Estate Planning: Bringing Clarity to Modern Family Structures

In today’s diverse social landscape, the definition of family has expanded beyond traditional boundaries to include adopted children, stepchildren, and children conceived through surrogacy or other fertility assistance technologies. These changes present unique challenges and considerations in estate planning.

Embracing All Members of the Family

Estate planning is essential for every family, but it becomes particularly critical in non-traditional family structures where legal ties might not be as clear-cut. Without a proper estate plan, state laws might not reflect the wishes of the individual or recognize the entirety of a family's structure, potentially leading to unintended consequences.

Adopted Children and Stepchildren: Legally, adopted children are treated the same as biological children under the law when it comes to inheritance rights. However, stepchildren are not automatically considered heirs unless legally adopted. This can lead to painful disputes or unintended disinheritance. A will or trust that specifies the inclusion of stepchildren can prevent potential oversights and ensure they are cared for.

Children Conceived Through Surrogacy or Fertility Assistance: Families formed through surrogacy agreements or assisted reproductive technologies (ART) also face unique challenges. Depending on the state, the law may not automatically recognize the intended parents as the legal parents. Estate plans for such families should explicitly name these children as beneficiaries to ensure they receive the intended inheritance without legal challenges.

Case Studies Highlighting the Need for Thorough Planning

The Case of Stepchildren: Consider a blended family where one spouse has children from a previous relationship. Without an explicit mention in the will, those stepchildren might not receive any inheritance if their stepparent dies, especially if the assets are bound by default legal distribution rules favoring biological relatives.

Surrogacy Arrangements: In a scenario where a child is born through a surrogate, the intended parents must ensure that their legal parentage is established in all relevant legal documents. If the estate plan does not clearly include provisions for the child, they might face hurdles in inheriting assets, particularly in jurisdictions where surrogacy laws are complex or non-inclusive.

Best Practices for Estate Planning in Modern Families

1. Explicit Inclusions: Clearly name all children—whether biological, adopted, step, or conceived through ART—in your estate plans. This eliminates ambiguity and ensures that each child’s right to inherit is protected.

2. Regular Updates: Life changes such as divorce, remarriage, or the birth of new children should prompt a review and, if necessary, a revision of your estate documents to reflect new family dynamics.

3. Legal Guidance: Engaging with a legal professional who specializes in estate planning and is familiar with the laws surrounding ART, surrogacy, and adoption is crucial. They can provide tailored advice that considers all legal ramifications and ensures that your estate plan aligns with your family’s needs.

4. Consider Trusts: Trusts can be particularly useful in complex family situations. They allow greater control over assets and can stipulate conditions or timelines for distribution, which can be essential in managing future uncertainties in family structures.

In the age of modern families, estate planning serves as more than just a financial tool; it is a means to acknowledge and protect every family member's place. By carefully considering the unique aspects of your family and planning accordingly, you can ensure that your legacy supports and recognizes all your loved ones. In this way, estate planning not only secures financial stability but also affirms the bonds that define what family means to you.

The Strategic Role of Life Insurance in Estate Planning

Estate planning is an essential financial strategy that ensures your assets are managed and transferred according to your wishes after your passing. While estate planning often involves wills, trusts, and tax planning, life insurance is a pivotal component that can enhance the effectiveness of these efforts.

Liquidity When It's Most Needed

One of the primary benefits of incorporating life insurance into estate planning is the provision of liquidity. Upon the death of an estate holder, there are immediate expenses to be met, including funeral costs, outstanding debts, and perhaps taxes. Life insurance policies can be designed to pay out quickly upon the insured’s death, providing the necessary funds to cover these expenses without the need to hastily liquidate other assets, which might otherwise be sold at an inopportune time or at a loss, or may have other sentimental value (e.g., a house that has been in the bloodline for generations).

Providing for Heirs

Life insurance can ensure that heirs receive a significant cash inheritance without any delay. This is particularly beneficial for those who wish to provide for their loved ones immediately after their passing. Moreover, life insurance payouts are generally tax-free, which means beneficiaries receive the full amount of the intended gift without the deductions associated with other types of inheritances.

Equalizing Inheritances

In situations where the assets are difficult to divide equally, such as in businesses or real estate, life insurance can be used to equalize inheritances among multiple beneficiaries. For instance, if one child inherits a family business, a life insurance policy can provide comparable value to other children, ensuring fair and equitable distribution of the estate.

Estate Taxes and Other Costs

For larger estates, federal estate taxes can pose a significant burden. Life insurance can be a strategic tool to pay these taxes without the need to liquidate other estate assets. By setting up an irrevocable life insurance trust (ILIT), the proceeds from the life insurance policy can be excluded from the taxable estate, potentially saving a significant amount in taxes and preserving more of the estate for the beneficiaries.

Business Succession Planning

For business owners, life insurance is a key element in succession planning. It can provide the funds necessary for a partner or group of employees to buy out the deceased owner’s interest in the company, facilitating a smooth transition and ensuring the business’s continuity.

Life insurance offers a versatile and powerful tool for estate planning. Its ability to provide immediate liquidity, equalize inheritances, cover estate taxes, and facilitate business succession planning makes it indispensable in a well-rounded estate strategy. As with any financial planning, it's important to consult with legal and financial advisors to tailor life insurance coverage to your specific needs and goals, ensuring that your legacy is preserved and protected according to your wishes. Through careful planning and strategic use of life insurance, you can secure peace of mind for yourself and your heirs.

Managing Digital Assets in Your California Estate Plan

In today's digital world, properly managing digital assets is essential for comprehensive estate planning. These assets include everything from online financial accounts and social media profiles to digital photos, e-books, and cryptocurrencies. California has addressed the need for digital asset management in estate planning with the adoption of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) in 2016, providing guidelines for access and control of digital information after death or incapacitation.

Key Points for Digital Asset Management in California:

• Inventory Digital Assets: Compile a detailed list of your digital assets, including access credentials. Keep this list updated and securely stored.

• Legal Permissions: Use tools provided by digital platforms to direct the handling of your digital accounts after your death. Supplement this with clear instructions in your will or trust regarding all digital assets.

