Introduction: What’s So Special About Estate Planning in California?

• What Will I Get Out of This Book?

1. What’s in an Estate Plan and Why Do You Need One?

• Getting Started
• Understanding Probate
• The Workhorses: Wills and Trusts
• Preparing a Personal Inventory and a List of Beneficiaries
• Special Estate Planning Issues When You Own Real Estate

2. Wills

• Making It Legal
• A Will Is Just One Part of Your Estate Plan
• Right of Survivorship: Property You Own With Others
• Choosing an Executor
• Choosing Guardians and Managing Money for Children
• Planning for Pets
• Preparing a Will Worksheet
• Making a Will: A DIY Project or Not?
• Once You’ve Done Your Will
• What Happens If You Don’t Make a Will?

3. Living Trusts

• What Is a Living Trust?
• Creating a Living Trust: The Settlor’s Job
• Casting the Play: Selecting Trustees and Beneficiaries
• Preparing a Trust Worksheet
• Creating a Living Trust: DIY Project or Not?
• Transferring Assets Into the Trust
• Pour-Over Wills

4. Estate Planning and Your Minor Children: Choosing a Guardian

• Get It Done
• What Guardians Are (and Are Not) Responsible For
• Court Approval and Oversight of Guardians
• Picking the Right Guardian
• Common Problems and Some Solutions
• After You’ve Chosen a Guardian: Talking It Over
• Giving Guardians Some Written Guidance
• Congratulate Yourself on Choosing a Guardian!

5. Leaving Money to Children

• Money and Kids: The Basics
• Custodial Accounts
• Children’s Trusts
• Your Backup Plan: Appoint a Property Guardian
• Pull Your Plan Together
• Life Insurance Primer

6. Estate Planning Across Borders

• Estate and Gift Taxation of Non-U.S. Citizens (Resident and Nonresident Aliens)
• Taxes on Assets in Other Countries Held by U.S Taxpayers
• Naming International Trustees and Executors
• Naming Guardians for Minor Children Who Don’t Live in the U.S.
• Estate Planning for a Noncitizen Spouse

7. Yours, Mine, and Ours: Estate Planning for Blended Families

• Community Versus Separate Property
• Community Property and Taxes
• Planning Strategies for Blended Families
• Planning for Children of Different Ages
• Putting It All Together

8. Estate Planning and Property Tax: What You Need to Know About Prop 13

• Property Taxes in California
• What Really Matters: Change in Ownership of Your Home
• Exclusions From Reassessment That You Have to Request
• Automatic Exclusions from Reassessment
• Reporting a Change of Ownership

9. Death and Taxes: Income, Gift, and Estate Taxes

• Some Background on Death and Taxes
• Income Taxes
• Gift Tax
• The Estate Tax
• Estate Tax Planning Strategy If You Are Single: Philanthropy

10. Naming the Right Beneficiaries: Retirement and Life Insurance

• Alphabet Soup: Retirement Plans Explained
• What Beneficiaries Have You Already Named?
• Retirement 101: The Basic Rules of Choosing Beneficiaries and Withdrawing Money
• Naming Beneficiaries for Retirement Plans
• A Little Housekeeping: Cleaning Up Your Retirement Plans
• Filling Out the Forms Naming Beneficiaries
• Naming Beneficiaries for Life Insurance

11. Advance Health Care Directives & Powers of Attorney for Finances

• Health Care Directives
• Durable Power of Attorney for Finances

12. Managing Your Plan and Keeping it Current

• What’s in Your Plan
• Storing Your Estate Plan
• Digital Estate Planning Issues
• Who Should Have Copies of Your Estate Planning Documents
• Keeping Your Plan Current
• How to Make Changes to Your Estate Plan

13. Finding a Lawyer and Help Beyond the Book

• Start With Referrals
• Do Some Research
• Make Contact
• Ask Questions
• Trust Yourself

Appendix

• How to Use the Downloadable Forms on the Nolo Website
• Editing RTFs
• List of Forms Available on the Nolo Website

Index

Chapter 1
What’s in an Estate Plan and Why Do You Need One?

