3. What if You Don’t Have an Estate Plan?

Here is Part 3 of my series, Estate Planning – What You Need to Know.

What if You Don’t Have an Estate Plan?

Simply put, if you don’t have a will or a revocable living trust, then when you die, your assets will go according to state law found in the probate code.

If you live in California it goes like this:

  • if you are married, your assets will go to your spouse.
  • If you have children, your separate assets will go either one-half to your spouse if you have one child, and one-third to your spouse if you have more than one child. The rest will go to your child(ren).

If you are not married and don’t have children, your assets will go to your next of kin in the following order:

  • to your parents, if they are alive, then
  • to your siblings, if they are alive, then
  • to your aunts and uncles, if they are alive, then
  • to your cousins, if they are alive, then
  • to your crazy fourth cousin twice removed, if he isn’t alive, then
  • to the state. Believe it or not (or course you can believe it) if  there are no living family members, the state will take your assets. The sophisticated legal term for this is “escheat” – your estate will escheat to the state.

You get the picture. If you don’t have a will or a revocable living trust which states how you want your assets distributed, you have what is called an Intestate estate. Intestate estates are distributed according to the state probate code.

Conservatorship

It’s bad enough to rely on the state to distribute your assets when you die, but it’s even worse to rely on the state to manage your assets while you are alive.

If you become incapacitated, which means you are no longer capable of managing your affairs, e.g. dementia, then someone else must manage your assets for you. For that someone to manage your assets, you must have already signed a Durable Power of Attorney.

A durable power of attorney is a document that gives the person you name the authority over your assets, like bank accounts and real property, if you become incapacitated. The person you name, your Agent, can take the durable power of attorney to your bank and get access to your accounts to take care of you – pay your bills, etc.

However, if you did not sign a durable power of attorney, no one will have the authority to manage your affairs. And once you become incapacitated, it’s too late to sign a durable power of attorney because you are incapacitated. Incapacitated people cannot sign legal documents.

So now what? Your loved ones will have to hire an attorney and petition the court to appoint one of them or someone the court chooses as your Conservator. A conservator is a person authorized by the court to manage your affairs, and in many cases must submit an account of her activities to the court for the judge to review. It is an expensive, tedious and nightmarish solution, which could have been simply avoided if you had signed a durable power of attorney.

Bottom line: If you don’t have an estate plan, state law will determine who gets your stuff, and if you become incapacitated, the court may end op overseeing the management of your assets.

Next up is Part 4.  Why You Need Guardians If You Have Young Children.

How to Amend Estate Plan After Death

Believe it or not, an estate plan can be amended after death. Huh?

This is not about conjuring someone up from the dead. It’s about a Disclaimer.

If you are a beneficiary of someone’s estate, you can say “Thanks, but no thanks,” and your inheritance can skip you and go to your children. This is called a disclaimer. A disclaimer must be in writing signed and notarized by you within nine months of the date of death.

Example: Your father died. His living trust leaves you half of his estate. For various reasons, which could include estate tax reasons, you would rather your inheritance go directly to your children. You could make this happen by signing a written disclaimer. The disclaimer, which must have the correct provisions from the probate code, will operate to distribute your inheritance as if you had died before your father. In most cases (depending on how your father’s living trust or will was written), this would get your inheritance to your children.

Many lawyers and clients are not aware of the disclaimer strategy. We call it post-death estate planning. A disclaimer can be very useful if 1) you already have a taxable estate and don’t need the inherited assets, 2) you were going to leave the inherited assets to your children anyway, and 3) you want to avoid the government taking an estate tax bite on the inherited assets when you pass away.

Supercharge Your Living Trust for FREE

The main reason you establish a living trust is to make things easy for your loved ones. There is one thing you can do to make sure things go easy, and it’s free. What is it?

Make a list of your assets and place the list in your estate planning binder. This should only take about 30 minutes to prepare.

When we meet with a client to do the trust administration when a parent or spouse has died, in many cases, most of the work involves identifying the assets. What did the deceased person own? It can involve rummaging through desk drawers, computer files and safe deposit boxes – a real hassle.

Things go so much smoother if there is a simple spreadsheet listing each asset, financial institution or insurance company, account number and approximate value. You can update this list each year. And you can keep it private. You don’t have to reveal it to your beneficiaries if you don’t want to. But you do want whoever will be administering your estate (your successor trustee) to have access to it when you pass away.