• Appoint a Digital Executor: Assign a technologically savvy individual as your digital executor to manage the execution of your digital estate according to your established plans.

• Ensure Legal Access: Your estate documents should explicitly authorize your executor to access and manage your digital assets. This step is crucial to prevent service providers from denying access due to privacy policies.

Practical Recommendations:

1. Utilize Online Planning Tools: Platforms like Google and Facebook offer settings to control what happens to your accounts posthumously.

2. Specify Asset Handling: Clearly define the fate of each digital asset in your estate planning documents to eliminate any uncertainty.

3. Protect Sensitive Information: Consider using encryption to secure the document containing your digital asset inventory.

Including digital assets in your estate planning is vital to ensure they are managed correctly in the event of your incapacity or death. California's RUFADAA provides a legal framework to help residents ensure their digital legacy is handled according to their wishes. For thorough and secure planning, consider consulting an estate planning attorney knowledgeable about California's digital asset laws.

Integrating Charitable Giving into Your Estate Planning

Charitable giving is a noble way to ensure your legacy lives on, impacting future generations and supporting causes close to your heart. When structuring your estate plan, there are several philanthropic vehicles to consider, each offering unique benefits and considerations. From bequests to sophisticated trusts and donor-advised funds, understanding these options can help tailor your charitable contributions to align with both your financial and altruistic goals. Here's how you can effectively incorporate charitable giving into your estate planning.

Key Charitable Vehicles in Estate Planning

1. Bequests: One of the simplest ways to make a charitable gift is through a bequest contained within your living trust. This method allows you to specify an amount of money, a percentage of your estate, or specific assets to be given to charity. Bequests are highly flexible, easy to arrange, and can significantly reduce the estate tax burden on your heirs.

2. Charitable Trusts: These are more complex instruments that provide valuable tax breaks and can be tailored to suit different goals:

• Charitable Remainder Trusts (CRTs) allow you to receive an income stream or allow your designated beneficiaries to receive an income stream for a period, after which the remaining assets go to your chosen charity.

• Charitable Lead Trusts (CLTs) provide an income stream to the charity for a set term, and thereafter, the remaining assets revert to you or pass to your heirs, potentially reducing or eliminating gift and estate taxes.

3. Donor-Advised Funds (DAFs): DAFs act as a charitable investment account. You contribute assets which immediately qualify for a tax deduction, and then recommend grants to charities over time. This vehicle is particularly useful for those who wish to remain actively involved in philanthropy without managing a private foundation.

4. Private Foundations: For those with substantial assets, starting a private foundation can be an effective but complex way to control charitable giving. Foundations can fund various charities, offer family members roles in its administration, and create a lasting institutional legacy. However, they require significant management and adhere to strict regulations.

5. Endowments: Setting up an endowment can provide a charity with a permanent source of income, as the principal is kept intact while investment income is used for charitable purposes. This option is appealing if you want to ensure long-term financial support for a charity.

Strategic Considerations for Charitable Giving

Tax Implications: Each vehicle has specific tax benefits and implications. For example, bequests can reduce the size of your taxable estate, while contributions to CRTs and CLTs may reduce both income and gift taxes. Understanding these nuances is crucial in maximizing the tax efficiency of your charitable efforts.

Timing of Impact: Some options, like direct bequests or contributions to DAFs, can provide immediate benefits to charities. Others, such as endowments or CLTs, are structured to give over a long period. Consider when you want your chosen charity to benefit from your gift.

Control and Legacy: Decide how much ongoing control or involvement you wish to have. DAFs and private foundations allow for continued involvement in donation decisions, whereas bequests and endowments are generally one-time arrangements.

Family Involvement: If involving family in philanthropy is important, consider vehicles that support this goal. DAFs and private foundations can engage multiple generations in charitable activities.

Charitable giving within estate planning is not just a way to reduce taxes—it's a strategy to make a meaningful difference in the world while honoring your values. Whether it’s supporting a local community, contributing to global causes, or advancing scientific research, the right charitable vehicles can integrate your philanthropic objectives seamlessly into your overall estate plan. As always, consulting with legal and financial professionals can provide guidance tailored to your personal circumstances, ensuring your charitable contributions are both impactful and aligned with your estate planning goals.

The Role of Special Needs Trusts

Estate planning is an essential task for managing assets in the event of incapacitation or death, and it becomes particularly crucial for families with individuals with special needs. A key tool in this planning process is the Special Needs Trust (SNT), designed to ensure that individuals with disabilities/addiction/other challenges can inherit assets without losing eligibility for vital government assistance programs like Medicaid or Supplemental Security Income (SSI).

Maintaining Eligibility for Benefits

Assets in a Special Needs Trust do not count towards the personal assets of the beneficiary, preserving their eligibility for government assistance programs that have strict income and asset limits.

Asset Management and Protection

The trust allows for the proper management and protection of assets for the benefit of someone with special needs, without giving them direct control, which might not be in their best interest due to their disability.

Future Care Provisioning

A Special Needs Trust provides a mechanism to ensure that the beneficiary's physical, emotional, and medical needs are met in the future, enhancing their quality of life beyond what public benefits might cover.

Flexibility and Peace of Mind

Customizable to the beneficiary's needs, these trusts can specify the use of funds (e.g., for medical care, education) and offer families peace of mind knowing there's a plan in place for their loved one's care.

Setting Up a Special Needs Trust

1. Consult an Expert: The complexities of laws around special needs planning necessitate consulting with a specialized attorney.

2. Choose a Trustee: Select a reliable person or professional who understands the beneficiary's needs to manage the trust.

3. Fund the Trust: Assets can include cash, securities, real estate, or even life insurance policies.

4. Draft and Sign the Document: With legal guidance, create and sign the trust document according to state laws.

For families with members with specific needs, a Special Needs Trust is an indispensable part of estate planning. It ensures that beneficiaries can receive inheritance without compromising their government assistance, providing a secure future. With proper planning and legal advice, setting up a trust can offer both immediate and long-term peace of mind.

