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No, this is not an advertisement for a service that creates estate plans. For that, you need to retain an estate attorney; but I am not any kind of an attorney. Also, this is not a "how to" for creating your own estate plan. For that, you again need a professional, an estate attorney. Instead, this is a plea — a campaign based on personal experience — for every adult to have an estate plan in order to spare his or her survivors the extreme efforts required to settle an estate when there is no plan.
My son Allen died on 8 April 2013 at age 46. For four years before then, he lived with inoperable lung cancer. Then, for four months, he quickly declined and died. During the years in which the cancer did not prevent him from working, caring for his family, playing coed adult softball, I pleaded with him to get a will and durable power of attorney for health care; but Allen was in denial and never acted on my plea.
When Allen died, he was divorced from his first and only wife. (In California, we call that "dissolution of marriage", not "divorce".) With no will and no wife, his only heir was his 5-year-old son. My grandson's inheritance included savings and checking accounts at a credit union, 401(k) plans at two prior employers, an IRA, and a Roth IRA. The estate also included bills, bills, and more bills, some of which were not really valid. As Allen's closest adult relatives, my wife and I became responsible for settling the estate. This involved closing Allen's apartment and selling his furniture and other possessions. It also involved securing some small sums of money held by the State of California's Unclaimed Property Office.
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In April 2016, the entertainer and songwriter Prince died. He left an estate worth at least $150,000,000, possibly more than $300,000,000. Much of that estate consisted of the rights to his music.
Prince died without an estate plan, with neither a will nor a trust! Under the laws of Minnesota — where Prince lived and died — the lack of a will means his sister and five half-siblings are his heirs. The 29 additional individuals who also claimed to be heirs had their claims dismissed by the court in Minnesota.
At the time this is written, settling Prince's estate has barely begun. Lacking an estate plan, it is possible that Prince's estate will be divided, with each heir receiving the rights to part of his music. Breaking up Prince's collected works that way might reduce the value of the estate.
His heirs would have been better served if only Prince had an estate plan.
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Since my grandson was only 5, his inheritance required protection and supervision by an adult. My son had requested that, if he did not survive, I handle this instead of his ex-wife. Without a will and without a trust for the benefit of my grandson, the protection and supervision of his inheritance required a guardian of his estate (quite distinct from a guardian of a person). Fortunately, my son's ex-wife formally agreed that I could be the guardian of the inherited estate while she remained the guardian of the person of her son. Even with her agreement, however, this guardianship involved an estate attorney, a court-directed investigation of my wife and me, a court-directed appraisal of the assets of the estate, and my appearance with the attorney in court. Notices of the court session were sent to my son's ex-wife and her mother (my grandson's other grandmother). All this cost money, which reduced my grandson's inheritance.
During the court session, my attorney raised the point that my son's bills needed to be paid. The judge agreed and added a provision for that action to the order of guardianship. Only then was I able to access my son's credit union accounts to pay his bills. The order of guardianship also enabled me to claim my son's 401(k) accounts on behalf of my grandson and to file a claim with the state for my son's unclaimed money: two health insurance reimbursements and a final paycheck from a former employer. It took approximately seven months after Allen died before I could start to collect the funds in his credit union accounts and start to pay his bills. Some creditors were patient. Others sent the bills to collection agencies despite my prior communications about the lack of a will and my assurance that, once access to the accounts could be arranged, the bills would be paid.
More than a year after the guardianship was established, after Allen's last bills were paid, and after a checking account for Allen's estate was closed, an additional asset was discovered: a death benefit from an employer's pension plan. The employer wanted to pay the death benefit to Allen's estate, which no longer existed. Almost six months later, another asset was discovered: a refund of the automobile insurance premium on a policy that was cancelled when Allen was no longer able to drive a car. The insurance company wanted to pay the refund to Allen. The resolution of both issues required significant paperwork before the money could be added to my grandson's estate.
The guardianship of my grandson's inheritance requires ongoing involvement of the court. At the one-year anniversary of the order of guardianship, I was required to return to court and again assert the need for the guardianship and provide a professionally prepared accounting. Thereafter, I must repeat this every two years until my grandson becomes an adult, each time repeating the costs of legal and accounting services.
The continuing involvement of the court and the resulting ongoing costs could have been avoided if Allen had a will and a trust for his son. Thus, it should be obvious why I campaign for others to avoid the effort and financial burden created by Allen, why everyone should have an estate plan.
Every adult requires a will. (Minors are usually not legally competent to have a will.) Only if you are homeless, have no possessions of even minor value, and owe no debts might you not require a will.
In my son's case, his estate also had to file an income tax return separately from his final personal income tax return. No, this did not involve estate taxes. This involved a 401(k) plan for which my son failed to designate a beneficiary; under the terms of that plan, my son's estate became the default beneficiary. Since the estate could not own a 401(k) plan or an IRA, the 401(k) plan had to be cashed-out, which created taxable income to the estate. Another 401(k) plan of my son's also failed to have a beneficiary, but the terms of that plan made my grandson the default beneficiary with no taxable income to the estate.
