusts are not as ironclad in their protections as some other types of trusts, but many estate planning professionals and individuals choose living trusts because they often offer an even distribution of protection and flexibility. They can also provide security for assets without removing them completely from the control of the trust creator.

Are you divorcing the executor of your estate?

Regardless of the nature of your estate and the duties that the executor of your estate must perform, it is important to review your estate plan every three to four years to refresh your memory of the details and to make sure your current choice of executor is correct. In many instances, you may find that your executor needs to be replaced.

This is especially true when spouses divorce. It is very common for spouses to name each other as executors of their respective estates, and when divorce comes knocking, this is a serious complication. If you allow your former spouse to remain the executor of your estate, he or she may take revenge on you for any number of real or perceived sleights when you pass away, including having authority to access your online profiles.

Should you fund an incentive trust for your heirs?

Some estate-planning tasks require more finesse than others. Such is the case when considering whether to add an incentive trust to your estate plan.

Incentive trusts can be a strong motivational tool when they have been properly designed. However, they can be perceived as heavy-handed and an attempt to control the heirs from beyond the grave if the trusts are not carefully structured.

Estate planning is crucial for young parents

As we progress through the stages of life, our estate planning needs may change significantly. Young people with no dependents and little property may not need much in the way of estate planning, but once families form, it is time to start considering these issues seriously. For young parents, establishing some estate planning is an absolutely essential part of protecting their children and each other.

The single most important estate planning document for most young parents is a will. The will should clearly indicate how the parents wish their property to pass on and should choose who will care for their children if they both pass away while the children are still in the home or in need of care. If a parent does not spell these wishes out in clear detail, the executor of the will may have difficulty following his or her instructions. Contrastingly, if a parent chooses to not create a will, the court may simply take the decedent's property and distribute it some other way through intestacy guidelines.

Resolving disputes around multiple wills

Sometimes, when reading a deceased person's will to determine the distribution of his or her estate, more than one will is present. If the different iterations of the will contain drastically varying terms, this can create significant conflicts in the estate distribution process. This is especially true if one version of the will includes certain family members while another version excludes them.

In general, it is wise to destroy an old version of a will before it can create complications, as well as document one's intent to destroy the will to clarify which version best addresses the will creator's wishes. If, in your own estate planning, you fail to destroy an old will that may cause complications, you only do a disservice to the ones you love, potentially draining your estate's resources before the assets can pass on to heirs as you intend.

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