Estate Planning for the "Sandwich Generation"

If you're part of the Sandwich Generation, caught between supporting your aging parents and your young adult children, you're navigating a uniquely challenging path. Balancing these responsibilities requires not just emotional resilience and financial acumen but also a solid estate plan. An estate plan is crucial in ensuring that your efforts to care for both generations are sustainable and aligned with your long-term goals.

Protecting Your Legacy and Their Future

Ensure Financial Security: With multiple generations depending on your support, an estate plan can safeguard their financial future. It allows you to allocate resources effectively, ensuring that your children's education and your parents' care needs are addressed, even in your absence.

Health Care Directives: Estate planning goes beyond financial aspects, including health care directives for yourself. This ensures that your wishes are respected, preventing your adult children or aging parents from making difficult decisions during stressful times.

Durable Powers of Attorney: By establishing durable powers of attorney, you appoint trusted individuals to manage your affairs if you're incapacitated. This step is vital to maintain the continuity of care and support for both your parents and children.

Guardianship Designations: For those with younger children or dependents with special needs, your estate plan can designate guardians, providing peace of mind about their well-being and care.

Avoid Probate: A comprehensive estate plan can help your assets bypass the probate process, ensuring that your heirs have quicker access to the resources they need for their care and support.

Tailoring Your Estate Plan

Start with Open Conversations: Begin by discussing your intentions and the importance of estate planning with your family. These conversations can help clarify your wishes and prepare everyone for the future.

Consult Professionals: Given the complexities of balancing needs across generations, seeking advice from estate planning attorneys and financial advisors is crucial. They can offer tailored strategies that reflect your family's unique circumstances.

Review and Update Regularly: Your estate plan should evolve with your family's needs. Regular reviews—at least every few years or after major life changes—ensure that your plan remains relevant and effective.

For those in the Sandwich Generation, an estate plan isn't just a financial tool; it's a cornerstone of your family's well-being and security. It ensures that you can provide for your aging parents and young adult children, come what may. With the right planning, you can protect your legacy and offer them a foundation of stability and support, now and in the future.

Debunking the Myth: Why Even Modest Estates Need an Estate Plan

There's a common misconception floating around that if you're married, own a modest amount of assets, and want your belongings to go to your children, estate planning isn't necessary. Many believe that the simplicity of their wishes means the legal system will automatically fulfill them without any formal documentation. However, this assumption couldn't be further from the truth. Let's break down why even those with modest assets and seemingly straightforward wishes absolutely need an estate plan.

Understanding the Basics

At its core, estate planning is about making decisions in advance: Who will inherit your assets, who will take care of your children if you can't, and who will make decisions on your behalf if you're incapacitated. It encompasses more than just who gets what; it's about ensuring your family's future is as secure and conflict-free as possible.

Misconceptions vs. Reality

The myth that modest estates don't require estate planning stems from misunderstandings about how estate distribution works. Without an estate plan, your estate goes through probate, a court-supervised process that can be lengthy, costly, and public. Probate can be especially complicated for even modest estates due to the intricate laws of California, which may differ greatly from other states’ laws.

Why Estate Planning is Crucial

1. Protecting Your Children’s Future: An estate plan allows you to appoint a guardian for your minor children, something that's decided by the courts if you haven't made your wishes legally known. This decision alone makes estate planning invaluable.

2. Avoiding Probate: With the proper estate planning tools, such as a living trust, you can help your estate avoid the probate process entirely, ensuring your assets are distributed efficiently and privately according to your wishes.

3. Reducing Family Conflict: Clearly stated wishes in an estate plan can greatly reduce the potential for misunderstandings and conflicts among your loved ones. It's about making your intentions clear and legally binding.

4. Financial Management and Health Care Decisions: Estate planning also includes creating durable powers of attorney for both finances and health care, which allow someone you trust to manage your affairs if you're unable to do so. This is crucial in ensuring that your and your family’s needs are met, according to your wishes, under any circumstances.

The Reality for Married Individuals with Modest Assets

Even if your assets are modest, without an estate plan, there's no guarantee your spouse will automatically inherit everything. Without an estate plan, assets can be divided among your spouse, children, and sometimes even parents or siblings. An estate plan ensures your assets go exactly where you want them to.

Also, consider assets that you might not think of as needing to be included in an estate plan, such as digital assets, online accounts, or family heirlooms. These items often carry emotional value that far exceeds their monetary worth, and deciding who they go to can prevent disputes and ensure they're treasured by the intended recipient.

Taking the First Step

The thought of estate planning can be overwhelming, but it doesn't have to be. Start by considering your wishes for your family's future. Consulting with an estate planning attorney can demystify the process and tailor an estate plan that fits your unique situation, ensuring your modest assets—and more importantly, your family—are protected according to your wishes.

The myth that estate planning is unnecessary for those with modest assets and straightforward wishes is just that—a myth. Estate planning is a vital tool for everyone, ensuring that your wishes are honored, your family is protected, and your legacy is secured. By taking the steps to create an estate plan, you're not just planning for the distribution of your assets; you're ensuring peace of mind for yourself and your loved ones.

Choosing A Legal Guardian For Minor Children

Parenthood is a journey of unconditional love, but it also comes with significant responsibilities. As parents, ensuring the well-being and security of our children is paramount, even in unforeseen circumstances. Selecting a guardian is one of the most critical decisions parents of minor children must make as part of their estate planning process.

Understanding the Role of a Guardian: A guardian is someone who will step in to care for your children if both parents are unable to do so. This could occur due to death, incapacity, or other unforeseen circumstances. The guardian is responsible for providing a loving and supportive environment for your children and making decisions regarding their upbringing, education, healthcare, and general welfare.

Key Considerations When Choosing a Guardian:

1. Shared Values and Parenting Philosophy

   Look for someone who shares your values, beliefs, and parenting philosophy. Consider factors such as discipline, education, religion, and lifestyle to ensure that the guardian will provide a consistent and nurturing environment for your children.

