There are lots of laws that make creating a well-designed estate plan difficult, but the most important law to remember when creating an estate plan is Murphy’s Law. Murphy’s Law states that “anything that can go wrong, will go wrong.” Below I have mentioned five methods that if implemented properly can fight against Murphy’s Law so that your plan can be executed without too much trouble.
Select the correct guardian: Even if you have a trust, if you have minor children you need to create a will. I would argue that you need a will even if you don’t have minor children, but if you have minor children it is particularly important to create a will. In California, a will is the document you use to name the guardians of your children. It’s important to understand what a guardian does. This is not necessarily the person who is going to take care of finances for your children. A guardian is the person who tucks your kids in when you can’t. This is the person that is doing the day-to-day for your children. This person needs to be someone with similar values to you so that your children are raised the way you would want them raised, but it does not need to be someone with a degree in accounting. Often, I advise clients not to make the same person the guardian and the person in charge of the finances. If you have a team to raise your children, it is more likely that they will be raised the way you would raise them if you were still there for them. It is also a great tip to write a letter to your loved ones explaining why you chose who you chose.
Make sure your beneficiary designations are up to date: This is one of the most common mistakes people make in their estate plan. Creating a trust often helps with this problem. While it may be difficult initially to set the beneficiary designations to the trust when you first create a trust, the maintenance is easier because when your plan changes for any number of reasons, you only need to change your trust to change the way in which all your finances are redirected. If you do not have a trust, you will need to redirect your beneficiary designations whenever there is a change in circumstances to match your current desires. IF you do not do this, your gifts will go to unintended beneficiaries. This is often the negative result after a couple gets divorced and did not update their beneficiary designations.
Get enough life insurance: Liquidity is very important in an estate. Even if you have enough saved that you can self-insure it is still important for your loved ones to get liquid funds fast if you pass so they can pay the bills that will inevitably come due (final expenses, property taxes, legal fees, etc.) Having an insurance policy that pays out to your trust is a great way to provide a trustee with liquidity to pay for all your trusts necessities. This is especially important with estates that are real estate rich, but a little light on other types of assets.
Don’t rely on a Power of Attorney: Many create a power of attorney to help their loved ones gain access to their assets if they become incapacitated, but a power of attorney often is not as helpful as one might think. In the state of California Powers of Attorney do not go “stale.” This means they are technically always enforceable even if you created the power of attorney years or even decades ago unless you did something to invalidate the document. This is not the case in all 50 states. This means that some financial institutions that have branches in other states often think that an old power of attorney is no longer enforceable because that is the case in other jurisdictions. This means that using a power of attorney is not always as effective as being the trustee of a trust. There are no states (that I know of) where a trustee is no longer a trustee because the document is too old.
Get your property out of Joint Tenancy: Most situations, if not all, require a different way to hold property. In California, we live in a Community property state. Community property is property that is shared by spouses. If you are married in California and you hold your property in Joint Tenancy rather than Community Property with Right of Survivorship you should talk to an attorney ASAP about whether that is the right way to hold title to your property. In my experience, holding property as community property is better for taxes. Joint tenancy can lead to unintended tax consequences. If this is property that you hold with a sibling or partner of some sort, typically “tenant in common” is more appropriate because then the partners or the siblings can give their portion to the person of their choosing on their passing. Joint tenancy is typically not the best way to title your property.
If you would like assistance in fending off Murphy’s Law with your estate plan, please call us at (951)304-3431.