Some estate planning documents are effective as soon as you sign them; some are effective if you are incapacitated; and, some are only effective if you’re dead.  It can be confusing for you and your trusted helpers to know what’s what.  To provide some guidance, we’ve listed basic estate planning documents and described when they become effective.  All documents must be executed properly under California state law to be effective, any time.

• Will

Your will is only effective if you’re dead; so, your will becomes effective immediately upon your death.

• Health Care Power of Attorney

Your health care power of attorney is only valid if you cannot provide informed consent for medical treatment.  In other words, it’s only effective if you’re incapacitated.

• General Durable Power of Attorney/Financial Power of Attorney

These are two names for the same document; your financial power of attorney may be effective immediately upon signing; or, it may only be effective upon your disability if it is a “springing” power of attorney, meaning that it “springs” to life when you become incapacitated.

• Revocable Living Trust

Legally, your revocable living trust is effective immediately upon signing, with certain provisions such as the authority for disability and settlement trustees to act upon the occurrence of a specific event (i.e. your incapacity or death.)

In practicality, you must transfer assets into your trust for your trustees, including yourself, to have any power.

• Living Will

Your living will is only effective if you’re at the very end of life and there’s no coming back, meaning that you are in an irreversible coma or persistent vegetative state.

• HIPAA Release

Your HIPAA release is effective immediately upon signing.

• Organ Donation Authorization

Your organ donation authorization is only effective if you’re dead.

Consult with a qualified estate planning attorney if you have any questions or concerns about the effectiveness of your estate planning documents.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

A no-contest clause is often used in wills and trusts to discourage challenges or contests.  The people who create wills and trusts want what they provide in their estate planning documents to be respected.  A no-contest clause provides that if a disgruntled heir brings a will/trust contest, he or she will lose any right to the inheritance otherwise provided.

Often these clauses scare heirs into not suing for more money and they have been honored.  However, effective January 1, 2011, California’s probate code was updated to limit the effectiveness of no-contest clauses.  While no-contest clauses still work in California, they are limited to cases where there is a “direct contest” with “probable cause.”

This makes sense.  After all, if there really has been fraud or undue influence in the creation of the will or trust, most people would want their heirs to stand up and be able to challenge.

The California Probate Code (§ 21310) defines “direct contest” as any contest that alleges the invalidity of a will or trust (or one or more provisions thereof) based on the following grounds: (a) forgery; (b) lack of due execution; (c) lack of capacity; (d) menace, duress, fraud or undue influence; (e) revocation; and (f) disqualification of a beneficiary.

The California Probate Code (§ 21311) defines “probable cause” as existing if the facts known to the contestant would cause a reasonable person to believe that there is a reasonable likelihood that the requested relief will be granted after an opportunity for further investigation or discovery.

Bottom line:  These legal definitions and the new law mean that if a will or trust was created under illegal circumstances, and there’s evidence to prove it, you can bring a lawsuit to challenge a will or trust and not lose any rights to your inheritance.

If you have questions or concerns about will or trust challenges, consult with a qualified estate planning attorney.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

If you haven’t updated your estate plan since you became a Californian, your estate plan may be useless.  Technically, if your estate planning documents were designed, drafted, and executed properly in one state, they will be legally valid in California.  However, as a practical matter, it’s often quite challenging to have out of state documents honored.  Moreover, if it’s been more than five years since you’ve last updated your estate plan, it’s likely they’re stale and virtually useless anyway.

Different States, Different Laws and Formalities

Powers of attorneys executed in one state are often refused in another state simply because they don’t look “right.”  Medical doctors and financial institutions don’t have time to have each foreign document validated, so they simply refuse them.

In addition, some states recognize civil union contracts and some do not.  In this case, even if your contract was legally valid in one state, it may not be valid in another.

Dying with an Out of State Will

If you die as a California resident with a will from another state, your loved ones will have to hire two probate attorneys, one in California and one in your other state.  Attorneys are licensed by state to ensure expertise and cannot give legal advice about the laws of a state in which they are not licensed.

Owning Property or Business in More than One State

If you own property and/or a business in more than one state in your individual name, probate is guaranteed in more than one state.  Consider owning your property in a revocable living trust to avoid involving the laws of a second or third state and make sure you have power of attorney documents for all states, as well.