2. Emotional Connection and Relationship

   Choose someone with whom your children have a strong emotional bond and a positive relationship. This could be a family member, close friend, or mentor who knows your children well and has demonstrated love, care, and support for them.

3. Stability and Reliability

   Seek a guardian who demonstrates stability, reliability, and maturity. Consider factors such as financial stability, employment status, stability of their family situation, and ability to provide a stable and nurturing home environment for your children.

4. Willingness and Ability to Serve

   Discuss the role of guardian with potential candidates to ensure that they are willing and able to take on this responsibility. Consider their availability, willingness to relocate if necessary, and ability to provide for the physical, emotional, and financial needs of your children.

5. Communication and Shared Expectations

   Open and honest communication is essential when discussing the role of guardian. Clearly communicate your expectations, values, and wishes regarding your children's upbringing, education, and other important matters to ensure alignment and mutual understanding.

Taking Action: Choosing a guardian is a deeply personal decision that requires careful consideration and reflection. Take the time to discuss your options with your partner, family members, and potential guardians. Consider seeking guidance from a trusted advisor, such as an estate planning attorney or family counselor, to help you navigate this process and ensure that your decision reflects your children's best interests.

Selecting a guardian for your children is one of the most significant decisions you'll make as a parent. By considering factors such as shared values, emotional connection, stability, willingness to serve, and communication, you can choose a guardian who will provide a loving and supportive environment for your children, even in your absence. Remember that estate planning is a dynamic process, and it's essential to review and update your choices regularly as your family's circumstances evolve. With thoughtful consideration and proactive planning, you can provide peace of mind for yourself and your loved ones, knowing that your children will be well cared for, no matter what the future holds. Stay tuned for more insights into optimizing your estate plan for the needs of your growing family.

Estate Planning Essentials for Blended Families

Blended families bring unique dynamics and joys, but they also present distinct challenges when it comes to estate planning. Crafting a comprehensive estate plan for blended families requires thoughtful consideration and strategic decisions to ensure that the financial and emotional well-being of all family members is safeguarded.

Understanding Blended Family Dynamics: Blended families, often formed after remarriage, may include children from previous relationships, stepchildren, and biological children of the new union. Navigating the intricate relationships within a blended family adds layers of complexity to estate planning, requiring careful thought and open communication.

Key Issues in Estate Planning for Blended Families:

1. Asset Distribution and Fairness:

   Balancing the financial interests of both the biological and stepchildren is crucial. Clearly defining how assets will be distributed ensures fairness and minimizes potential conflicts.

2. Protecting the Interests of Spouses:

   Providing for the surviving spouse while ensuring that the children from previous marriages receive their intended share requires strategic planning. Trusts can be instrumental in achieving these dual objectives.

3. Guardianship for Minor Children:

   Determining guardianship arrangements for minor children in blended families is a sensitive yet crucial decision. Open communication between spouses and clear documentation in your estate plan can provide reassurance and stability for the children.

4. Life Insurance and Long Term Care:

   Reviewing and updating life insurance policies and providing for long term care in the event of a disability is vital. Ensuring that you have the right coverages that correspond to your estate planning wishes is critical to avoid unintended conflict between family members.

5. Establishing Trusts for Children:

   Creating trusts for children from previous marriages can protect their inheritance, ensuring that it remains separate from marital assets and is ultimately distributed according to your wishes.

6. Communication and Transparency:

   Open communication within the blended family is paramount. Discussing financial matters, estate planning decisions, and the rationale behind them fosters understanding and helps prevent potential disputes.

7. Prenuptial and Postnuptial Agreements:

   Consideration of legal agreements, such as prenuptial or postnuptial agreements, can provide additional clarity on financial expectations and help protect the interests of both spouses and their respective children.

Working with an Experienced Estate Planning Attorney: Navigating the complexities of estate planning for blended families necessitates the expertise of an experienced attorney, and their professional network. A legal professional can provide tailored advice, ensuring that your estate plan reflects the unique dynamics and goals of your blended family.

Crafting an estate plan for a blended family is not a one-size-fits-all endeavor; it's a nuanced and personal journey. By addressing the key issues outlined in this guide and collaborating with an experienced estate planning attorney, you can create a plan that preserves harmony, protects the interests of all family members, and leaves a legacy of thoughtful consideration for generations to come.

Living Trusts Provide Efficiency, Privacy, and Control

A Living Trust offers a dynamic alternative to the conventional Will. Let's explore the unique features that make Living Trusts a more desirable choice for those seeking efficiency, privacy, and enhanced control over their legacy.

1. Bypassing the Probate Quagmire:

Picture a streamlined process where your assets seamlessly transfer to your heirs without the delays, costs, and public scrutiny of probate. A Living Trust makes this vision a reality, circumventing the probate quagmire and ensuring a swift and private distribution of your estate.

2. Unparalleled Privacy:

In a world where discretion is a prized virtue, a Living Trust shines as the epitome of privacy. Unlike Wills, which become public records, a Living Trust shields the details of your assets and beneficiaries from prying eyes, preserving the confidentiality of your financial affairs.

3. Immediate Incapacity Planning:

Life is unpredictable, and planning for potential incapacity is a mark of foresight. A Living Trust empowers you with immediate and flexible control over your assets if you become incapacitated, sidestepping the need for court intervention and conservatorship.

4. Reduced Costs in the Long Run:

While the upfront costs of establishing a Living Trust may seem higher than a simple will, envision it as an investment that pays dividends in the long run. The potential savings from avoiding probate expenses make a Living Trust a strategic and cost-effective choice. By example, the attorneys fees alone for a probate estate valued at $1 million (half of a house in this county) amounts to $23,000!

5. Effortless Asset Management:

As the architect of your Living Trust, you retain control during your lifetime. Managing and modifying the trust is a seamless process, providing a level of flexibility and control over your assets that surpasses the constraints of a Will.

Imagine the peace of mind knowing that your loved ones will inherit your assets swiftly and privately, without the intricacies of probate. A Living Trust transcends the conventional, offering a dynamic, proactive, and forward-thinking approach to estate planning.

