Using the Right Estate Planning Approach

Estate planning can involve a wide variety of asset types, such as, money, stocks and bonds, real estate, life insurance, personal property, and sometimes business interests. How these different assets are managed during the owner’s life and later distributed at death depends on the asset type, the person’s situation and estate planning approaches used. It may also depend on any existing court orders, such as from family court proceedings.

Does the asset or a court order restrict the owner’s options? Retirement accounts (e.g., 401(k) and Individual Retirement Accounts), for example, cannot be transferred to the participant’s trust. They can be managed by the participant’s agent under a power of attorney and ultimately pass to the participant’s surviving designated death beneficiaries. Also, a family court order may require certain estate planning to be in place for a minor.

However, if there is no living death beneficiary who is named to inherit some or all of the retirement account then some or all of the account may pass under the deceased participant’s will or, failing a will, under the laws of intestate succession to the participant’s heirs. This is yet another reason why a will is always needed even when one has a trust and designated death beneficiary accounts because unforeseen events may upset the intended estate planning approach.

Do the circumstances of one or more death beneficiaries limit the estate planning options? For example, are one or more beneficiaries underaged minors, incapacitated persons, receiving needs based welfare benefits, or unable to manage inheritances for one reason or another? If so, then such person’s inheritances are usually held in further trust that can be designated as a beneficiary to receive any and all inheritance assets. Such trusts are drafted to meet the situation.

If real property is involved then a trust, or perhaps a Transfer on Death (“TOD”) beneficiary deed, is usually appropriate in order to avoid either a full probate court proceeding or at least a court petition to determine ownership of a decedent’s primary residence. Alternatively a joint tenancy or a life estate deed may be sufficient, depending on the situation.

If bank and brokerage accounts and personal property are involved, then a will, a power of attorney and pay on death beneficiary bank and transfer on death brokerage accounts may be sufficient estate planning. That depends on the situation of the beneficiaries and the person’s intentions for how they want their assets to be managed and distributed.

If an interest in a going business is involved, then it is typically advisable for the going business to be held in a legal entity such as an LLC, or a corporation or a partnership. Businesses that are operated as sole proprietorships do not continue at the death of the proprietor. The business assets, however, can still be transferred as assets.

All said, however, if a person owns real property then a living trust is usually still the preferred estate planning vehicle as it allows for lifetime management and distribution of most asset types notably excluding retirement accounts. Trusts allow for contingency (‘what if’) planning by providing alternative solutions and special trustee authority to handle unforeseen eventualities, such as alternative beneficiaries and solutions to situations when the beneficiary cannot receive an outright distribution of their inheritance.

The foregoing brief discussion is not legal advice. Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.