Your Default Estate Plan, Part I

If you don’t prepare your estate plan, the law has provisions in place to handle the management of your estate and the guardianship of your children. You might not like it, though.

Our July 9, 2019 post “Don’t Delay Your Estate Plan!” highlighted the colossal mess that Prince Roger Nelson (the artist formerly known as Prince) left his heirs by failing to do any estate planning before his death. Prince was not the only multimillionaire to have neglected his affairs – Bob Marley’s wife spent three decades battling numerous claims on his $30 million estate, and Jimi Hendrix’s siblings spent the same amount of time fighting over licensing agreements related to Hendrix’s image.

The thought of preparing an estate plan (will, trust, power of attorney and advance health care directive) may not seem all that pleasant, but it is crucial to the proper management of your household affairs.

If you don’t do your estate plan yourself, the government will decide things for you:

Management of your assets in the event of your incapacity

If you are incapacitated and do not have a living trust and/or powers of attorney in place, a conservatorship of your person and of your estate will need to be established through the court. Any qualified person may petition for the role, with preference given to your spouse, children, and other close relatives. Most actions taken on your behalf will need to be approved by the court and periodic court hearings will take place on your condition.

California conservatorship fees (court filings, attorney’s fees, fees to the conservator) are considerably higher than management of assets during incapacity that are conducted privately through a living trust and durable power of attorney.

Care of your person during your incapacity

Without an Advance Health Care Directive (a combined living will and healthcare proxy), your family will have no guidelines to follow if you are ever incapacitated and are unable to make your own healthcare decisions. The Nancy Cruzan case in the 1980s brought this important issue to national attention, when a young woman’s parents spent more than eight years in court for the right to withhold food and water to their daughter who was in a permanent vegetative state.

Care of your minor children and their inheritance

For parents of minor children, estate planning is crucial. A living trust can provide your children with a suitable trustee to manage their inheritance until they are ready to take control of it – with specific guidelines regarding distributions for education, setting up a business, buying their first home, and designation of the age in which the principal will be paid out to them (usually 25 or 30).

Guardians should be also chosen by you and named in advance in your Last Will and Testament – if you don’t do this, guardians will be appointed by the court if their other parent is not able to care for them. When they reach the age of majority (18), their inheritance will be distributed to them in full – and most likely promptly spent!

Probate and tax consequences

Without a revocable living trust, your estate will likely be subject to probate – California’s fees are among the highest in the country at 4% of the first $100,000, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9 million, and 0.5% of all amounts above that. If you have a large estate, it could be subject to estate taxes (the highest estate tax rate is 40%).

In Part II, we will cover California intestate succession, i.e., who will get your property and money if you die without a will.