 

Read this chapter if: You have been procrastinating for years and need to get started on your estate plan. You want to learn about probate and how to avoid it. You don’t know whether you should use a will or a living trust to create your estate plan. You want to create a personal inventory of your assets and a list of your beneficiaries for retirement plans, life insurance, and any other beneficiary-designated accounts that you own.

 

If you’ve picked up this book, I’m assuming that you want to get your estate plan started, or update an existing one. If you don’t know quite where to start, just start here. Your will (or trust) is like the center of a wheel. The specific issues that you’ll have to consider as you make your will or trust are like the spokes coming out from that center. This chapter gives you an overview of the territory before you get into the details of navigating your way from start to finish. You might not read this book in order. That’s fine. When you need to, take the time to explore a particular topic in depth, and then come back to Chapter 2 (if you decide to create a will) or Chapter 3 (if you decide to create a trust) and fill in another blank on the worksheets that accompany each chapter. After you’ve worked your way through the entire book, you can use the Fiduciary Worksheet (included in Chapter 11) to capture your choices for all of the people you’ll need to accomplish your plan: trustees, executors, and agents for powers of attorney for health care and finance. And, even if you don’t actually want to make your own will or trust, working through those worksheets (and reading this book) will prepare you to work with an attorney more efficiently.

Getting Started

Estate planning boils down, really, to three things: who gets what, who does what, and how you are going to get those things to those people:

• First, you have to identify your assets.
• Second, you have to decide who you want to give these assets to.
• Third, you have to decide how you want to accomplish the transfer of your assets to your beneficiaries after you die.

This chapter will help you get started with all three of these tasks. But not in this order.

I know it’s important to figure out what you own and how you own it. But, let’s face it, that’s also a chore, and I want you to be motivated, not dispirited. To put it another way, I want you to imagine your destination before you pack your suitcase. I think it makes the most sense to get started with your estate plan this way: First, I’ll give you an overview of how probate works in California so that you can decide the “how” question—whether it makes the most sense for you to build your plan around a will or a trust. After that, you can work on the “what” part by preparing an inventory of what you’ve got and creating a list of your key beneficiaries.

For most people, an estate plan consists of three or four main documents: a living trust, a will, a durable power of attorney for finance, and an advance health care directive. Your plan also includes the transfer of your retirement assets and life insurance, which pass to the beneficiaries named on your beneficiary forms for each such account or policy. This book explains why each of these four documents is important, what you’ll need to think about to create each one, and how to name the right people as beneficiaries for your retirement plans and life insurance policies.

But before we get started, let’s consider the word “plan.” It’s important because the alternative to making a plan, is, of course, not having one at all. People who die with no plan in place will have their property distributed according to California intestacy law (which distributes property according to the closest living family members). The estate will have to go through a probate proceeding if the estate is big enough; and, if the decedent had minor children, those children will be placed with adult guardians after a court investigation and hearing. It might work out just the way you hoped it would—but, really, what are the odds?

California’s intestacy laws leave property belonging to people who die without a will or trust to surviving spouses, children, parents, and siblings—and more distant relatives after that. (In Chapter 2, see “What Happens If You Don’t Make a Will,” for more on the subject.) But if you aren’t married or don’t want your assets distributed to your family, the only way to make your wishes known and legally binding is to make a will or a trust. If you want to nominate guardians for your minor children, you have to do that in writing, too. There’s just no other way to make it clear to a judge that your partner is the best choice and that your former mother-in-law is not. Given the alternative, it’s hard to justify not putting at least a simple plan in place, isn’t it?

The Key Estate Planning Documents

Wills are the simplest estate planning tools. They are extremely flexible and provide for appointment of executors, guardians, tax savings trusts, and trusts for children. If your estate plan uses a will as its central document, your estate will usually have to go through probate before it can be distributed to your heirs. (Read more about wills in Chapter 2, choosing guardians for minors in Chapter 4, and leaving money to minors in Chapter 5.)

Living Trusts are legal entities that hold property during a person’s life and include a distribution plan after death. All assets in the living trust avoid probate. Living trusts are coordinated with pour-over wills to appoint guardians (if necessary) and tie up loose ends. (Read more about living trusts in Chapter 3, and about using trusts to plan for blended families in Chapter 7.)

