Do you care about how your loved ones will continue living after you die? Does it matter to you how they will remember you? If so, then you are interested in “Legacy Planning”, more commonly known as “Estate Planning”. The estate plan you make regarding the distribution of your wealth after you die is an important part of the legacy you leave behind. Estate planning is often described as an act of love towards your surviving family members, charities and loved ones because it shows that you cared enough about them to take the time and expense to get your affairs in order. Why would anyone not get their affairs in order for the benefit of their surviving family and loved ones?

Estate planning requires you to take certain steps. First, you need to inventory your property rights (and identify your community property and separate property assets), your debts, and any restrictions on your right to transfer your assets to your beneficiaries. Second, you then need to consider the how you want your available assets will be used for the benefit of your intended beneficiaries given their life circumstances. This means planning both (1) to protect your beneficiaries’ inheritances, and (2) to promote the use of their inheritance towards achieving goals. We now examine protecting and promoting your beneficiaries’ interests.

1. Protecting your beneficiaries’ inheritances.

When you die your property rights (if you are married this means one-half of your community property and all of your separate property) will be transferred to your beneficiaries according to the terms of your estate planning documents (i.e., your will or your trust). If you do not have an estate plan then it will transfer by the law of intestacy to your “heirs at law”. Questions that you should ask yourself are whom do you want to get what assets; when should they receive these assets; how should your assets be transferred (in trust for your beneficiary or outright into their name); and are there any special purposes or considerations related to the beneficiary? We now examine these questions in relation to surviving spouses and surviving children.

a. Providing for a Surviving Spouse.

If you are married you probably wish to provide for the support and care of your surviving spouse and to leave what remains at your spouse’s death to your children. If there are no separate children to complicate matters then you may feel comfortable to leave everything outright to your surviving spouse and to make special sentimental gifts of heirlooms either at your death or the death of your surviving spouse. But, complications arise if there are separate children from prior relationships, when your spouse is disabled and receiving needs based government benefits (e.g., Medi-Cal), and when your spouse is incompetent and does not have an estate plan. In such cases you may instead wish have your estate transfer into an appropriate trust that benefits your surviving spouse while alive and distributes what remains to the children and other beneficiaries at the spouse’s death. There are numerous reasons to do so. First, is that by keeping your own property in a separate trust you can protect such property against creditors of the surviving spouse (including Medi-Cal estate recovery). Second, such a separate trust can make sure that the remaining property goes to your children and not to a subsequent spouse (should your spouse get remarried), so long as the assets are held in the trust. Third, it may also be necessary, in quite large estates, to preserve the family wealth against unnecessary estate taxes at the death of the surviving spouse.

b. Providing for your Surviving Children.

If your children are all adults, are doing well financially (e.g., are solvent and reasonably responsible with money) and are unlikely to get divorced then you may wish to leave your property outright to them, unless a very large sum of money is involved. If, however, your children are in trouble with creditors, unable to manage money, are receiving needs-based government benefits, or might get divorced, or are susceptible to being taken advantage of then you may decide to transfer such inheritance into an appropriate trust with your children as beneficiaries.

c. Protecting the trust assets against the beneficiaries’ own creditors.

Discretion in the trust instrument regarding whether and how the trustee makes distributions of trust assets provides the best protection of trust assets against the beneficiaries’ own creditors (“asset protection”). That is, if the trustee has complete discretion over whether or not to distribute trust assets to the beneficiaries (i.e., the trustee cannot be forced by the beneficiaries to distribute anything) then the trust is much less exposed to the beneficiary’s own creditors because the creditors have the same rights as the beneficiary debtor to force trust distributions which may be used to pay creditors. An asset protection trust can allow the trustee to make discretionary payments that pay the beneficiary’s living expenses directly and avoid the beneficiary’s bank account, which may be subject to creditor levies.

2. Promoting the Intended Purposes of the Inheritance – Positive Legacy Planning.

The enjoyable part of designing your estate plan is planning how your wealth will promote certain goals and aspirations. That is, do you wish to keep a special house in the family for your children to get together during the holidays and vacations; do you wish to pay for the higher education of your children and grandchildren; do you wish to enable your loved one to start a business; do you wish to pay the down payment on the purchase of a first home? If so, then you may wish for your inheritance to be held in a trust that will accomplish these objectives.

The trustee is responsible to administer the trust strictly according to its express terms and can either be authorized or required to carry-out your specific directives. Your trustee is required to carry out the specific purposes of the trust as it is written; provided naturally that they are legal. The trustee is usually given discretion as to the particulars in implementing these purposes. This trustee discretion can allow him or her to use independent judgment to administer and take necessary actions and to avoid having to petition the court, which is both expensive and uncertain to achieve desired results. For example, in the context of a children’s trust, the trustee may have the discretion to give more money to one child than to another depending on needs (like paying the different costs of educating one child in on school versus another child in another school) and any other criteria you select.

3. Conclusion.

Part of the legacy you leave behind in this world after you die is your estate plan. Your estate plan should reflect your love for the people you care about. Given its importance, having a well thought out and effective estate plan that implements your aspirations for your loved ones should be should be a priority.

Dennis is an attorney who practices in Lakeport, California at 55 First Street, Suite 207. His phone number is 707-263-3235. We welcome your calls to reserve a seat to attend a free public educational seminar presentation on the topics of Wills, Trusts & Estate Planning and Special Needs Trusts.

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