Consult with an experienced estate planning attorney today toward a legacy of efficiency, privacy, and enduring impact.

Estate Planning Basics

Welcome to the world of estate planning! Whether you're just starting out or realizing it's time to get your affairs in order, understanding the basics is the first step toward securing your legacy. In this beginner's guide, we'll break down the fundamental concepts of estate planning to help you navigate this essential process with confidence.

Understanding the Basics: Estate planning involves selecting decision makers to handle your affairs when you’re unable and creating a roadmap for the distribution of your assets and the fulfillment of your wishes after you're gone. The key components include:

1. Living Trust:

   A living trust is a tool that allows you to manage assets during your lifetime, even if you become disabled, ensuring a smoother distribution process after your passing while avoiding probate.

2. Last Will and Testament:

   Your will is a legal document used as a “safety net” to catch assets you forgot to title in the name of your trust.

3. Power of Attorney:

   This legal document designates someone to make financial decisions on your behalf if you become unable to do so. It's a crucial aspect of planning for unforeseen circumstances.

4. Healthcare Directive (Living Will):

   Specify your healthcare preferences in advance with a living will, ensuring that your medical treatment aligns with your wishes, even if you can't communicate them yourself.

The Importance of Beneficiary Designations: In addition to your estate planning documents, above, many assets, such as life insurance policies and retirement accounts, allow you to designate beneficiaries directly. Keeping these designations up-to-date is crucial to ensuring your assets go to the intended recipients.

Considerations for Parents: If you have minor children, your estate plan should include provisions for their care. This involves appointing a guardian in your will and potentially setting up a trust to manage their inheritance until they reach a specified age.

Starting Your Estate Planning Journey: Now that you have a basic understanding, the next step is to consult with an experienced estate planning attorney. They can help tailor a plan to your unique situation, they can provide expert advice as it relates to taxes, and they can ensure that your wishes are legally sound and well-protected.

Estate planning might seem daunting, but with the right guidance, it becomes a proactive and empowering process. By taking the time to understand the basics and seeking professional assistance, you're not only securing your legacy but also providing peace of mind for yourself and your loved ones.

Everyone Needs an Estate Plan

Everyone needs an estate plan. If you’re reading this, you’re probably aware that you–and if you’re married, your spouse–need an estate plan. But there are other people in your orbit who need an estate plan: your young adult children. Your children over the age of 18 need an estate plan, too. Yes, even the ones who still live at home, and the ones who you claim as a dependent. Or are away at college. Especially the ones who are away at college.

Anyone over the age of 18 is a legal adult. The law does not care whether that person is gainfully employed or playing video games until 3am. Reaching 18 years of age is an arbitrary measurement, and when it’s achieved, congratulations! You’re an adult! What comes with adulthood is the ability to make your own legally binding decisions… and to prohibit others from making decisions for you. Even if those “other people” are paying your bills, claiming you as a dependent, or housing you.

Consider your typical college-aged child. They are likely over the age of 18, or very close to it. They likely do not have much life experience, and base decisions on the nearterm. They may be impressionable, or easily persuaded. Or maybe they’re just a knucklehead. If, as a result of a misguided decision, they were to become incapacitated (think: hospitalized, detained by law enforcement, involved in a crisis, etc.), no one can make decisions for them without a properly executed estate plan–e.g., will, durable power of attorney, healthcare directive. Not even their parents! You see, they’re adults. Any institutions your adult child interacts with will only want to speak to your child. University administration, banks, authorities, doctors, school officials, etc., won’t listen to anyone but your adult child. They are legally prohibited from listening to third parties, even the parents of an adult.

A young adult crisis can appear anywhere. It could be a party gone wrong. It could be from spending time with that one friend of theirs that they just can’t seem to get enough of. Maybe it was a date or hangout gone wrong. If you, as a parent, want the ability to make decisions on behalf of your adult child, they must execute estate planning documents giving you that authority. Otherwise, you are at the mercy of the local court process. And if your child is away at college, that court process might be very foreign to you, operating under laws you aren’t familiar with.

Maybe your child is in a crisis because someone injured them. With a properly executed estate plan, your child could authorize you to file a lawsuit against the perpetrator on their behalf, speak to school administrators on their behalf, speak to the government on their behalf.

It doesn’t matter that your adult child doesn't “own much”. Or that they aren’t employed, or that they live at home, or live in a dorm and come home often. None of those things matter if your child is over the age of 18, and you want the ability to make decisions on their behalf in a crisis. Everyone needs an estate plan.

How to Know Your Estate Plan is Current

Not having an estate plan comes at a significant risk for every single person, regardless of wealth, age, or life circumstance. Everybody’s estate plan may look different. It’s important to be sure your estate plan is tailored to your circumstances. Having an estate plan that is not current–meaning, it does not reflect your current wishes or address your current life circumstance–is as detrimental as not having a plan at all. In some cases, having an estate plan that is not suited to your life can be worse than not having one at all. Just like our lives evolve with time, our estate plan must adjust from time to time to address our life circumstances.

Are your young children not so young anymore? Are you transitioning into another phase of your life, like retirement or an “empty nest”? Did your life take an unexpected twist? Or maybe you weren’t aware of some changes in the law of which you would like to take advantage. Here are four things to look for in an existing estate plan to help spot potential areas for revision.

Unnecessary AB Trust

An “AB Trust” is a living trust created by a married couple that “splits” into two or more separate trusts upon the death of one spouse. It was commonly used prior to 2013 for estate tax purposes. It is still commonly used for non-tax purposes, such as re-marriage protection or with blended families. Since estate tax exemption amounts have increased dramatically since 2013, and since we allow spouses to use both of their exemption amounts automatically (“portability”), the AB Trust is no longer commonly used for estate tax purposes. If you created your trust prior to 2013 and your combined estate is worth less than $10 million, then you may want to consider restating your trust to remove the AB Trust provisions.

