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The following are situations in which it is suggested that a person have an attorney review their will/trust. This list is not meant to be all-inclusive as there are other situations obviously which necessitate a review of one's estate plan. I have found that most clients update or change their estate plan a few times over their lives as most people encounter similar life-altering situations: inheritance, passing away of a loved one, employment change, etc.
A. Familial and Personal Matters
1. Marriage or domestic partnership of client (prenuptial/postnuptial agreements)
2. Death, divorce or separation of spouse (trust administration/probate)
3. Development of long-term, committed unmarried relationship
4. Dissolution of long-term relationship or death of domestic partner
(palimony issue)
5. Birth, adoption, maturity, marriage, divorce, or death of a child or grandchild
6. Death of a beneficiary (anti-lapse issue)
7. Serious illness or incapacity of spouse, domestic partner, child or any other significant beneficiary (conservatorship)
8. Significant change in economic status of spouse, domestic partner, child, or any other significant beneficiary
9. Significant change in relationship between client and any beneficiary
10. Significant change in client's health
11. Client's change of residence to another state or country
12. Change in relationship between client and person named as executor, trustee, or guardian; incapacity, unavailability, or death of same
B. Financial Changes
1. Significant change in income, net worth, or nature of assets
2. Disposal of specific assets mentioned in will (inheritance)
3. Employment change
4. Change in business interests: new partnerships or corporations; dissolution of partnerships or corporations
5. Acquisition or disposal of property in a different state or country
6. Retirement
Once I have finished talking to a prospective client who is interested in drafting a trust, invariably I am asked "what is the cost of a revocable (living) trust."
Stated honestly (yes I said that), I reply "it depends." I know that sounds like a cop-out but it is actually the best answer an attorney can give you because each client has a unique circumstance. For an attorney to quote the same fee to every client indicates incompetence and a lack of care for the client because the attorney is not evaluating the client's case but rather seeing the client as a cookie and themselves as the cookie-cutter.
There are a number of factors that dictate an attorney's fee quote. The following are some of the factors I and other attorneys I have spoken to use:
1. Size of the Estate
If your estate is substantial, there might be an estate tax issue starting in 2011 (and possibly 2010 depending on Congressional action) and also a situation ripe for litigation. First, in regards to the estate tax issue, if your estate will exceed the applicable exemption amount, $1M for 2011 (subject to change), then it is often
suggested to create some type of trust to cushion the blow of the estate tax in addition to drafting a revocable trust. This might take the form of an irrevocable life insurance trust or a charitable trust. Thus, there is more work involved for the estate planning attorney which increases the fee.
Second, if you have a substantial estate then there is a probability of a family squabble upon your passing when your estate is distributed.
I have heard of countless court battles because the decedent (the dead person) left money to one set of heirs to the exclusion of another. This is not a problem worth litigating over when your estate consists of a $20,000 bank account and a 1992 Honda Civic. However, when your estate is comprised of a $2M home, a 1991 Rolls Royce Phantom IV and other valuable assets, then there will probably be a battle between the heirs. I say this because from experience, no matter how you structure your estate, some person will feel slighted. For example, assume that John was disinherited by his widower father Bill as Bill left everything, $1M total in trust, to John's sister Desdemona. Since John received nothing he has an incentive, albeit unethical, to try to invalidate his father's estate since if his father's trust is invalidated, John would receive half of Bill's estate through California's inheritance law (intestacy). Prob C § 6402. Hence, there is more risk involved for the estate planning attorney because of the threat of litigation thereby the fee is increased accordingly.
2. Blended Family
It is not uncommon for a client to have been re-married today. The legal ramification of this is that line between community and separate assets is muddled. This is relevant because a married client can distribute 100% of his separate property but only 50% of his or her share of the community property upon their passing.
For example, the client purchased a home with a prior spouse in Oregon while the two were living there and then re-married in California while a resident here. Consequently, the client is often unclear as to which part of the house is considered community and which is separate. Hence, the estate planning attorney will have to utilize the various methods for distinguishing between community and separate property and the value of each. Due to the added work load, a client should expect a higher fee in such case.
3. Multiple trusts
A client will often wish to benefit not only their kids but also their grandchildren. By desiring for such, the client has implicitly agreed to the drafting of multiple trusts, in that one trust will govern the terms of their kids' trusts and another trust will govern the terms of their grandkids' trust. Due to the drafting of these multiple trusts, the attorney's fee will be enhanced.
4. Out of state property
Many Californians are either first or second generation. As a result, many came to California already having owned property in another state or were eligible to inherit property from their out of state relatives. Even though many states have similar estate planning laws, each state is nonetheless unique.
For example, California law presumes that a trust is revocable (it can be amended), whereas most states presume that a trust is irrevocable. Probate C §154000. Thus, despite the fact that California law mirrors the laws of other jurisdictions in many instances, a California attorney is ill-equipped to comment on the estate planning laws of another state. Likewise, an out of state attorney is equally uninformed to comment on California estate planning law. If a California resident then has property in another state, the appropriate (and ethical) step that should be taken by a California attorney is to refer the client to a competent out of state attorney to handle the client's out of state property.
