A probate judge will decide what’s best for your estate assets and minor children should you die intestate. Dying without a will means you forfeit control over the distribution of possessions and child guardianship. California succession laws, Probate Code sections 6400-6414, define what happens when you ignore estate planning.

Some Los Angeles residents choose an alternative to a lawyer-assisted document by handwriting a will, known as a holographic will, or downloading a generic form from a website. According to the California Bar, holographic and statutory wills are valid when they conform to state guidelines, but any disputes over them may require costly legal actions.

Wills appoint an executor to manage and distribute estate assets. A will’s secondary but equally important purpose is to name a guardian for children under 18, should both parents die. Casual family agreements will not influence a judge’s guardianship decision the way a legal document can.

Another often-ignored area of estate planning is a health care proxy. The document designates a person to make medical choices for you, if you are incapacitated. A health care proxy is as much protection for you as it is a relief for loved ones, who otherwise may be excluded from critical care decisions.

Some estate plans are expanded to include a trust, which offers enhanced control over estate assets before and after death. Among other benefits, trusts may help preserve assets for beneficiaries through tax savings. Trusts are either revocable or irrevocable, with each providing distinct advantages depending upon individual circumstances.

Legal decisions are made for you, when you can’t or won’t make them for yourself. Doctors may prescribe an undesirable medical treatment, because no patient instructions in legal documents prevented it. A judge could send your children to live with a guardian you would never choose, unless you and your spouse provide the court with guidance through a valid will.

Source: CNBC, “Where there’s a will, there’s a way” David Mendel, Mar. 02, 2014

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California community property laws influence how estate assets are divided. A Los Angeles spouse cannot be disinherited involuntarily, and children or other relatives are not automatic heirs. According to California Probate Code Section 6400-6414, a will cannot prevent a surviving spouse from claiming half an estate, but the protection does not cover an unmarried partner.

When actor Philip Seymour Hoffman died in early February, he left behind assets reported to be worth $35 million. Hoffman was not married to Marianne O’Donnell, the mother of his three children, although he named her as the primary beneficiary. Hoffman set up a trust for his first child, a son who will receive an inheritance at age 30.

Legal observers say Hoffman drew up his will 10 years before his death, before the births of his two younger children. Critics said Hoffman erred by using a real estate attorney to draw up estate planning documents and never updated the will. Beneficiaries may suffer financially as a result.

Hoffman’s companion cannot take advantage of spousal estate tax benefits. There are no special considerations for common law marriages in the state where the couple lived. Estimated combined state and federal estate taxes could wipe out from $11.9 million to $15 million or more of the Hoffman estate.

The actor’s assets could have been funneled into individual trusts and out of his taxable estate as a way to preserve property. The two younger children may inherit some of their father’s assets, despite their absence from the will. Some state laws would assume, since Hoffman provided for his son, the actor eventually intended to leave assets for his other children.

Observers found fault with the son’s lump sum inheritance. Hoffman could have structured the trust to give his son eventual trustee control, without losing the tax and other protections provided for trust assets. Estate planning documents can customize the distribution of assets but only when you take advantage of them.

Source: CNBC, “Why Philip Seymour Hoffman’s will is ‘a mess’” Kelley Holland, Feb. 21, 2014

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On Behalf of The Probate House L.C. | Feb 20, 2014 | Trustees Executors & Fiduciaries |

Trusts can have significant benefits for Los Angeles individuals with defined goals for estate assets. During estate planning, the creation of a trust must be balanced with the costs of establishing the document and maintaining the trust, in the present and the future.

Let’s say you’ve set aside assets in a California trust to fund the education of your grandchildren. The trust may require management for years, even decades after your death. When you calculate the costs of the trust, you must include any fees to carry the trust forward including anticipated trustee, legal and tax professional expenses.

Over time, the trust may be depleted to the point where annual maintenance costs are no longer worth the expense. The California Probate Code contains provisions for terminating trusts with principal values lower than $40,000. By dissolving the trust, the extra expenses are eliminated and beneficiaries receive the maximum benefit of the remaining assets.