One important thing to remember is that every mentally competent adult is legally entitled to make a will, but no one (except a spouse in most cases) is entitled to inherit anything.
Another important thing to remember is that, as long as you are an adult, you are not too young to have a will. My son was 46 when he died.
A word of advice: Wills can create conflicts among heirs and also among the disinherited. To minimize conflicts, I strongly urge that the executor of your will NOT be an heir.
When a trust is used in estate planning, the trust actually owns the property of the estate. This can simplify and speed the transfer of an inheritance from you (now dead) to your heirs. Thus, when you die, the ownership of your assets does not change until the estate is distributed.
Not everyone needs a trust, but most of us might find a trust to be handy. A trust is needed in the following cases. Note: Where the terms "guardian" and "guardianship" are used, that also includes "conservator" and "conservatorship". The difference is primarily in the age of the beneficiary, with guardians serving minors and conservators serving adults. (In the latter case, the adult is not competent to handle his or her own finances.)
For any purpose, you must establish a trust during your lifetime. An estate attorney can tell you if that includes specifying the creation of the trust in your will, in which case the trust is actually established at the moment of your death.
Lacking any will or trust when you die, it is too late after your death for whoever administers your estate to create a trust for the benefit of a child or dependent adult. In California, the closest I was able to accomplish was to create a guardianship for my grandson's inheritance. If my grandson were developmentally disabled (which he is not), the guardianship would become a conservatorship when he reaches age 18. A guardianship or conservatorship is a very poor substitute for a trust.
|The courts might be involved during probate of the estate. After the estate is settled, there is no further involvement by the courts. Eventually, the trustee is accountable only to the beneficiaries of the trust.||The courts are absolutely involved in creating a guardianship; an order of guardianship must be issued by a judge. Then, until the beneficiary becomes an adult, the courts require periodic justification for continuing the guardianship and also require periodic accounting of the assets under guardianship. If the beneficiary is somehow impaired, that supervision by the courts can continue indefinitely during the entire lifetime of the beneficiary. The justification and accounting require court filings prepared by professionals, with filing fees and fees for the professionals.|
|The trust document can give the trustee significant flexibility in how money in the trust is invested. While records of the purchase and sale of assets should be archived, such transactions are not under the control of the courts.||In California, the court must give prior approval before a guardianship can sell any real estate (e.g., your house). Also, money in an estate under guardianship normally is invested only in federally-insured bank certificates of deposit. My estate attorney and I had to present the judge with an argument why my grandson's inheritance should instead be invested in a mutual fund. (The argument presented two issues: (1) my grandson is not dependent on his inheritance for his support and (2) low interest rates on certificates of deposit and inflation would combine to erode the value of the inheritance by the time he became an adult.)|
|The trustee might or might not be paid for services, depending on the terms specified in the trust document.||The guardian's compensation — including allowable reimbursement of expenses — is determined by the court.|
|A trustee must be bonded only if the trust document requires bonding. The trust document should then indicate whether the trustee or the trust bears the cost of a bond.||California law requires a guardian to be bonded unless a judge can be convinced that bonding can be waived. In most cases, bonding is waived only if the guardianship is "blocked"; that is, no funds can be paid out without a court order. If bonding is not waived, the judge determines whether the guardian or the estate pays for the bond.|
|Obviously, a trust is arranged by you in advance of your death. You have reviewed all the details, and they are in place before the trust is really needed.||Someone must petition the probate court to create a guardianship. If no one submits such a petition, the court will appoint a public official to be the guardian; in California, this is usually the county's treasurer. In some counties, overworked and underfunded treasurer's offices have neglected estates in guardianship, causing real estate to deteriorate, personal property to be lost, and improper investments to be made.|
Overall, the courts micro-manage guardianships and conservatorships but are involved in trusts only when a beneficiary accuses a trustee of mismanagement.
NOTE WELL: In California, if the lack of a trust results in the need for a guardianship for an estate and no one is willing to serve in that role unpaid (as I am doing), the probate court will appoint a county official to be the guardian. Too often, that has resulted in severe erosion of the value of the estate through neglect and outright incompetence.
Words of advice:
Wills and trusts are not the only parts of an estate plan. A comprehensive estate plan is a plan for how you want your possessions and assets handled and distributed when you die. It also includes what you want to happen to yourself as you approach death and after death. Among the documents you need are:
A cemetery plot for one person can cost more than $5,000; mortuary services cost even more, possibly exceeding $7,000. You might have life insurance to cover the cost of your burial; but does your family — your survivors — have sufficient funds to cover those costs while waiting for the check from the insurance company? Our daughter pointed out that she and our son (before he started to lose his battle against cancer) together could not pay for a funeral for one of us, with the assumption that one of us would pay for the funeral of the first of us to die.