Recently, I had a client who owned property in a Midwestern state. I drafted the necessary estate planning documents for their property here in California. I then associated with an attorney from that Midwestern state to handle the client's Midwestern state property. Accordingly, the fee for the client increased because their estate required the assistance of attorneys from two states.
5. Special assets
Many clients have assets that are deemed "special." Examples of special assets include family-owned businesses, farms, ranches, vineyards, intellectual property, companion animals and compensatory stock options. Each of these items presents unique challenges to effectuating the client's wishes.
For example, I had clients who owned a closely-held business. In order to meet the estate planning goals of the client, a buy-sell agreement was drafted. Furthermore, I am currently working with clients who have many pets and would like to provide for these pets should they predecease their pets. The solution to the problem is to create a pet trust. Of note, California has a very thorough probate code section for pet trusts. Prob Code § 15212. Since each special asset requires an attorney's added attention, the fee will be increased accordingly.
It is quite common for a husband and wife or domestic partners (same-sex couples/mature couples) to jointly hold title to a bank account, whether checking, savings or both. For example, John Smith and Mary Smith have a joint bank account at the local credit union. Generally speaking, money remaining on deposit in a joint account at the death of a party belong to the surviving party or parties and not the estate unless there is clear and convincing evidence of a different intent subject to Prob C § 5600. Prob C § 5302(a).
Of note, Prob C § 5600 refers to transfers to ex-spouses, which are considered null and void if the transfer was done prior to or during marriage. For example, John divorces Mary before he passes away. Consequently, Mary would not be entitled to inherit from John the joint bank account per Prob C § 5600.
Regardless, if John Smith passes away, $250,000 is remaining in the bank account and John is still married to Mary at his death, then Mary Smith would solely inherit this bank account. In order to do this, Mary would most likely have to present to the financial institution:
1. A certified copy of the death certificate
2. Proof of the client's identity, and
3. A copy of the checkbook
What is particularly relevant is that the surviving joint account holder, and not the estate, is entitled to the bank account. For instance, if John had a will directing that all of his estate be given to Aunt Gladys, then the joint bank account would not be included in his estate and thus Aunt Gladys would not be entitled to any portion of that bank account.
There is a common misperception that beneficiaries under a will are entitled to all of the will writer's possessions. This is not true. Numerous assets are not governed by the terms of a will.
A durable power of attorney for financial management is a legal written document in which a person, the principal, appoints another person, the agent or attorney-in-fact, to serve on their behalf.
For example, Patricia is leaving the country for a vacation and needs to sell her house. Patricia will not be able to sign all the necessary paperwork at closing. Hence, the sale will not go through. However, Patricia appoints Amber to be her agent so that Amber can sign on Patricia's behalf in order to sell her house.
In terms of estate planning, a power of attorney is used to guard against the unexpected incapacity of a person, since your bills will still become due regardless of your physical condition. For example, Patricia is involved in a car accident causing her to fall into a coma. If Patricia lacks a power of attorney, a court-appointed conservator of her estate is needed. For sake of argument, Patricia's conservator is named Charlize. Charlize' duties are to manage and use Patricia's property for both Patricia's benefit and those for whom Patricia is obligated to support, namely children. Prob C § 2401. In short, a conservatorship is public, costly and time-consuming.
Conversely, a power of attorney can accomplish the same objectives of a conservatorship without the need for public intervention, costly expenses or length of time. Thus, estate planning attorneys almost universally include a power of attorney when writing a comprehensive estate plan so as to avoid a conservatorship. Similarly, attorneys write others legal documents to avoid the need for court intervention in other estate planning situations. For instance, a trust avoids the need to probate a trust drafter's estate.
The key when drafting a power of attorney is to make sure it is durable. In that, the power of attorney must contain a statement that the power of attorney shall not be affected by subsequent incapacity of the principal, or shall become effective upon the incapacity of the principal, or similar words. Prob C §4124. If the power of attorney lacks the language required by Prob C § 4124, the agent lacks authority during the principal's incapacity. In our case, if Patricia's power of attorney did not contain the required language of Prob C § 4124, her power of attorney would not be valid should he become incapacitated. Thus, the power of attorney would essentially be a worthless document. Consequently, Patricia would then need a court-appointed conservator of her estate to manage her financial affairs and everybody but Patricia and her family would arguably benefit, the attorney, the conservator, the accountant, etc.
Finally, it should be noted that a power of attorney for financial management only relates to a person's estate, namely their finances. The other legal aspect of an individual is their "person." Decision relating an individual's "person" relate to health care decisions. The legal document used to coordinate an individual's health care decisions with an appropriate agent is called an advance health care directive. Prob C §§4600-4806.