Durable Powers of Attorney for Finance allow someone to make decisions and to manage your financial affairs for assets outside of a living trust if you become incompetent or incapacitated. (Read about durable powers of attorney in Chapter 11.)

Advance Health Care Directives allow you to name an agent to make health care decisions for you if you become unable to do so yourself, and state your wishes for end-of-life care. (Read about advance health care directives in Chapter 11.)

Retirement Plans and Life Insurance Policies are distributed to named beneficiaries and pass outside of your will or trust. (Read about naming beneficiaries for retirement plans and life insurance in Chapter 10.)

Will or Trust?

If you’re going to make a plan, your first decision is going to be what kind of plan you need to make—one that uses a will as the central organizing document, or one that uses a living trust to manage your property and distribute it at your death. Think of this choice as a fork in a road. Either kind of estate plan will get you where you want to go. Doing either one is far superior to doing nothing at all.

Both wills and trusts are perfectly effective, legal ways to manage and distribute what you own at death. But they differ in how long it will take to settle your estate and how smooth the road will be between where you are now and that ultimate destination. They also differ in their initial cost to set up and in the time and energy they take to maintain during your lifetime. The biggest difference of all is whether you want to avoid probate in California—for most people that’s the determining factor in choosing a will or a trust.

Understanding Probate

Probate isn’t inherently evil. Actually, it was created with the best of intentions—to make sure that, after people die, their assets get distributed according to their wills and that all of their creditors are paid.

A probate proceeding is a judicial process where a judge supervises the settling of an estate. After the executor named in the will submits the original will to the court, a judge will decide whether the will is valid. If the answer is yes, the judge will appoint an executor (usually the one named in the will), and probate will begin.

Simple California Court Procedure for Small Estates

If the value of your probate assets is below $166,250, those assets can be transferred outside of probate by using a simple affidavit procedure. For a clear explanation of this procedure and the forms you’ll need, go to the Self-Help section of the California Courts Judicial Branch website at www.courts.ca.gov/10440.htm. You can also find your local superior court on the California Courts Judicial Branch website (see www.courts.ca.gov/home.htm and search for “simplified procedures”).

 

The probate ends when the court issues an order detailing how the estate’s assets should be distributed. No one gets anything until that order is issued.

If you die in California with an estate worth more than $166,250 (counting only those assets that must go through probate, which I’ll explain in a moment), your estate must go through probate, which takes place in the probate division of the superior court located in the county where you died.

During the probate proceeding, the executor must notify all known creditors and publish a notice in a local newspaper to give any other (unknown) creditors the chance to come forward and make a claim against the estate. Before the court can close the estate, the executor must also prepare and submit an inventory listing the value of all of the estate’s assets. Once that’s been done and the executor has paid all outstanding debts and taxes, the court can close probate and the executor can transfer what’s left to the beneficiaries named in the will (or to those who would inherit under California intestacy law).

RESOURCE
Want to learn more about California probate procedures, paperwork, and forms? You’ll find extensive information on the probate court section of your local (county) superior court website. To find yours, see the California Courts Judicial Branch website at www.courts.ca.gov/home.htm. Also, check out How to Probate an Estate in California, by Attorney Lisa Fialco (Nolo). This hefty book will definitely help you understand why people prefer to avoid probate.

How Long Does Probate Take and What Does It Cost?

Probate will last at least four months (to give creditors time to make claims), but in my experience, it usually takes nine months to a year for an executor to complete the process and receive a court order to distribute the assets in California. If you own property in more than one state, your estate will have to conduct probate proceedings in each of those states as well. Some states have streamlined and simplified the probate process, but California isn’t one of them.

In California, the cost of probate is based on the value of the assets in your estate (see “Costs of Going Through Probate in California,” below). My clients often think of this as a tax because the probate fee is determined by a percentage of the value of the estate, but it isn’t a tax: Taxes are collected by the government and go into government coffers. The fees that are specified by statute go to the attorney representing the estate and to the executor appointed by the court.