Outdated distribution path or specific gifts–adult children

Gifts for small children may look a lot different than provisions for adult children. Perhaps parents of young children placed basic care and needs like shelter and education above all else, and made provisions in their trust to reflect that priority. When that young child is a married adult with their own children, those protective provisions may look silly. Similarly, if a young child has grown into an adult who makes questionable decisions–with money, with partners, with their use of their free time–perhaps it’s time to put in more protective provisions for that child. There are many options for providing for your loved ones.

Additionally, perhaps your adult children have become more distinctive as they got older. For example, maybe one of your children moved abroad and the other is staying nearby, perhaps taking some of their time and resources to care for you. Maybe it’s a good idea to discuss whether to leave your home to one child and not equally to both, as to provide for the child who is caring for you, and to not create property tax issues.

Outdated list of decisionmakers

This is by far the most common reason people revise their estate plan. An estate plan is, after all, more about people than things. Being sure the decisionmakers are a list of good, reliable choices is paramount to a comprehensive estate plan. Click here for a prior post discussing how to choose decisionmakers.

Upcoming transition–divorce, aging partner, health issues

Life is nothing but a series of transitions. Your estate plan should be revisited regularly to be sure it addresses the current transition and contemplates any upcoming changes, as well. Are you going through a divorce? Are you about to retire? Perhaps you or your spouse are facing health issues. These are all reasons to revisit your estate plan and plan for the worst while hoping for the best. After all, you didn’t create an estate plan simply to address one set of circumstances.

Use this opportunity to be proactive in shaping your estate plan. If you wait too long, your agency will vanish, and in its place may only be left regret. Speak to an estate planning attorney to explore your options.

Are Trust Deposits FDIC Insured?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that provides insurance to depositors in case a bank or savings institution fails. The FDIC was established in 1933, after the Great Depression, to maintain stability and public confidence in the banking system.

FDIC insurance provides depositors with protection up to a certain amount per depositor, per insured bank. The current standard insurance limit is $250,000 per depositor, per insured bank. This means that if you have $250,000 or less in deposits in a single insured bank, your deposits are fully insured. If you have more than $250,000 in deposits in a single bank, the excess amount may not be covered by FDIC insurance.

When it comes to revocable trusts (aka living trusts), FDIC insurance covers deposits in accounts owned by the trust, as long as certain requirements are met. A revocable trust is a type of trust that can be changed or revoked by the owner (also known as the trustor, grantor or settlor) at any time. To qualify for FDIC insurance coverage, the revocable trust must meet the following requirements:

• The trust must be a valid trust under state law.

• The trust must be revocable.

• The beneficiaries of the trust must be individuals or charities.

• The account title must reflect that the account is held in the name of the revocable trust (e.g., "John Doe, trustee of the Jane Smith Revocable Trust").

If these requirements are met, the FDIC will insure the deposits in the trust up to the standard insurance limit of $250,000 per depositor, per insured bank. The insurance coverage on deposits is unchanged whether you hold it in trust or not. However, It's important to note that the $250,000 limit applies to each unique beneficiary of the trust, which is different than deposits in your individual name. So, if the trust has multiple beneficiaries, each beneficiary can be insured up to $250,000, up to a maximum of 5, for a total of up to $1,250,000 in coverage for a five-beneficiary trust.

Overall, FDIC insurance provides depositors with peace of mind that their deposits are protected in case their bank or savings institution fails. By naming your living trust as the account holder, you can extend FDIC protection to the beneficiaries of your trust.

Explainer: Capital Gains Tax

The capital gains tax is a subset of our income tax system. It is imposed by both the federal government (IRS) and the state of California (Franchise Tax Board). The recipient of the income is the one on the hook for paying it.

You’re probably most familiar with paying income tax on your earnings through work. Since our wages are fairly predictable year over year, most wage earners have their employers take out (or “withhold”) their income taxes from each paycheck ahead of time. Then, every April, with a timely filed tax return, each wage earner claims a refund for any excess due back to the wage earner. But our wages are only one form of income we may receive in any given year.

Other forms of income may come in the way of rents from an income property we own and lease to a tenant. Or maybe we receive dividends paid to us because we hold shares in a company that generated profits for the year. Or maybe we own an interest in an oil well and are entitled to royalties from that interest.

Or, more commonly, we sold something for more money than we purchased it for. Profit from a sale is considered income, and it is called a “gain”. (Similarly, if we lost money on a sale, we would call it a “loss”). If something is valued more than what it was purchased for, but hasn’t been sold, it’s considered a “potential” or “built in” gain. It becomes an “actual” or “recognized” gain once you actually sell the asset. A capital gain is a gain on the sale of a capital asset. A capital asset can be a house, vehicle, office equipment, art, construction equipment, stocks, bonds, a trademark, etc. Capital assets are essentially anything you own that is not cash or a retirement account.

Let’s use an example. (The following example is going to be significantly simplified not to include tax deductions or financing instruments like mortgages. We’re also not discussing short-term capital gains in this example).

You purchase a home for $500,000 in cash. That purchase price is considered your “cost basis”, or the starting point for calculating gains and losses. Five years later, your home is worth $750,000. Your cost basis remains the purchase price at $500,000, but you now have a potential gain of $250,000 built into your property. At this point no taxes are due or owed. You don’t actually have the $250,000 sitting in your bank account. You have the fleeting possibility of making that $250,000 if you sell the house today. If your home value dips to $450,000 tomorrow, you would then have a potential loss of $50,000. Your home value is a fluctuating number from year to year, and your potential losses and gains flow accordingly.

Let’s say you decide to sell it to a willing buyer at that $750,000 price. At this point you took an asset that you purchased for $500,000, and you converted it into $750,000. That means you resulted in a recognized capital gain of $250,000. You now have income that actually went into your bank account. You will be taxed by both the federal government and the state of California on that income as a capital gains tax.

Now’s a great time to remind you that this is not a CPA’s post. This is about estate planning, right? Why are capital gains significant in an estate planning context?

Capital gains, as explained above, are taxed when someone makes a profit selling an asset. If you don’t ever sell the asset, there is no taxable event. So what happens if you have an asset with a built in capital gain, and give it away or gift it during your life?