All trusts are geared toward the interests of beneficiaries. A living trust is one you draft during your lifetime, as opposed to a trust attached to a will that becomes effective only upon death. The trustee or manager of assets owned by the living trust can be you, although you’re free to name someone else to handle the fiduciary duties.

Trusts can be as custom designed as the trustor, the name for a trust creator, desires. Many people choose to place assets in trusts to reduce estate taxes or to keep the assets from passing through probate. Sometimes, a trust is about controlling assets and the ways beneficiaries receive them.

Trusts are not replacements for wills, which are the foundations of estate plans. Trusts act outside what wills are made to do. Whether or not a trust works to achieve your goals depends upon individual circumstances but if you imagine a unique estate plan, there’s probably a trust to help you realize it.

Source: The Herald, “Ending a trust when principal runs low” Lisa Horvath, Feb. 17, 2014

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When “Fast & Furious” actor Paul Walker died in November, he left behind an estate with an estimated value of $25 million. The 40-year-old unmarried movie actor created an estate plan in 2001 — a will and trust shifting assets to his now-15-year-old daughter.

Young California adults are likely to have very different priorities, lifestyles and goals than people at age 40. Outdated estate planning documents don’t reflect changes in relationships, finances or feelings. Legal and family problems can occur unless a plan is revisited regularly and adjusted to mirror a current status.

Paul Walker was 28 when he drew up a will, at the same time the first movie of the “Fast & Furious” franchise was released. Walker’s wealth likely grew substantially as the years went by, but the will wasn’t amended. The actor designated his mother as the guardian of his daughter, but it’s uncertain whether the teen’s mother has or will retain current custody.

The minor daughter was the only beneficiary of Walker’s revocable trust. The actor gave his mother control over assets on the girl’s behalf. Since trusts are not public records, it’s unclear whether the teen will come into her full inheritance upon reaching adulthood or, as many trusts stipulate, receive staggered proceeds from the estate over a long period.

Legal observers noted that Walker’s trust was not fully funded. In other words, some assets owned by the actor were not transferred into the trust’s name and may be subject to estate taxes. Assets placed in trusts become the property of the trust and, consequently, are not taxed as part of an individual’s estate.

A pour-over will such as Walker had allows estate assets outside a trust at the time of a person’s death to be shifted to the trust. This type of will has the same effect on the estate as if the assets were already included in the trust.

Source: Forbes, “Five Estate Planning Lessons From The Paul Walker Estate” Danielle and Andy Mayoras, Feb. 10, 2014

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The estates of wealthy California residents can be subject to high federal taxes unless provisions are made to preserve assets. One goal of estate planning is to minimize the tax burden so that beneficiaries are not deprived unnecessarily of full inheritances.

Federal estate taxes kick in when an estate is valued at more than $5.25 million or $10.5 million for married couples. The potential federal estate tax rate is 45 percent, but this applies only when available estate planning tools are ignored.

Few Americans are required to pay any estate taxes at all. Those who do make up less far less than one percent of the population and, among them, the average estate tax rate is 17 percent.

Trusts are available to match financial wishes before and after death. A grantor-retained annuity trust is effective for gift and estate tax avoidance. An annuity is built in to the trust over a set term for the benefit of the trust creator, known as the donor. What’s left eventually passes to beneficiaries, minus the gift tax.

Trusts may involve charitable giving. A charitable remainder unit trust is similar to a GRAT. Upon the donor’s death, the leftover principal is transferred to one or more charities. A donor who sets up a charitable lead trust will see no direct income. Money is directed to a charity before death and to beneficiaries thereafter.

An irrevocable life insurance trust prevents taxation of life insurance proceeds. Insurance policies become the property of an ILIT trustee, who cannot be a donor but may be a beneficiary. Because you no longer own assets placed in trusts, the property cannot be taxed as part of an estate.

Strategies used to reduce estate taxes vary with the assets and goals of the strategist. Estate tax reduction requires financial and legal assistance, but expenses to protect wealth can be well worth the investment.