Update Your Estate Plan When You Move

Consult with a qualified estate planning attorney in California; you’ll be glad you did.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

If your estate planning documents are more than five years old, they may be as stale as last week’s bread.  And, while your documents my still be legally valid, they may not work; just like last week’s bread is still bread, but it’s just not going to “work” for you.

Estate Planning Documents that Work

Estate planning documents work if they do what you want them to do.   Estate planning documents don’t work if they don’t do what you wanted.

Examples of Estate Planning Documents that Don’t Work

• Power of Attorney

Sometimes power of attorney documents are refused by financial institutions for being too old or stale.  Even though the legal document is valid, the date makes the institution uncomfortable and they’re afraid to honor it for liability reasons.

This is a document that doesn’t work.  Sure, you have the right to sue the institution to force them to honor the document, but who wants to do that?  That takes money, time, and causes a lot of stress.  And, in the meantime, you’re not able accomplish whatever you needed to accomplish with the power of attorney in the first place.

• Will

A will that hasn’t been updated within the last five years, may not work.  For example, Becky drafted her will years ago.  She provided that her assets were to be distributed to her uncles, Jake and Mack, or the survivor of them, at her death.

Jake died in 2009 and Mack is in a nursing home receiving governmental assistance.  Becky is killed in a car accident in 2011; she leaves 2 minor children, Emma and Samantha.

What happens now?  (It’s likely not what Becky would want.)

• Mack inherits all of Becky’s assets in her individual name, which disqualifies him from receiving governmental assistance.  This means Becky’s money will just pay for what the government would have paid for until it runs out; then, Mack will have to reapply.
• Becky’s minor children are disinherited.
• The court will decide who will raise Becky’s children and if no family member or friend steps forward, they will be placed into foster care.

Updating is Essential

Estate planning is never a “once and done.”  Updating your estate plan is essential to its success.  Consult with a qualified estate planning attorney to review and update your estate plan.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

If you’ve attained the age of 18, this estate planning preparation test applies to you.  Why?  Because each and every adult needs an estate plan to protect himself or herself as well as the family.  If you don’t create your own estate plan, the courts and state law will create one for you; and, it likely won’t be what you’ve chosen yourself.

• I have a will, naming guardians and contingent guardians for my minor children.

Yes    No    Don’t Know

• I have stand-by guardianship authorization for my minor children.

Yes    No    Don’t Know

• I have a valid and up-to-date health care power of attorney so my chosen loved ones can make emergency medical care decisions for me if need be.

Yes    No    Don’t Know

• I have a valid HIPAA release so that my medical professionals are authorized to communicate with my health care agents.

Yes    No    Don’t Know

• I have a valid living will so that I am not hooked up to machines if I am in an irreversible coma or persistent vegetative state.

Yes    No    Don’t Know

• I have a valid and up-to-date financial power of attorney so my chosen loved ones can make emergency financial decisions and pay my bills for me if need be.

Yes    No    Don’t Know

• My revocable living trust is fully funded so probate will be avoided.

Yes    No    Don’t Know

• I have the appropriate amount of life insurance so my income will be replaced and last bills will be paid when I die.

Yes    No    Don’t Know

• I have planned to avoid unintentionally disinheriting my children.

Yes    No    Don’t Know

• I have protected my spouse’s and children’s inheritances from predators and creditors.

Yes    No    Don’t Know

• My family knows my wishes for my funeral and burial.

Yes    No    Don’t Know

Unless you can answer “yes” unequivocally to each and every statement, you likely need to have your estate plan updated.  Consult with a qualified estate planning attorney for a review and update.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

LegalZoom is being sued in federal court by approximately 15,000 Missouri residents for dispensing legal advice without a law license.  When you purchase a form from LegalZoom or any other form services, you are not getting the benefit of working with an estate planning attorney.  Only licensed attorneys are legally able to provide legal advice; this law was created to protect the consumer.  While many laypersons think creating estate planning documents is simple and that they’re just standard forms, they are not.

Your Estate Plan May Not Work

Trying to save money is normal, but is short sighted when it comes to legal services and estate planning.  It is in your best interest to have your estate plan designed and drafted by an estate planning attorney, who will also supervise execution to ensure they are legally valid.