When you make a lifetime gift of an asset, and it has potential gains built into it, you are also giving the recipient a future capital gains tax problem. Let’s use the same example from above, with the house that is worth $750,000, and was purchased for $500,000. If you gave that house to your children instead of selling it, your children also receive the built in capital gains. So if/when your children sell the home, and it’s sold for more than $500,000, then they owe any capital gains tax. Since you never sold the house, someone has to pay the tax, and it’s going to be the owner that sells it.

What if you give the house after you die?

There is a federal tax law that says any gift of a capital asset after death receives what is called a step up in basis to fair market value upon date of death. In plainspeak that means that an asset gifted at death gets all of the built in capital gains eliminated. That’s not a typo. If instead of giving the $750,000 house to your children during life you gave it to them as an inheritance, then they receive the home as if they purchased the home for $750,000! If/when they sell the home, their capital gains exposure is measured from the $750,000 amount and not the original purchase price of $500,000. This significantly reduces or eliminates anyone ever paying capital gains tax on the sale of this home. It’s quite the benefit! You do not need to do anything to receive this benefit. It’s a tax feature available whenever someone dies owning capital assets.

To apply this knowledge to a real world situation, think of a time when a parent added a child to title of their home. The parent’s idea might be to shortcut the transfer of the home by adding the child to title during life, and upon the parent’s death the child receives the home… which is partially correct. They will receive the home. But they will also receive a portion of the parent’s built in capital gains. You see, when the parent dies, only the portion of the capital gains associated with the home that the parent owns gets eliminated. The portion that the child owns stays in place until the child dies or sells the property. In situations with joint title, part of the interest gets the step up at death, but the portion in the hands of the person still living remains untouched. So in most cases, we prefer to transfer appreciated assets after death and not during life.

You can see how knowing the nuances of “everyday” taxes can help when planning ahead. And you can also probably see how once you’ve made certain transfers, you cannot “unring the bell”. We strongly recommend speaking to a professional prior to making large or substantial transfers, even when it involves something mundane like adding a child onto title. Even non wealthy, “straightforward” estate plans can benefit from speaking to an estate planning professional to create a robust and comprehensive plan.

Full Video of the January Living Trust Seminar

The seminar below was presented live on January 21, 2023, by Matt Shafae, at the reSolve Group offices in Palo Alto. We covered basic estate planning, how to review an existing estate plan, how to care for minor children, and a basic survey of the taxes involved in an estate plan.

The screen may be hard to view on the video. Click here for a copy of the slides to follow along.

Marriage: You Either Are Or You Aren't

You’re either married or you aren't. There’s no in between. California does not recognize what some may call “common law” marriage. There’s no magic number of months or years before a romantic relationship transforms miraculously into a marriage.

For the “it’s just a piece of paper, our love is what’s important” crowd, we’re here to tell you that marriage is much more than that. Among other things, marriage confers rights upon someone you are not blood related to. Rights that are often unique to a spouse. In other words, if you’re unmarried–meaning you do not have a marriage license from a government agency–then the law views your partner as a friend that you really, really like.

From an estate planning perspective, a spouse is a family member. They get default rights against a deceased spouse’s estate. They receive major tax benefits from local, state, and federal taxing authorities. The law is very protective over surviving spouses. Not so much over long term unmarried partners, or even “we’re pretty much married” people. Those are all roommates under the law, and they get no special benefits.

What about domestic partners? Surely, that’s a special designation, right? Domestic partnerships are only recognized by some state and local governments. The federal government has no recognition for domestic partnerships. To the federal government, you’re either married or unmarried.

But some people have children together and never get married. That’s an exception, right? Nope. You certainly share very important responsibilities with one another, but you’re still not married spouses under the law. End of story.

Marriage is much more than some mere formality. It’s a very important legal union between two people.

That all being said, marriage is not for everyone. And that’s totally fine! However, if you do decide to not marry–for WHATEVER reason–then it is extremely critical that you create an estate plan, and specifically provide for any unmarried loved ones that you want to care for. And also to name your unmarried partner as someone who may have legal authority to assist you, and vice versa. Without reducing your wishes to writing, your unmarried partner will receive no special treatment by default, nor will they have legal authority to assist you if that scenario arises.

Whether you are married, but especially if you are not, it is critical to have your wishes reduced to writing so that the appropriate people (and pets) are cared for and that the right people have the appropriate legal authority to act when necessary.

Planning for Your Digital Legacy

An estate plan often focuses on tangible property such as jewelry, artwork, money, and vehicles. However, in this age of technology, it is important to remember to include your digital assets. Digital assets consist of everything we own online. Because we spend more time on computers and smartphones than we ever did before, you may not realize how much digital stuff you own, from photos and videos to online accounts, cryptocurrency, and nonfungible tokens (NFTs).

Why Is It Important to Plan for Digital Assets?

Planning for digital assets is important for several reasons. First, without a plan, digital assets may get lost in the Internet ether and not pass to your loved ones after your death due to the simple fact that their existence is unknown. Second, planning now means your family will not have to worry about hunting for these items upon your death while also grieving a beloved family member. Third, like most adults, you want certain aspects of your digital life to remain private. If you do not create a plan, your loved ones may learn things that you wish to keep secret. Finally, planning now can minimize the risk of identity theft, which happens to 2.4 million deceased Americans each year. 

What Are Digital Assets?

Instead of existing in photo albums and on videotapes and DVDs, most of our family photos and videos are now digital. Even if they lack commercial value, they certainly have sentimental value that you want to preserve for your family and friends. Social media accounts containing your photos and videos can also have value to your loved ones when you are gone. For example, a Facebook account can serve as a memorial after you pass away. When you consider all of the other accounts that you log into (more than 130 on average), the list becomes quite lengthy. 

