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So, what is an Estate Plan anyway? (Part 1)
24September 15

So, what is an Estate Plan anyway? (Part 1)

As a lawyer, I talk with many people every day who want to protect their hard-earned assets, avoid paying taxes and provide for their loved ones. One of the best ways to accomplish all three goals is to create an Estate Plan,which is a foundation for personal security.

To be complete, an Estate Plan should take care of you while you’re alive and take care of your heirs after you pass away. For that, you need to build four different documents:

1. Advanced Health Care Directive (AHCD): This document provides written instructions for a loved one (your agent) to follow when dealing with your doctor or hospital. If you have specific desires about medical treatment that you want to receive (or not receive), this document is very important. It makes sure that everyone knows your personal decisions about your own medical care.

The AHCD can be very limited (for example, only allowing your agent to talk with doctors) or it can be very broad (allowing your agent to look at your medical records or change hospitals or doctors if needed, just to name two quick ideas).

The AHCD can also become valid immediately or it can become active only if you are incapacitated and cannot communicate directly with your doctors or hospital staff. If you cannot speak due to an accident or illness, the AHCD speaks for you and helps your agent to honor your medical wishes.

If you want to donate your tissues or organs (or not) after death, if you do (or do not) want to be resuscitated if your heart stops, if you are concerned about nutrition or pain medication while you are in a coma, you can provide written instructions to your care providers through an AHCD.

2. Financial Powerof Attorney (FPOA): Like an AHCD, this document provides written instructions and names an agent who will help you with financial matters. Again, the FPOA can be very limited (only making deposits in your bank account) or very broad (all financial transactions); it can take effect immediately or only take effect if you are incapacitated due to illness or injury.

The FPOA is an important tool to make sure that your personal wishes are respected by banks, utilitiy companies, mortgage lenders, financial advisors and other service providers. Your gent will be able to pay your bills, deposit your checks and make sure that your finances are taken care of.

3. Will: Although there are several types of Wills, this important document will enable your agent (called an executor) to handle your assets after you pass away. The executor will make sure that your specific gifts (called bequests) are given to specific people (called heirs). You can also nominate someone to be the guardian for any children under the age of 18 years old

Within 30 days of your passing, your executor will file a Petition in Probate Court to obtain court authority to collect your assets, pay any creditors or expenses, and to distribute your estate to your loved ones. When the Petition is filed, the executor must give notice to your heirs and publish notice of the Petition to creditors. Depending on the amount and location of assets as well as the age and needs of the heirs, the judge can order that the executor post a probate bond while he or she is performing the duties of the executor.

Going to Probate Court can be a very expensive process. Right now, it takes about $500.00 to file the Petition, and the service and notice costs about $1,000.00. A bond in California can be anywhere from $7,000.00 to $18,000.00, and the bond has to be be paid again if the case is continued beyond one year. And since the rules of Probate Court are so confusing, you will probably need an attorney to help you with the paperwork and court hearings. Most probate attorneys charge between $4,000.00 to $15,000.00 for these services.

So, going to Probate Court can be expensive (from about $12,500.00 to $35,000.00, or more). And it’s stressful for most executors, who are trying to get through their grief for you while fighting to honor your wishes for your loved ones. The whole proces can be very frustrating and time-consuming. Plus, all of your assets and named heirs become part of a public record, when you really want your privacy and peace.

Now, a Will is important to accomplish some important financial goals and to appoint guardians for your minor children. But most of the cost and stress of Probate Court can be avoided by the use of a fourth document, called a Trust, which we will talk about in the next post.

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