If your estate plan doesn’t work because you tried to do it yourself, how much does a plan, that doesn’t work, actually cost you and your family? 

For example, how much will your family lose if your spouse’s inheritance is taken by a creditor in a car accident law suit?  How much will your family lose if your children are raised by someone not of your choosing?  How much will your family lose if your daughter’s divorcing spouse attaches her inheritance?

LegalZoom Offers No Individualized Counseling or Attorney Review

Your family, your financial situation, and your goals are not the same as everyone else’s; therefore, it is inappropriate to use the identical estate planning documents as everyone else, who purchases documents from LegalZoom.  Of course, all estate plans have similarities, but they are not the same.

Who Will You and Your Family Ask for Help?

When you have estate planning questions and need help or when you are incapacitated or die, who will your family call for help?  You can’t call LegalZoom; you can call your qualified estate planning attorney.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

Estate planning attorneys spend a great deal of time discussing the importance of funding revocable living trusts, with good reason.  Your trust will only do what you want it to do (i.e. avoid probate and prepare for incapacity) if it is fully funded.  That being said, there are 3 assets that CANNOT be funded into your revocable living trust.

• Your Retirement Assets (401(k)s, 403(b)s, IRAs and Qualified Annuities)

If the title of your retirement assets is transferred to your trust, the IRS will deem this transfer to be a distribution of assets.  Any distribution of assets accelerates all of the income tax due.  Ouch!  Instead, consult with a qualified estate planning attorney to determine whether you should name your trust as the primary or the contingent beneficiary of your retirement plans.

• UTMA and UGMA Accounts

Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) accounts can’t be funded into your trust because you are, technically, not the account owner.  If you established the account, you are the custodian.  Name a contingent custodian to better assure probate is avoided.

• Motor Vehicles

Some states don’t allow the transfer of cars, motorcycles, trucks, boats, airplanes, and motor scooters into a trust.  Other states, while they allow the transfer, will impose a transfer tax on such a transfer, as if you sold the vehicle to another individual.

However, avoiding probate in California it’s pretty simple when it comes to motor vehicles.  This can be achieved with a transfer-on-death registration.  All you need to do is request an additional car ownership certificate.  This additional certificate will be a beneficiary form.  You are able to name a beneficiary and after your death, the person that you have selected will own your car.

Power of Attorney is Mandatory

It is imperative that you have an up-to-date financial power of attorney so that your trusted agent can deal with assets that are not titled in the name of your trust, if you become disabled.  Your trustees of your revocable living trust are only authorized to manage assets held in the title of your trust.

You may need to have more than one power of attorney because sometimes financial institutions will only honor their own power of attorney form.  Make sure that the institution that holds your retirement accounts will honor your document or execute their power of attorney document as well.

Get Good Legal Advice

Be sure to consult with a qualified estate planning attorney for all questions about what should or should not be funded into your revocable living trust.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

Estate planning is a necessity for each person, age 18 or older.  We understand that in today’s economy, everyone is budget conscious; so, we’re addressing the issue of legal fees in estate planning.

The Cost of Failing to Plan

The cost of failing to plan is an unknown.  What is it worth to you to keep your money grubbing daughter-in-law from getting her hands on your son’s inheritance?  What is it worth to you to keep the court out of your business?  What is it worth to you to make sure your assets go to the people you want to receive them?  What is it worth to you to avoid probate, thereby keeping your affairs private?  What is it worth to you to keep your children from being disinherited?  What is it worth to you for you to be able to choose your children’s guardians?

The cost of failing to plan could be everything (and everybody) you have.

The Cost of Using a Form Downloaded from the Internet

Again, the cost of using a form downloaded from the internet is an unknown.  However, a general fill in the blank form with no legal advice, guidance, or review is likely the basis for an estate plan that won’t work.

An estate plan doesn’t work when it doesn’t do what you want it to do.  Estate planning is very counseling oriented.  It is not a once size fits all area of legal practice.

The Cost of Using a Low Fee Trust Mill or General Practice Attorney

Trust mills typically have financial advisors selling revocable living trusts.  You likely will never meet with an attorney who will give you customized legal advices and draft and review individualized estate planning documents.  Trust mills should always be avoided.

