When Should You Consider Estate Planning?
Estate planning is often thought of as something only for the sick and elderly. However, nothing could be further from the truth so today we're going to be talking about when you should consider doing some estate planning. Typically, the first question I receive when someone finds out I'm an estate planning attorney is when they should be setting up their estate plan. Usually, I'll ask them if they have a house or kids and use those answers to guide the conversation, but I think sharing my underlying thought process may be more helpful if you were wondering when you should worry about estate planning – something I expect to be the case otherwise you wouldn't have clicked on this post.
As a quick preface, planning one's estate can mean many things or creating multiple documents at the end of the day. However, to keep matters simple, below I'll be focusing around four main documents in your estate plan: the revocable living trust, your last will and testament, and your healthcare and financial powers of attorney which are two documents. With that, there are three factors to consider when determining whether you should begin planning your estate: planning for care now, planning for care later (for yourself and/or loved ones), and planning for the disposition of your estate.
Planning Care for Now
Let's talk about that first category, planning for care now. Even if you have nothing – by which I mean real estate, children, or significant assets – that does not mean you don't or won't need help should you be unable to help yourself. This is where documents like powers of attorney come into play. For example, you can't predict when an unexpected medical event will occur, such as a car accident. If you're not in a position to manage your health or finances because you're stuck in a hospital, then you are going to need someone that you designate to work on your behalf. Under a financial power of attorney, that is your attorney-in-fact, and under your healthcare power of attorney, that is your agent.
Not having a financial power of attorney in place means a bank is not going to let someone else manage your finances, pay bills, or even access bank statements. Additionally, not having a healthcare power of attorney, or advance healthcare directive, may lead to your family fighting over what to do and medical staff unable to act or only do the bare minimum. Many of you might remember Terri Schiavo. In that case, Terri had nothing in writing when she collapsed and although she was revived, she persisted in a vegetative state she never recovered from. The entire matter – 14 court cases, involvement from the Florida governor, Congress and the President of the United States, and national media attention – rested on the husband's claim of an oral statement from Terri that she did not want artificial life support if there was no hope of recovery vs the parents' desire to keep their daughter alive as they still had hope for recovery. Just because you don't think you have enough assets to manage does not mean you won't need someone's help when the time comes. It is best to have the pieces in place now rather than wish you had later.
Planning for Care Later
Next, we have planning for care later or in the future. This can be broken down into two sub-categories: family planning and long-term care planning. This is where children and the elderly come into consideration. If you have, or expect to have, children, then part of your parental duty is to plan for the care of that child in the event you and your partner aren't around to provide for them. In your last will and testament (or a separate document called a nomination of minor guardians), you can nominate who you wish to be the caretaker of your child. You can even specify a guardian for the finances and a guardian for their care. This is typically done in conjunction with a living trust wherein you set aside the money to be used for your child's care so that it is legally obligated to be used for their benefit and will avoid probate on your passing, allowing for more of your estate to be preserved by avoiding huge legal fees and lengthy time delays. Just like the powers of attorney, having nothing in writing means you have no input on who is to become the guardian of your child and leaving it up to family and courts to fight it out. Having your wishes known, in writing, will carry great weight with the court who is going to be the final arbiter of what is in the best interest of your child. Again, not something you want to leave open-ended or up to chance.
The other aspect of care for later I mentioned is long-term care planning. If you or a loved one needs to go into an assisted living facility, a nursing home or be on hospice, then unless you or they do the proper planning and preparation ahead of time, their assets can be wiped out as the cost of long-term care is extensive. It could be upwards of $10,000 a month depending on what care is required. Plus, if you're on a program such as Medi-Cal but you didn't plan properly ahead of time, then your house may be subject to a Medi-Cal recovery claim. Essentially, the government coming to collect against the value of your home for the cost of your care. Not properly planning for long-term care concerns could mean depleting your estate now or opening it up to the government after your pass away.
As a quick note, there is a video on our YouTube channel where attorney Dale Bethel discusses Medi-Cal and the qualification process in great detail. It is a year old at this point but still extremely relevant and illuminating. We plan on posting an updated presentation soon so subscribe and click the bell to be notified when that is released. Alternatively, you can subscribe to our monthly newsletter as well.
Planning for the Disposition of Your Estate
Finally, we have the category of planning for the disposition of your estate after your passing. In layman's terms, who gets your stuff and how much do they get. This is where the revocable living trust shines. If you have children, if you have real estate regardless of the value, or if you have cash, securities, or other collectibles that in total are over the probate threshold for your state, then you need to plan your estate and you need to create a living trust. I've already discussed at length about children and planning for their care, so I'll briefly go over the other two that I mentioned.
Real estate, regardless of the value, is going to trigger some involvement of the probate court no matter what. In California, there are basically two routes that may be taken to administer real estate depending on the value, but both mean court involvement. The shortened process is only for real property below approximately $61,000 as of April 1, 2022, which in California is an empty lot out in the desert. Any real estate above that value will need to go through the normal probate process, something we've talked extensively about on this channel on why you should avoid it like the plague.
However, even if there is no real estate subject to probate, your estate may still have to go through probate if, when adding everything together, it totals over $184,500, again as of April 1, 2022. If everything is above that value, then probate court involvement is required. This number will vary by state, but unless you live in California, assume your state's probate threshold is lower, meaning less money is needed to trigger a probate. Estate planning through a revocable living trust means you control where your assets go, for who's care it is to be used and allow for your estate to avoid probate thus preserving more of it to go where you want it to.
Summary
To summarize, you should begin planning your estate:
1. Right away utilizing powers of attorney at the very least since you cannot predict disaster.
2. When there are children in the picture, or long-term or elderly care appears to be on the horizon.
3. When you have assets that may trigger a probate - any real estate regardless of the value or significant value in other assets (or at least what your state considers as significant).
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