Getting one’s affairs in order is important to you and your loved ones at multiple levels.  First, a comprehensive, well drafted estate plan may afford you protection against an otherwise avoidable conservatorship of your own estate; against a costly and time consuming probate; and against financial abuse.  Second, a thoughtful estate plan can promote your legacy with your surviving loved ones when you are no longer there to assist them.  Third, your estate plan can also protect your loved ones’ inheritances against creditor actions by their own creditors; it can protect a beneficiary who receives needs based government benefits from becoming disqualified due to receiving their inheritance; and it can control and manage their inheritance so that it is not wasted or abused by them or others.  Let us consider this in more detail.

          A.  Incapacity Planning

          You owe it to yourself and your family to plan for and authorize who steps in to manage your affairs, personal care, and health care decisions, when you are unable to manage them for yourself due to a mental or physical incapacity. 

          A well drafted durable power of attorney for financial affairs and property management and a separate durable power of attorney for personal care (not to be confused with an advance health care directive) can authorize your named agent(s) to exercise the rights of control and management over assets held in your name (and not in a trust), in the manner prescribed in the instrument, for your benefit and the benefit of your dependants.  These instruments are different. 

          A power of attorney for financial affairs and property management is usually much broader and speaks to managing your financial accounts, assets (e.g., bank accounts, retirement plans, and brokerages), exercising legal rights (e.g., government benefits, contractual rights, and rights to sue), and fulfilling legal responsibilities (e.g., filing a tax return and paying support).  It becomes effective either upon signing or upon your incapacity.  It either ceases upon the principal’s death or at a date certain; and, it can always be revoked sooner by written revocation and notice by the principal to the named agent so long as the principal has capacity to revoke.

          A separate power of attorney for personal care, however, specifically addresses your personal care, living arrangements, maintenance of personal property, and maintaining the residence.  A personal care directive allows your health care agents to make personal care arrangements (e.g., hire nurses).  Either a financial account would be made available to the personal care agent or he would need the assistance of the financial agent (or the trustee) that controls the financial accounts).

          Lastly, the advance health care directive authorizes your agent to make medical decisions affecting medical care.  It also authorizes your agent to dispose of your body after you die, and to authorize an autopsy.  Special health care instructions may be included.

          B.  Legacy Planning.

          Discussed here are when a probate is needed, how assets are distributed, and how to protect your loved ones’ inheritances. 

          Estates with an appraised date of death value at or below one-hundred and fifty thousand dollars ($150,000) that would otherwise be subject to probate now qualify as small estates for summary administration procedures. No probate and or creditor notification is needed under summary administration.  [See the “Settling Small Estates under $150,000” article published on January 11, 2012 in the Record Bee (also at] 

          Persons with larger estates can avoid probate by transferring their assets into a living trust.  The trustee controls the assets both during life time and at death for the benefit of the settlor(s) and their loved ones, as relevant.  Trusts allow you to designate who is in charge of trust assets during your incapacity and how the trust benefits you and any dependants. 

          Not all assets are transferable to one’s trust.  Retirement accounts, annuities and life insurances pass pursuant to designation of death beneficiary forms wherein you name your primary and alternative death beneficiaries. 

          The distribution scheme at death varies with the circumstances and goals.  You may choose to make outright distributions of assets to those who are without creditor problems and who are not receiving needs based government benefits.  Otherwise, you may transfer certain inheritances into an irrevocable special needs trust those receiving (or expected to receive) needs based government benefits and into an irrevocable discretionary asset protection trust for those who would likely lose what they received due to improvidence or debt problems.  The trustee is given absolute discretion to make distributions to or for the benefit of the named beneficiary.  In California such further trust(s) can last for up to ninety (90) years.

          If you treat your surviving heirs unequally, or disinherit an heir completely, then your estate planning must be drafted to withstand later scrutiny by a disgruntled/disinherited heir.  This entails including appropriate disinheritance and no contest provision.  The drafting attorney will need to preserve documents that evidence your intentions.  Sometimes a physician’s capacity determination showing that you had testamentary capacity is needed.  A handwritten letter by you stating your reasons and wishes may be helpful to show that you expressly intended the unequal results of your own accord.  All of this requires the guidance of a qualified attorney.

          Also, if you wish to leave something to a person not related by blood or marriage, especially a person who has provided care giver services (e.g., such as a friend who takes you to the doctor and prepares your meals), then a certificate of independent review may be necessary to support the validity of your estate planning gift.

          Estate planning also involves adequate contingency planning for what happens to inheritances when the intended beneficiary does not inherit (due to death or disclaimer – refusal to receive).  Do you wish for the assets to go to a deceased beneficiary’s own surviving children?  The same answer is not true for all persons.  Unintended consequences, including probates, happen when unforeseen events occur without adequate contingency planning.

          C. Tax Planning

          Estate planning also involves tax considerations such as the Estate and Gift Tax, Income Tax, and local Real Property Taxes.  Presently, the Estate and Gift Tax is only a concern for the very wealth because the first five-million dollars ($5,000,000) of a deceased individual, or of ten-million dollars ($10,000,000) in the case of a married couple with effective estate tax planning, are exempt.  Uncertainty exists as to what happens come January 1, 2013, when present law states that these amounts shall revert to one and two million dollars, respectively.  Most likely, Congress will again enact last minute legislation preserving the existing generous exemptions.

          Income tax considerations, however, concern everyone.  Congress preserved the so-called “stepped up” basis that allows the assets of a deceased person to receive a new income tax basis equal to their appraised date of death value.  With appreciated assets, any unrealized gain accumulated over the decedent’s lifetime is eliminated.  With depreciated assets, any unrealized loss is unfortunately lost.  Thus, it may help your beneficiaries if you sell or gift depreciated assets while alive and hold-on to appreciating assets till death.

          Income tax considerations are important in selecting your death beneficiaries on your tax deferred retirement assets.  Typically, one wants to preserve the stretch out of required minimum distributions over your beneficiary’s lifetime.  For this reason, trusts that continue in existence (after you death) for the purpose of administering assets over the years for your loved ones, are not usually named as designated death beneficiaries, except in extenuating circumstances (e.g., a special needs trust or a creditor protection trust) where the income tax considerations are less important than other non tax considerations.

          Local real property tax rules favor one’s surviving spouse and surviving children and grandchildren from a deceased child.  Gifts to them of real property are not subject to reassessment.  Sometimes it is better to leave real property assets only to those children who will hold on to the real property and not include other children who want to be cashed out.


          D.      Final Considerations

          Implementation of one’s estate plan usually entails the assistance of multiple professionals, including, at a minimum, a qualified attorney and a financial planner, and the cooperation of competent and trusted persons to act as one’s agent, trustee, and executor.  The qualifications of those you entrust are of great importance to the probable outcome.

          Procrastination is frequently why people fail to get their affairs in order.  It is simply too easy to delay, especially when thinking about one’s mortality.  That said acting when one is free from compulsion is less risky and more pleasant than delaying until when it is absolutely necessary to act.  Consider the peace of mind that you enjoy when you know that you and your family are protected.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”