When I ask why so many people have
never created their own estate plan, they say it is because they "don't
have enough assets to worry about." That is why the probate court exists
- to "take care" of most Californians. I say "take care" of because
once you've been to the probate court, you'll never want to go again.
So, most California residents are ignorant of the consequences of having
no estate planning documents in place.
Financial Incapacity.
Unfortunately, the probate court supervises your assets (however small)
for the rest of your life in the event that you lose capacity to take
care of them yourself. This means that someone who cares about you will
have to go to court every year to explain to a judge how your assets are
being spent and invested, all for the public to see. This person pays
an attorney and an accountant to accompany him/her every year so the
judge is convinced that he/she is not embezzling your assets, however
small. This person is guilty until proven innocent if anything is
missing. Your assets will soon become even smaller at this rate. If you
are over the age of 18, this process is called a conservatorship. All of
this can be easily avoided by having a quality Durable Power of
Attorney for Financial Management in place.
Minor Children. If
you have children under the age of 18, and they inherit assets upon the
death of a parent, their assets would be part of the probate process but
called a guardianship. The same attorneys, accountants and conservators
get paid to "take care" of their money until their 18th birthday, at
which time, the entire amount is distributed to them. How many parents
would normally give their 18 year old child a large amount of money? How
much less so if you are not here to help them make wise decisions.
Healthcare Decisions. If
you cannot make your own health decisions, and you don't have an
Advance Healthcare Directive in place, then someone will have to open a
conservatorship with the probate court (same procedure as above) in
order to have authority to talk to your health care professionals.
Imagine a true story where an 18 year old daughter went to senior prom
and ended up in the emergency room. Her parents went to visit her there
but the doctor couldn't provide any information until they obtained a
court order from the probate judge (conservatorship). It usually takes
several weeks to obtain court orders.
After Death. If you
don't write your own will, California will write one for you. The state
has already created a system to decide who will be in charge of your
estate, your body and receive your assets upon your death. If you have
separate property (not community property), you might be surprised to
find out who stands to inherit it from you - it's not always your
spouse. This probate process takes about one year if all goes well,
requires a lawyer to be hired at a percentage of the gross value of your
estate, requires the administrator to hire the court's appraiser, pay
the court's fees and an accountant is usually involved. For example, it
would cost about $15,000 to pay the probate costs of a $200,000 estate.
It costs about $50,000 for a $1,000,000 estate and goes up from there.
When calculating the estate value, do not deduct any debts, mortgages or
expenses.
Non-US Citizen spouses. There
can be huge tax consequences if you have more than $1 million and your
spouse is a non-US Citizen. You would want to investigate a QDOT trust
to defer the taxes until such time as your spouse can become a US
citizen.
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