Source: Bloomberg, “Who pays a 45% rate on estate taxes?” Barry Ritholtz, Jan. 30, 2014

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Who will receive your retirement savings when you die? Will it be the heir named in your will or the forgotten beneficiary you chose years ago? If you believe a California will trumps a beneficiary designation, think again.

The most carefully designed and tended estate plan is flawed if beneficiaries are not updated. When you opened the retirement account you began decades ago or bought life insurance at the beginning of your first marriage, you chose people who would inherit the proceeds upon your death.

Unless life hasn’t changed one iota since you made the beneficiary designations, your estate could be split between outdated desires and present wishes. Long-held bank accounts, investments, insurance and retirement plans may contain the names of beneficiaries you no longer want to inherit your assets, like a former spouse.

Problems also occur when a primary beneficiary dies but no secondary beneficiary is named. A financial account could be in legal limbo when you die, if the only listed beneficiary dies before you.

Perhaps you named your first child as a life insurance beneficiary, but never updated the policy after you became a parent to more children. Upon your death, the child could receive a disproportionately large inheritance, simply because you never went back to adjust the policy’s beneficiary designation.

Skipping over a beneficiary choice can be damaging, too. Loved ones eventually may receive funds you left in an IRA minus a named beneficiary, but tax rules will punish the heirs. A chosen beneficiary has options to spread out taxes on inherited IRA withdrawals that undesignated heirs do not have.

Financial consultants suggest once-a-year beneficiary reviews or at least timing updates around life-altering events. Marriage, the birth of every child or grandchild, divorce, an account ownership switch, a retirement plan rollover, beneficiary disability and family deaths create changes that need to be reflected in a Los Angeles estate plan.

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The totality of what you own is your estate. Sometimes, Los Angeles residents feel assets don’t need estate planning attention until later in life. After all, when you’re a young California adult, a lot of what you earn is burned up in expenses like college tuition, buying a vehicle or getting married.

It can take time before a person begins to think seriously about wealth building, much less asset distribution. Almost everybody owns something of value, whether it’s a marketable asset like a home or a sentimental treasure. Estate planning makes you think about the people who will have your possessions, after you can no longer enjoy them.

Estate plans also serve other purposes. For instance, wills designate who receives your non-investment assets. If you’re a parent, a will can spell out who should care for your minor children. Without a will, a probate court will make these decisions, which may not align with what you had in mind.

Estate planning documents are designed to make asset transfers as stress-free as possible for heirs and beneficiaries. Again, you have to consider what would happen without taking the time to create proper legal documents. It’s likely your heirs would lose some of their rightful inheritance to court costs and legal fees, devoted to straightening out your open-ended estate.

You don’t have to be a senior citizen to suffer incapacity. Illnesses and accidents can deprive you of the ability to manage your own medical decisions or financial affairs. Estate planning documents like powers of attorney cover this territory for people of any age.

Estate planning offers something that lack of estate planning does not. You gain control over what happens to the things that you’ve worked an entire lifetime to own. Few people want a stranger in a courtroom to make choices for them, but that’s exactly what could happen without legal plans for your possessions.

Source: Noozhawk, “Craig Allen: It’s Never Too Early to Start the Financial Planning Process” Craig Allen, Jan. 19, 2014

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Aging California parents frequently choose a loved one, often an adult child, to handle personal finances when they no longer desire or feel competent to make wise money decisions. You might start out informally by using a parent’s PIN code to make an automatic teller transaction or step in to reconcile a bank statement.

Money management for a parent may seem like a natural part of caregiving, as much as taking over yard chores or grocery shopping. Laws don’t govern how you clip hedges, but they do kick in when you assume financial responsibility for another person. The job even has a title – fiduciary.

Financial arrangements between parents and children can remain informal, unless a parent is incapacitated. The assets and liabilities of a parent unable to make choices are not yours to manage without legal permission. An estate planning tool called a durable financial power of attorney eliminates the need for an adult child to get a court’s approval to handle a parent’s finances.