Digital assets that you may own include the following:

● Social media accounts (e.g., Facebook, Instagram, Tik Tok, Twitter, LinkedIn)

● Financial accounts at brick-and-mortar and online institutions

● Business documents and other files stored in the cloud

● Cryptocurrency/NFTs

● Databases

● Device backups

● Internet domain names and uniform resource locators (URLs)

● Streaming service accounts (e.g., Netflix, Peacock, Hulu)

● Merchant accounts (e.g., Amazon, Etsy, eBay)

● Gaming tokens

● Virtual avatars

● Points-based loyalty programs (e.g., for groceries, gas stations, airlines, and hotels)

● Rights to intellectual property, artwork, and literature

● Online betting accounts

● Monetized video content

Including Digital Assets in Your Estate Plan

Take inventory of your digital assets. If something were to happen to you, a trusted person should have complete access to your online footprint. This includes usernames and passwords for all accounts. Tools such as Dashlane or the password manager integrated in your browser can be used to simplify the storage of usernames and passwords. 

In addition, you should continuously back up all digital assets, including photos and important documents, to the cloud, and ensure that your trusted person can easily access them when the time comes. 

Because they are not controlled by governments or banks, cryptocurrency and NFTs must be handled carefully. You do not have the option of calling customer service to reset your password if you forget or lose it. NFT and cryptocurrency passwords should be stored online in a “hot wallet,” or in an offline device known as a “cold wallet.” Either way, someone needs to know how to access your passwords when you cannot. 

Other estate planning considerations for digital assets include the following:

● Your estate plan can provide that your digital possessions be handled by one or more cyber successors who can distribute your digital assets like tangible property. 

● One cyber successor can control your Instagram account, for example, while another can take possession of your Bitcoin. 

● Keep in mind that passwords should not be memorialized in your will, especially regarding cryptocurrency, as they could be made public when the will is submitted to the clerk of court. 

● Consider how technologically savvy a person is before appointing that person as your cyber successor.

Next Steps for Your Digital Assets

Talk to your estate planning attorney about your digital assets and cyber successors. Have a conversation with potential cyber successors about how they would handle your assets, and make sure that they would carry out your wishes before appointing them. Digital assets can be placed into a trust or distributed through your will, or you could grant access to them through a power of attorney. With the help of an experienced estate planning attorney, you can feel relieved that your digital assets will be easily located, managed, and passed to your loved ones.

Your Home = Your Wealth

For most of us, our primary source of wealth is our family home, our primary residence. Especially for Bay Area folks. We have watched our property values soar, and accordingly enjoy built up equity in our homes. The problem—if you want to call it that—is that the equity is not sitting in our bank accounts. It’s “stuck” in our homes. And we cannot access it without selling the ground on which we stand.

This means that for many of us, our largest asset is the thing we sleep in. It’s what is going to make up the bulk of our estate. So when it comes time to create an estate plan, several issues need to be addressed to have a comprehensive estate plan that will be effective when the time comes.

Is your home sentimental?

Let’s face it, unless you leave your home to someone who loves it as much as you do, they’re likely going to sell it and enjoy the cash. If your home is sentimental, or if your family legacy is tied to it, your estate plan should clearly define what your beneficiaries can–and cannot–do with the home. Can they live in it? Can they rent it out? Can they sell it? If they cannot sell it, where does the house end up when your beneficiaries die?

Do you have more than one beneficiary?

Many families leave a bulk of their estate to their children. And many families have more than one child. If you have one home, and multiple children, you don’t want to “leave it up to the kids” when it comes to the family home. What if one child wants to live in it but the other wants to cash out? Is it important to plan ahead for any increases in property taxes? Do you want to allow for either child to have the option to purchase the other’s share?

Are there competing interests for the home?

Many of us are the “‘tween” generation these days. They have little ones at home while caring for one or more aging parents. You may find yourself in a position where you want to provide a place for your parents to live, but also leave an inheritance to your adult children. If you want to keep the house for your parents to live in, have you made adequate plans for the trust to pay the expenses for the home while your parents live there? What if your children need the equity in the home to pay for college while your parents need a place to live? Which dependents get priority?

Many of us do not have adequate cash and other investments to offset distributing our entire home to one child and hope that our other children miraculously receive some equalizing gift. There are lending and other financing strategies to offset such a gift, but they need to be carefully planned for ahead of time. It’s imperative to consider your own thoughts with respect to your home, and then plan accordingly.

Estate Planning for the Self Employed

It takes a lot of courage and hard work to start your own business. Small business owners develop adept skills at being adaptable, flexible, and resourceful. That being said, small business owners are vulnerable to catastrophic risk everyday. Small businesses focus a lot on economic and financial risk. Often overlooked is the impact of personal crises. If an untimely personal crisis–death, injury, incapacity–were to occur, it’s important to ensure that there is a plan in place so that the business can continue to operate, especially if your loved ones are counting on the business to continue.

Succession Plan

A succession plan for your small business is like an estate plan for the business. It defines who takes over the business when you are unable to. It also may include options for certain parties to purchase the business. It helps avoid ambiguities, in-fighting, and allows the business to seamlessly transition without disruption. The succession plan should work in concert with the estate plan. A succession plan can help bridge any gaps between your estate plan and the operation of the business when there are more than one party involved in owning or managing the business. For example, your estate plan can only address your ownership stake in the business. It cannot dictate what co-owners or partners do. A succession plan allows you to create a binding plan on all parties involved.

Special Licensure or Expertise

Perhaps the business at issue is a professional or medical service. If the business relies on special licenses to operate–CPAs, architects, lawyers, dentists, therapists, etc.--then the estate plan and succession plan needs to nominate and appoint appropriate decision makers to step in when you are unavailable. Even without needing special licensure, if the business is primarily fueled by your expertise, a comprehensive plan will account for this. Otherwise, there ought to be a plan for winding down the business if continuing is not possible.

Vendors and Clients/Customers

A comprehensive estate plan addresses all of the authority necessary to conduct your affairs when you are unavailable. This includes dealing with third parties like vendors to the business and the clients and customers of the business. Without the proper authority, those interacting with the business may become frustrated and take their business elsewhere.

There is no blueprint for a proper estate plan dealing with a small business. Part of the reason you started your own business was for autonomy and to be able to conduct business your way. That also means you will need to tailor your estate planning to address every aspect of operating your business.