Any area of law is a career in and of itself.  No one can be good at everything.  Remember the old saying, “A jack of all trades is an expert of none.”  Would you rather have a less expensive general practice attorney or a highly specialized and highly qualified estate planning attorney on your side?

The Cost of Using an Estate Planning Attorney

A qualified estate planning attorney focuses his practice solely on estate planning.  He has years of education, training, and experience behind his legal advice.  It is likely in your best interest to view estate planning as an important investment in your well being and that of your family.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

Funding your revocable living trust is almost, but not quite, as important as establishing your trust in the first place.  If you want your estate plan to work, your trust needs to be funded.  Failure to do so creates a hassle and costs more money.

Consequences of NOT Funding Your Trust

• The trustees you’ve named as disability trustees in your revocable living trust will have no authority to manage assets not funded into your trust.

• A conservatorship proceeding will be required if you become incapacitated and make your own financial decisions.  This means that your loved ones will have to go to court to have someone named to take care of your money and other assets.  The court may not necessarily name the same person you would have chosen.  In fact, in some circumstances, a stranger may be named to handle your money.

A conservatorship is a loss of control, takes time, is a hassle, and can be emotionally traumatic for you and your loved ones.  It’s costs a lot of money too.

• If you own assets in your individual name when you die, probate is guaranteed.  Many people seek to avoid probate because it’s extremely expensive in California.  In addition, it takes a long time to settle and get assets to the beneficiaries; and, it’s a public process, with personal financial and beneficiary information published at the court house.

• If you own assets in your individual name in a state other than the one you resided and died, ancillary probate will be guaranteed.  It’s double the trouble:  2 court systems, 2 lawyers, 2 accountings, and the like.

• You may unintentionally disinherit your children.  If you own assets jointly with your second spouse (i.e. not the parent of all of your children), and you die first, your children will be disinherited.

• You may waste your full federal estate tax exemption and all the good tax planning in your trust.  If you own assets jointly with your spouse, they will pass tax free at your death.  That may sound good, but, in reality, that just means that the taxes were delayed, not eliminated.  The taxes must be paid at your spouse’s death.

Where to Get Help with Trust Funding

Your estate planning attorney, banker, financial advisor, and insurance agent can all assist you with the funding of your revocable living trust.  It’s a lot of paperwork, but it’s worth it to make sure that your estate plan works.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.

When we chat with our clients about their estate plan, nearly everyone emphasizes the desire to retain control of their assets and person.  To maintain control of your assets and determine who gets what as well as when and how they get it, it is necessary to name contingent beneficiaries.

What is a contingent beneficiary?

A primary beneficiary is the person you name to receive an inheritance.  A contingent beneficiary is the person who will receive that same inheritance if the primary beneficiary predeceases you or disclaims.

Contingent Beneficiary Example

In her will, Grandma Josephine provided that her grandson, Charlie, was to receive her chocolate collection and $100,000 in gold tickets.  The will further provided, that if Charlie should not be then living (i.e. Charlie dies before Grandma Josephine), Grandpa Joe will inherit Charlie’s share.

In this example, Charlie is the primary beneficiary and Grandpa Joe is the contingent beneficiary.

California’s Anti-Lapse Statute

If you don’t name a contingent beneficiary yourself, California state law will do it for you.  The anti-lapse statute is similar to intestacy statutes wherein when you die without a will, state law determines how your assets are distributed.

If a gift lapses it means that it returns to the estate residue and is distributed to the residuary beneficiary.  Anti-lapse laws are designed to try to carry out the intent of the testator.

In California, if your beneficiary is related by blood (or adoption) to you or your spouse (surviving, predeceased, or former), and that beneficiary is deceased or disclaims, the descendents of your beneficiary will receive the inheritance unless you specific otherwise.

In our above example, Grandma Josephine’s gift to grandson, Charlie, would go to Charlie’s children if she had not included the provision naming Grandpa Joe as the contingent beneficiary.

In California, if the beneficiary is not related by blood (or adoption), the inheritance goes back to the residuary estate and is distributed to the residue beneficiary.  If this is not what you would want, be sure to name contingent beneficiaries in your estate plan.

Legacy APC, A Trusts & Estates Law Firm is a member of the American Academy of Estate Planning Attorneys.