Here’s how it works: At the end of the probate process, the executor asks the court to issue an order that distributes the estate’s assets to the beneficiaries. As part of the petition, the executor also requests fees for the attorney and for the executor, based on the size of the probate estate. These fees are the maximum fees allowed under state laws for the work of settling the estate, but it’s okay to request less or to waive the fees. Most attorneys (as you’d expect) will request the full statutory fee, but many executors waive the fee when they’re also inheriting assets in the estate. Still, to calculate how much probate could cost an estate, double the statutory probate fees (which assume that the attorney and the executor each take the maximum allowable fee).

The value of assets in your estate is the fair market value (FMV) of those assets—what they’d be worth if you sold them at the date of death. For many California homeowners, this makes probate expensive. A few examples:

• If you leave your house to your children in a will, and your house could be sold for $500,000, but you owe $450,000 on the mortgage, the probate court will count the $500,000 figure as the home’s value, not the $50,000 of equity that’s actually yours. In this case, your estate would pay $13,000 in statutory fees. Here’s the math on this example, where you start with $500,000: $4,000 (for the first $100,000) + $3,000 (second $100,000) + $6,000 (for the remaining $300,000) = $13,000 in probate fees.
• Probating an estate worth $200,000 would result in $7,000 in statutory fees; an estate worth $1 million would result in $23,000 in statutory fees.
• An estate worth $10 million would result in $113,000 in statutory fees.

Cost of Going Through Probate in California
Estate*	Statutory Probate Fee	Cost of Probate
First $100,000	4%	$4,000
Next $100,000	3%	$3,000
Up to next $800,000	2%	$2,000 per $100,000
Up to next $9 million	1%	$1,000 per $100,000
* Your estate includes only assets that are subject to probate, such as cash; stocks, bonds, and brokerage accounts; and personal property, such as jewelry. Property that is not part of the probate estate includes property held in a trust and assets with beneficiary designations such as a retirement account, a payable-on-death (POD) account (like a bank account), or a transfer-on-death deed (such as for your house).

 

Property and Assets That Must Go Through Probate

There’s some good news here. Not all of your assets are subject to probate. Here’s why: Probate exists to prevent fraud after someone dies. The idea is that the court steps in to make sure that the decedent’s wishes are respected and that their assets are identified and distributed to the proper people.

Assets that are held in a trust, or have a beneficiary designation, or that pass to a surviving joint tenant are going to go to the right people because there are binding legal contracts that already say that the assets go to them. Because we don’t need a court order to make sure that the transfer happens, these assets don’t go through probate.

Assets Outside of Probate

The first thing that I do at an initial estate planning appointment is to draw a line down the middle of a piece of paper. On one side, I write “Probate” and on the other side I write “Not Probate.” Most of my clients don’t make that distinction. But it is important for estate planning. As I’ve just explained, judges don’t need to supervise the distribution of the Not Probate side of the diagram. And wills and trusts don’t distribute them. For those assets you’ll need to make sure you’ve designated the right beneficiaries. Your will or a trust is what you’ll need to distribute the assets on the Probate side.

Two Kinds of Assets
Not Probate	Probate
Retirement assets	House
Life insurance/annuities	Investment accounts
Joint tenancy property	Bank accounts
Payable-on-death accounts	Tangible personal items
Transfer-on-death accounts	Partnerships, sole proprietorships
Transfer-on-death deeds

 

The most common examples of assets that won’t be subject to probate include:

