January 5, 2011

Estate Planning FAQ

The following are some questions I have commonly heard over the past couple of years:

1. What does a typical estate plan include?

A typical estate plan will include a trust, a certificate of trust, will, advance health care directive (living will), HIPAA release and a durable power of attorney.

2. Do you file your trust with a court or with the County Recorder?

No, there is no requirement that you file a copy of the trust with any government agency when it is written. Furthermore, filing or recording a copy would defeat one of the purposes behind writing a trust, privacy. Trusts are not public documents and hence there is no obligation to provide a public record of them.

Conversely, a will is a public document in that every will must be lodged with the probate court. Prob C §8200.

3. Is a revocable (living) trust a separate legal entity like a corporation?

No, a revocable trust is not considered a separate legal entity. Accordingly, the fact that you transfer property into a revocable trust will not insulate the property from attachment by creditors. Furthermore, since a revocable trust is not a separate legal entity, a federal taxpayer identification number is not required to identify it.

4. Are wills notarized?

No, the common practice is to refrain from notarizing a will because a type-written will requires the signatures of 2 individuals and a notary is only 1 individual. Prob C § 6110.

5. What is the difference between a lawyer and a paralegal/legal document assistant who write trusts?

California law criminalizes the unauthorized practice of law. Bus & P C § 6126. Accordingly, only members of the State Bar of California may practice law. Bus & P C § 6125. Hence, paralegals are not authorized to practice law. The situation then is where you have one group of people who can dispense legal advice and draft the necessary documents, attorneys. Conversely, you have another group of people who cannot dispense legal advice but can provide legal documents to fill out, paralegals.

Naturally most individuals would like to be able to ask questions about the estate planning process and hear their options. Attorneys can explain the options and provide the accompanying documents. Paralegals cannot explain the options, but if they do so, they are subject to criminal penalties.

6. What happens if I live in California but I have property in another state?

The correct procedure is for your California attorney to contact an attorney who is licensed in the state where you own property. I say this because your California attorney, unless they are licensed in that particular state, will be ill-equipped to comply with the laws of that particular state since they are not licensed there. 

Furthermore, your California attorney will be subject to criminal and professional conduct penalties for practicing law in a jurisdiction in which they do not have a license. Regardless, California has some laws that overlap with other states but some California laws are inconsistent with the laws of other states. 

For instance, California law says that trusts are revocable unless otherwise stated. Prob C § 15400. Conversely, most states have laws that state that trusts are irrevocable unless otherwise stated. Thus, you would need the assistance of that out of state attorney to navigate you through the estate planning laws of that state. For example, I had a client last year who owned a farm in Iowa. I contacted an Iowa attorney to coordinate her California trust with her Iowa property.

7. Can I buy estate planning software online and use that in lieu of hiring an attorney?

Yes, there is no requirement that an attorney draft your estate planning documents. 

However, choosing a software program over an attorney has its consequences. I equate this with a false economy, in that you will save money initially, a short-term benefit, but the long-term burdens will eventually exceed the short-term benefits. For example, assume you purchase an online will writing program. It is doubtful that issues such as lapse, abatement, exoneration, ademption or residual beneficiary cross your mind when you are writing a will. Yet all these issues are relevant when writing a will and unless you take them into account when you are writing your will, there can be a host of unanticipated consequences once that will becomes effective upon your passing.

8. What is the hardest part in estate planning?

I can say unequivocally that the hardest part is starting the process. It is very easy to put off the process because death is a very uncomfortable issue. Most people would rather just avoid it entirely. For example, I have a few open cases from 2009.

9. What happens to an ex-spouse’s inheritance?

California law says that a marriage dissolution, generally speaking, results in an ex-spouse being removed as a beneficiary from the other spouse’s will and/or trust. Prob C § 6122; Prob C § 5600.

10. Is there a particular person I should be hesitant to name as a beneficiary?

Yes, if the reader of this article is a mature individual, then they should know that if they leave anything of material value to their care custodian/caretaker, this will invite litigation. Even though there is a procedure which allows for such a transfer. See Prob C § 21351. 

Recent court decisions have heavily scrutinized the procedure and who qualifies as a care custodian. See Estate of Winans (2010) 183 CA4th 102; Bernard v Foley (2006) 39 C4th 794; Estate of Odian (2006) 145 CA4th 152. Thus, it is very precarious to leave anything to your caretaker because your heirs, namely your close relatives, will look upon this with great skepticism.