The document, initiated by the parent, designates a person or third party to take control while the parent is alive, but no longer capable of making financial decisions. Powers of attorney also exist that give fiduciaries the right to manage finances for a parent who can but no longer wants to cope with money management.

A fiduciary’s allegiance is to the person who made the choice to trust him. You are managing property and money on behalf of someone else, a duty that should not overlap with personal financial interests. Improper decisions, like commingling a parent’s money with your own, can be challenged in court.

Many people are thrust into a fiduciary position with little knowledge about the duties they are supposed to perform or the limits of the law. A parent can make the transition easier by including a proposed fiduciary in discussions with an estate planning attorney.

Source: BizTimes, “A guide to managing someone else’s finances” Jason Alderman, Jan. 14, 2014

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The loss of a loved one is a highly-stressful event. Someone, often a close family member, also may be responsible for the settlement of the decedent’s estate. An attorney’s input is useful, since some legal issues require attention even as survivors struggle to manage their grief.

The first step is to learn what power you have to make decisions. Make no assumptions about settling a California estate until you find and see a will or trust naming you as a fiduciary – an executor or trustee. Without this power, any move you make to resolve the decedent’s financial matters is invalid and improper.

When an individual dies without a will, a probate judge chooses an estate administrator. The court-appointed representative, who may be a third party, performs the same duties that would have applied to an executor.

Multiple copies of death certificates, supplied by a funeral home, will be necessary throughout the estate settlement process – from tax to benefit filings. A will must be filed with the appropriate court, a task that may be undertaken by an executor, attorney or possibly the bank where the will was stored.

Other vital paperwork includes additional estate planning and personal identification documents, like birth and marriage certificates and a Social Security card. Assets and liabilities must be identified through insurances, account statements, deeds and titles. Bills must be tallied and paid. Beneficiaries whose names are found in the discovery process must be notified.

Contact should be established with the decedent’s employer or ex-employer to locate benefits and insurances. Agencies that supplied benefits, including Social Security, and creditors must be notified. An Internal Revenue Service application should be submitted for an estate tax identification number.

Numerous estate settlement responsibilities are attached to timelines. It’s not unusual for an executor or trustee to seek at least temporary help from tax or legal professionals during the settlement of an estate.

Source: Ahwatukee Foothills News, “Settling a loved one’s financial affairs” Kim DeVoss, Jan. 06, 2014

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The age of maturity isn’t the same for all individuals and can differ by years from the age of majority or legal adulthood. Los Angeles parents who plan to leave their children a substantial inheritance often worry how assets will be handled once the children get them.

Estate planning allows parents to have control over the way children receive inheritances. Without a plan in place, a lot of money can be placed in a young spendthrift’s hands and evaporate rapidly. Fortunately, wills and trusts can be created to keep heirs from wasting the wealth you worked so hard to build.

California parents are often concerned heirs will not use estate assets responsibly or will become dependent on an inheritance without pursuing a career. Estate planning documents can hold inheritances in reserve, until an adult child reaches a particular age like 25, 30 or even older. The entire inheritance can be released at a given age or the funds can be staggered.

A parent may allow a trustee to supply an heir with additional funds under certain circumstances. A health crisis, higher education, marriage, the birth of a child and divorce are big life events that might qualify.

At the same time, a provision may be written in to the document that withholds funds from an adult child. A trustee can be given the power to refuse payments if the heir displays reckless behaviors like drug addiction or unchecked spending. This flexible plan eliminates the need for parents to guess or assume a child’s age of maturity.

A third-party trustee may not have the ability to monitor an heir’s good and bad habits. A relative may be more suited to the role of a trustee for an immature heir.

Parental concerns over the fate of inheritances are not uncommon. An attorney can present options designed for estate plans that allow you to retain control over asset distribution.

Source: The Atlanta Journal-Consitution, “Wes Moss: Make Your Estate a Blessing, Not a Curse” Wes Moss, Dec. 30, 2013

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