• Assets in a living trust. The main reason you create a living trust is to avoid probate for your assets on the Probate side of the list. In fact, the reason that I draw that line down the middle of the paper is to help my clients understand why they need a trust for the assets on the Probate side—these are the assets that would cost them time and money to send through probate. (See Chapter 3 for details.)
• IRAs, 401(k)s, and similar retirement accounts. These accounts all have beneficiaries you’ve named on record with a plan administrator or an investment manager. Those beneficiaries will receive any money left in those plans when you die; normally, retirement assets are not distributed to your will or trust. (For details, see Chapter 10.)
• Life insurance policies. The proceeds from a life insurance policy are often the major source of immediate cash for a surviving spouse or young children. (See Chapter 10 for details.)
• Annuities. Annuities are similar to life insurance policies (discussed in Chapter 10). You sign a contract with a company in which you agree to deposit a certain amount of money, and the company agrees to pay that money back to you over a certain period. Sometimes the policies pay a benefit to survivors, and sometimes not.
• Payable-on-death bank or transfer-on-death brokerage accounts. You can fill out a form with the company that holds the accounts to make them “payable-on-death” (POD) accounts, or “transfer-on-death” (TOD) accounts, which means that they will pass to the person you designated, just like the retirement accounts with designated beneficiaries. (See Chapter 10.)
• Real estate with a transfer-on-death deed. As of 2016, Californians can leave real property to designated beneficiaries by using a transfer-on-death deed, as opposed to establishing a living trust. (See “Transfer-on-Death Deeds: How to Keep Your House Out of Probate,” below, for more information on these deeds.)
• Property that passes automatically to a surviving owner. Any property you own with someone else and for which someone has a right of survivorship (which would typically be the case of a house you co-own with your spouse) won’t be subject to probate. The right of survivorship means that when one co-owner dies, the survivor owns the property automatically, without probate. So property you own with your spouse (or someone else) as joint tenants or community property with right of survivorship, won’t go through probate when the first owner dies. (In Chapter 7, I will discuss both of these forms of property ownership and how to tell if you hold property in one of these ways.)

Assets That Go Through Probate

When you take away any assets that will pass without probate (because you’ve designated a beneficiary or they will pass to a co-owner automatically), whatever’s left must go through probate. For most people, that means assets such as:

• cash in the bank
• investments, such as stocks or mutual funds
• household property, including furniture, furnishings, jewelry, art, your car, your clothes, and anything else that you own, and real estate that is not held in either joint tenancy or community property with right of survivorship, or that is not subject to a transfer-on-death deed.

EXAMPLE: Violet owns a house in Sacramento and two checking accounts with her husband, Jesse, as a joint tenant. She also inherited a cabin in the mountains near Truckee from her mother, which she owns as her separate property. Violet wrote a will, leaving the cabin to her niece Stella. At Violet’s death, the cabin must go through probate so it can be transferred to Stella. The home and bank accounts, however, pass to Jesse automatically because he’s the surviving joint tenant.

TIP
Probate has nothing to do with estate tax. When you die, everything you own, whether it goes through probate or not, is tallied up for federal estate tax purposes. But only the very wealthy are subject to the estate tax. Currently (in 2021), you can leave up to $11.7 million of property, plus an unlimited amount to your spouse (as long as your spouse is a U.S. citizen), without tax. (See Chapter 9 for details on the estate tax.)

Why Avoid Probate?

Most people will want to avoid probate for these reasons:

• Your heirs gain nothing by probate. The court process and fees take thousands of dollars out of the estate—money that otherwise would go to your loved ones.
• Most families don’t need a court to supervise the distribution of assets, assuming no one is fighting about the estate and there are no messy creditor problems to resolve. Waiting months or a year to distribute the assets to your children, for example, is just a waste of time.
• Probate is a public process, so everything you file with the court (including your will) is a public document, open to all who care to inspect them. So if you want to keep the terms of your estate private, you’d want to create a living trust, which does not need to be filed with the court. (Your heirs and beneficiaries will still be entitled to a copy of the trust when you die, but it won’t be a public record at your local superior court.) That said, although the trust is not a public record, certain entities will ask to see it (or at least a summary of it, known as a “certification of trust”). Third parties that owe money to the decedent, or who have a business relationship with the decedent and the estate, such as county assessors, insurance companies, and stock plan administrators, will ask to see a copy of the trust to make sure that they are doing business (like sending checks) with the proper person. In most cases, this will be with the successor trustee.

When Does Probate Make Sense?
Probate court can be a useful place to sort out complicated creditor issues or other weird family dynamics. If your estate is complex and you think having a public forum would help resolve problems, probate might be the right choice for you.

 

How to Avoid Probate

If your probate estate (the value of your assets that must go through probate) is under $166,250, your estate already avoids probate and can be distributed to your heirs without a probate proceeding or a court order. You simply need to do the simple affidavit procedure. (See “Simple California Court Procedure for Small Estates,” above.)