After some research, I determined that the cost of buying cemetery plots before we die is less than buying them when one is needed immediately. A double-deep plot costs less than a double-wide plot. We first paid for our plots, and we recently finished paying for mortuary services. When the second of us dies, our daughter will only have to pay an honorarium to the rabbi who performs the funeral service.
Unfortunately, it is too common that you will be incapacitated before you die. With all of our accounts as joint — other than our IRAs and Roth IRAs — my wife and I can handle each other's finances if that happens to one of us. But our son did not have that arrangement. I had to front his final expenses while he was dying plus his funeral expenses and could not get reimbursed until a year after he died, until after all other debts were paid. In the meantime, his savings and checking accounts were frozen for seven months.
Every estate plan should include a power of attorney for financial affairs. Since that power of attorney expires when you die, you might name the executor of your will or trustee of your trust as having the power of attorney. That would provide continuity in handling your final debts.
Because of accident or disease, you are in a coma from which your doctor strongly believes you will never awake. Do you want your doctor to keep treating you in hope that you might indeed recover? Or do you want your doctor to allow you to die? I cannot tell you which is the correct decision; this is too personal and very debatable. I can tell you, however, you should make a decision now while you can and not delay until you are no longer capable of expressing your wishes. You definitely should not make your family agonize over such a decision, especially because conflicts over the decision can horrifically split a family apart.
There are several ways to document how you want to be treated when doctors agree that you will most likely not recover from an illness or accident.
California's Probate Code now makes advance directives the same as durable powers of attorney for health care, indicating that an advance directive should name an agent who will have the legal power of an attorney relative to your care.
Yes, I strongly believe that a durable power of attorney for health care is far more important than the other two documents. The key feature is the appointment of an agent that you trust to fulfill your wishes.
If you are an adult, you are never too young to have a durable power of attorney for health care. At age 26, Terri Schiavo suffered a heart attack that temporarily deprived her brain of oxygen. The damage to her brain left her in a vegetative state, sometimes called a "waking coma". Unable to even swallow — let alone feed herself — Terri received food and water through a tube inserted into her stomach. Lacking any written expression of her wishes, her husband and parents fought each other for 15 years over whether to remove her feeding tube and allow her to die. Do not subject your own family to this horror.
In California, the Probate Code contains a template for creating a durable power of attorney for health care along with instructions on how to tailor its provisions to suit your own situation and wishes. This means that — unlike a power of attorney for financial affairs — you might not need an attorney to create a durable power of attorney for health care. In addition to the sections in the template, our estate attorney advised us to include a section on HIPAA (the federal Health Insurance Portability and Accountability Act), which imposes strict rules regarding health care privacy; the attorney expressed concern that HIPAA might limit the ability of our agents to discuss our care with doctors when we are incapacitated.
Advance care directives, durable powers of attorney, health care proxies, and other such terms are used in other states. Forms for outside of California are available through Caring Connections, which is part of the National Hospice and Palliative Care Organization.
The physician orders for life-sustaining treatment (POLST) is a relatively new legal document. This is a one-page (two-sided) form that is completed jointly by you and your primary doctor; no attorney is involved. Unlike a durable power of attorney for health care, which provides for your eventual care after your condition has been evaluated by a doctor, POLST gives emergency care givers (both ambulance responders and emergency room doctors) their initial orders for your care. Thus, a POLST might indicate that you wish all effort be made to resuscitate you while your durable power of attorney for health care indicates that you do not want resuscitation. The former is for your treatment before a full evaluation of your health status is done, and the latter is for treatment after such an evaluation.
A POLST form valid in California can be downloaded from the Web; similar forms are used in most states. The form should be printed on bright pink paper to attract attention. Completion of the form should be done in consultation with your doctor in your doctor's office and signed by both of you. Your doctor then makes a copy — also on pink paper — for your medical records. (Those records should also contain a copy of your durable power of attorney for health care.)
The recommendation is that your POLST should be posted in your home in a place where emergency responders will see it immediately upon entering, which is why it should be on bright pink paper. In our case, our POLST forms are in envelopes with contact information (family and doctor), medication lists, brief medical histories and statuses, and our durable powers of attorney for health care. A bright orange sign in our entry hall tells emergency responders where to find those envelopes, which are visible to anyone standing near that sign.
My father had a will when he died. Since my brother and I were already adults and our mother was our father's sole heir, the fact that Pop did not have a trust was probably unimportant. What was important was that Mom had to spend several weeks combing through drawers and cabinets to find all the papers necessary to settle Pop's estate. This illustrates why an inventory of important papers is necessary and why it should be updated frequently.
Our inventory includes the following items and where they can be found:
This inventory also includes a list of the contents of our bank safe deposit box, which duplicates some of the other entries in the inventory. Note that some items are encrypted; the decryption keys and passwords are in a sealed envelope in our safe deposit box. A copy of our inventory is in a notebook with our wills and trust documents. Our daughter and the first substitute trustee of our trusts also have copies.
6 December 2014
Updated 28 October 2018
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