Let’s Explore Estate Planning 101 | Law Offices of Steven Brian Davis

Estate Planning 101

Many harsh consequences can be avoided if an estate plan is in place. I hope you will schedule an appointment with me to put these affairs in order, before it is too late.

1. Advance Health Care Directive

You are seriously ill; there is no cure; the difficult choices include life-support, palliative care or discontinuing care altogether; you want life-support stopped; unfortunately, you are incompetent and unable to express your desires to the doctors. Had you executed a Advance Health Care Directive, the doctors would look to the person you designated to make your health decisions, who, of course, would know and relate your intentions to the doctors. Otherwise, (a) the doctors may not honor the desires of your loved ones; (b) even if they do, your loved ones do not know your intentions because you never told them and they will labor under extraordinary stress deciding what you would want;( c) the doctors may provide care that is contrary to your unshared intentions or the desires of your loved ones. We all have heard of the person kept alive by artificial means against the wishes of the family who must endure the extraordinary financial burden of paying for such care.

2. Conservator of the Person

You become incompetent and unable to care for yourself. Who is going to decide where you will live and other everyday matters? Had you planned for this, you would have used an Advance Health Care Directive to nominate someone to serve as your Conservator in such event.

3. Your Finances

You become incompetent and unable to handle your finances. Who is going to act on your behalf ? Who do you trust in such event, not simply to make these decisions for you, but for the benefit of those persons reliant on your support and financial wisdom? Perhaps, you had thought of this possibility and you had executed a general power of attorney designating someone to act on your behalf. Unfortunately, general powers of attorney become invalid when you, the principal, becomes incompetent. Had you thought of these things in advance, you could have executed a Durable Power of Attorney which would permit your “attorney in fact” to act on your behalf should you become incompetent. Better yet, advance planning could have covered this dilemma and many others in a well drafted Living Trust discussed below.

4. Guardian for Your Minor Children

You and your spouse have minor children and both of you are killed. Where will the children live and who will take care of them? Had you planned for this, you and your spouse would have nominated a guardian of the person and estate of your children to cover this disaster. If your children are the victim of divorce, this issue is even more sensitive thus requiring consideration.

5. No Will or Trust

You’re dead, without a Will or Trust. Who did you want to get your property? It doesn’t matter! Without a Will or Trust, your property will be distributed in accordance with the law of intestate succession. Under California law, relatives who survive will get certain percentages of your estate. If you had a Will or Trust, you probably would distribute your estate differently than according to the statutorily prescribed percentages.

6. Avoiding Probate

Probate is a court process requiring on your death, (a) appointment of a personal representative of your estate who must account to the court for all estate-related actions; (b) the estate assets and debts are marshaled; ( c) the creditors are notified and their claims are determined and paid; (d) the “net” estate is distributed in accordance with the Will or, if none, the laws of intestate succession; and (e) the personal representative having completed his duties is discharged.

Probate of your estate is a matter of PUBLIC RECORD, depriving your loved ones of their privacy. Probate is TIME-CONSUMING, taking about 8 months to 1-1/2 years to finally settle an estate. And it is EXPENSIVE, about 10% of the value of your estate to pay for the attorney and executor fees, filing fees, publication charges, estate bond premiums, etc.

Probate generally is required with or without a Will. However, with a well drafted Living Trust, you can spare your loved ones the misery of probate and the attendant publicity, delay and expense of settling an estate on both your death and the death of your spouse.

7. A Word About Joint Tenancy

Property you hold in joint tenancy will go to the surviving tenant on your death, without probate. However, that property will be probated on the surviving tenant’s death. Not so with a Living Trust.

Solely placing someone on joint tenancy title allows them on surviving you to use the property however they wish. Assume a substantial investment account to be used for the benefit of your children, so you hold the account in joint tenancy with the children or with another to use it for their benefit. The account would pass from you to the surviving tenant(s) without condition. Hence, there is be no assurance nor any requirement that your desires are honored. With a well drafted Living Trust, you specify how that account is to be used and thus assure that your wishes are met.

Joint tenancy is a problem for married couples whose property will appreciate substantially over the years, like the family home. Following the first spouse’s death, the survivor frequently will sell the home to move into a smaller less expensive residence. If that home is held in joint tenancy, the surviving spouse may be subjected to a significant capital gains tax when it is sold. However, if the family home were held as community property, it would take on a “stepped up basis” equal to its value at the date of the first spouse’s death, and there would be little if any capital gains tax when sold.

8. Death Taxes

Two things are inevitable in life, death and taxes.  But did you know that many of us will pay taxes after we die?  A tax is imposed on your entire estate, including your pensions and life insurance.  The death tax “bite” is significant.  An estate over $5MIL as indexed for inflation (presently, over $5.34MIL) is taxed at a rate of 40% with a surviving spouse having the option to reduce the taxes through “portability” which means that when the surviving spouse passes, any unused portion of the first-to-die spouse’s exemption can be applied to the surviving spouse’s $5+MIL exemption.

9. The Living Trust

The Living Trust is a key component in an estate plan.  For example, in the spouse-to-spouse-to-children scheme, probate and the attendant publicity, delay and costs on the death of the first and second spouse can be avoided, and estate taxes on estates up to the amount of both spouse’s estate exemptions, can be eliminated.  And there are other estate planning devices and strategies that can eliminate or significantly reduce death taxes on the much larger estates.  Also, the Living Trust permits you to spell out in detail how you want things to be done, which is not realistic, for example, with property held in joint tenancy or in a California Gift to Minor Act account.

The Living Trust is in force and operation during life and can be amended and revoked during the life of the person(s) creating it.  Accordingly, the creator of the Trust (called the settlor or trustor) can “try it on for size.”  Armed with knowing how it works while alive, the settlor can rest assured that the Trust will effect the intended purposes following death.

Having a Living Trust creates no significant changes in the day-to-day.  The only practical difference is that property will be held in the name of the Trust rather than your own.

An estate plan may consist of other devices, for example, irrevocable trusts for insurance proceeds, charitable gifts and other things, in part, to further reduce the size of the death estate for tax purposes; a “pour-over Will” to assure that none of your property is left out, and the other devices related above.  Larger estates or where family businesses are involved may require additional estate planning tools that are beyond this general discussion.

10. A Word About Buying That Cheapest Estate Plan “Off the Rack

That Cheapest Estate Plan “Off the Rack.  Estate planning is not a product.  It is a service that requires assessing your needs and ultimately preparing the documents that will carry out your intentions.  One size does not fit all.

 For those who have an estate plan, understand that estate planning is an ongoing process that must be revisited regularly.  Your needs and circumstances change (marriage, death, divorce, changed minds, property sales and purchases, changes in job, investment and finances generally).  Additionally, continuing changes in the law can make a trust previously drafted now obsolete.


The federal estate tax exemption for 2022 is $12.06 million/ $24.12 million for married couples.

The exemption is adjusted annually for inflation each year, but is set to expire in 2026.

If Congress does not act, 2026 exemption will revert back to $5.49 million/$10.98 million for married couples as adjusted for inflation.

Estate portion in excess of the exemption is subject to a 40% tax.