If your probate estate exceeds $166,250, then you have some planning to do. Many people create living trusts to avoid probate, which provides the most flexibility and works best if you want to benefit multiple beneficiaries or distribute complicated property. But trusts are not the only way to avoid probate. People with simple estates, who just want to benefit one or two people, can make use of beneficiary account designations, joint tenancy, community property with right of survivorship, and transfer-on-death deeds to avoid probate and pass their assets to their loved ones simply.

Each of these methods lets you move an asset from the Probate column of my Two Kinds of Assets diagram to the Not Probate side. For example:

• You can fill out a form at a bank or an investment company to designate a specific account as a payable-on-death account. At your death, the assets in that account will go directly to the named beneficiaries.
• You can record a deed with the county assessor and add a person as a joint tenant, name a transfer-on-death beneficiary, or change a community property deed to a community property with right of survivorship deed. When you die, the surviving joint tenant/owner/beneficiary will own the property and no probate will be necessary. (But taking these steps might raise tax implications, so please don’t do any of these things without consulting an accountant or attorney.)

I love these techniques, and they have their place in many people’s plans, but they usually aren’t a substitute for an estate plan—beneficiary designations can’t, for example, help your loved ones care for you if you are incapacitated, help manage property for minor beneficiaries, forgive debts or loans you’ve made during life, or transfer assets to another beneficiary if the first one dies before you do.

RESOURCE
If you want to learn more about ways to avoid probate, read 8 Ways to Avoid Probate, by Mary Randolph (Nolo). This book offers practical tips and techniques that you can use to convert bank and investment accounts into payable-on-death or transfer-on-death accounts, own property as joint tenants or use a transfer-on-death deed, and use the small estate affidavit process to avoid probate.

The Workhorses: Wills and Trusts

For your estate plan to address all of the issues it needs to— transferring property, planning to manage property for children, addressing incapacity, and planning to minimize taxes—you need more than just a beneficiary designation or a survivorship deed. Wills and trusts are the documents that you need to make your plan comprehensive. They can be simple or complicated, that’s up to you. But no estate plan is really a plan for what happens after you die without one of these documents.

Wills

A will’s most important functions are to leave property to beneficiaries and to nominate guardians for minor children. Each person creates their own will, though married couples usually create wills that are coordinated and, if they have minor children, nominate the same guardians for those children.

At a minimum, to create a will you will need to decide whom to nominate as your executor (the person who will be in charge of settling your estate), and how to distribute your property. If you have minor children, you will also need to nominate guardians who will care for those children to age 18, and you should establish a trust or state that their assets should be held in custodial accounts to manage their property until they are old enough to manage that property for themselves.

A will can accomplish all the critical estate planning tasks and is easy and inexpensive to create. If you decide a will makes the most sense, see Chapter 2.

But now you also know that Californians have to take probate into account before deciding on using a will as their main estate planning document. Sadly, in California, probate is a slow and expensive process, which most consumers find difficult to navigate. Avoiding probate can save your loved ones both time and money after you die, which is where a living trust comes in. But first, check the section below on the limited circumstances in which it does, in fact, make sense to do a will instead of a trust.

Who Should Do a Will

Given that probate is slow and expensive in California, and that the high cost of real estate means most of us would be subject to it at death, why do some people still use wills instead of living trusts? In these five situations, a will can be the right choice:

• You don’t own a house.
• You have minor children and your main, immediate goal is to nominate guardians.
• You can’t afford to create a living trust or just don’t want to.
• You don’t care about probate costs.
• You have complicated creditor problems and would appreciate having a judge sort these out.

In Chapter 2, I will walk you through the basics of doing just that. For young families just starting out, a will is an excellent choice for a first estate plan because it accomplishes their main goal: making sure that they have nominated guardians for minor children. Later, when a couple buys a house or acquires more assets, they can always revisit their plan and create a living trust.

For people with a small estate, or who simply don’t care that probate will cost their heirs some money and time, a will is a perfectly effective estate plan.

And, of course, there’s just financial reality. It is expensive to live in California, and we can’t always afford to do things perfectly. A living trust is usually more expensive to create than a will. Not being able to afford a living trust isn’t a good excuse for doing nothing at all. A will is a perfectly serviceable document to put in place now. When you can afford to do a trust, you can always upgrade.

Living Trusts

A living trust is a legal document that serves one main purpose: avoiding probate. If you create a living trust and transfer your largest assets to it (such as your house or small business), your estate won’t be subject to probate upon your death. Here’s why: All of the assets owned by the trust aren’t considered “yours” at your death—these assets are owned by your trust, and not by you.

If you fund your trust properly (“funding” a trust means transferring an asset’s ownership to the trust itself), you will die owning only a few small assets in your own name, such as an everyday checking account, your car, and your furniture and furnishings. To the California probate system, you will look like someone who has a small estate, owning less than $166,250 (the cutoff to be considered a “small estate” in California and outside of the probate process). Your executor won’t need to get a court order to distribute your assets to your loved ones. Instead, your trustee will be able to settle your estate without court supervision or delay and for far less money than the statutory fees dictated by the state probate code.

If you decide a living trust is the right way to go, see Chapter 3. If you are in a blended family, see Chapter 7 to learn about ways that you can use trusts to take care of your current spouse or partner and children from a previous marriage. Somewhat surprisingly, even if you decide to do a living trust, you’ll still need to create a simple will that works with it, but that will is different from a will that stands alone because it simply functions to transfer the assets you’ve left outside of the trust into the trust after your death and, if you have minor children, state your nominations for guardians.

Who Should Do a Living Trust

Living trusts have several benefits:

• Unlike a will, a trust does not need to be filed with the court and is not a public document.
• Establishing a trust and transferring your biggest assets to it also makes it easier for people to manage these assets for your benefit if you become incapacitated later on—your successor trustee (the person you name to manage your trust after you die) can step in to manage these assets for your benefit at that point, while you are still alive.
• Finally, a trust can be highly customized to your needs: managing property for children with special needs; creating complex multigenerational trusts that will minimize estate taxes; or setting up trusts to skillfully manage the competing demands of blended families.

Living Trusts vs. Wills
	Living Trust	Will
Privacy	Your trust is not a public record, and your trustee transfers assets without court supervision.	Your will is filed in the probate court and is a public record, and a judge supervises the settling of your estate.
Cost to set up	A bit more work than making a will; if you work with an attorney, costs more than making a will.	Simpler to set up; easily done without an attorney.
Hassle to set up	You have to actually transfer certain property to the trust. This requires filing deeds and filling out forms. It isn’t extremely difficult, but it is work.	No extra forms need to be filled out, and no property must be transferred.
What you can do with it	Leave property. Name someone to manage trust assets if someday you can’t.	Leave property. Name a guardian for your children.
Process after a death	Most trusts can be settled quickly, getting assets to the beneficiaries sooner than if there were a will.	Probate is usually necessary; costs more and takes longer than wrapping up a trust.

 

While a will could be drafted to create complex trusts after your death, if you want to do that kind of sophisticated planning, you should choose a trust. Simply put, if you need that level of sophisticated planning, your estate would likely be large and probate would be expensive. So, who would benefit from a trust?

• If you own a house in California, or expect to soon; or own assets worth more than $166,250 that do not have beneficiary designations, and you can otherwise afford it, a living trust is a good investment.
• If you think that your estate has a good chance of reaching $5 million or more, a trust with tax planning is a good idea.
• If you are in a second marriage, own complicated assets (like a privately held company), or have children with special needs, a trust also makes sense.

Preparing a Personal Inventory and a List of Beneficiaries

Once you’ve got the basic strategy in mind for your plan, the next step is to understand what you own. The best way to do this is to prepare an inventory of your assets and property. Making an inventory will prompt you to gather all the information you’ll need to make your estate plan. You might even be surprised at what you find. For many of my clients, this is the first time that they’ve actually sat down and made a list of all of their myriad accounts. Alternatively, if you are one of those people who already has this information in a nice, neat spreadsheet, you’re already done!

Why Do an Inventory?

Knowing what your assets are will help make sure your estate plan properly deals with them. It might help you decide the will versus trust question, too. For example, if you don’t own any real estate, you might decide to designate your investment account and bank account as payable-on-death accounts (which avoids probate) and stick with a simple will. Or you might see that because you own a home, a vacation cabin, and an investment account, a trust is a good choice. Once you’ve completed the Personal Inventory, you can fill in the Net Worth Calculation Worksheet to see your assets all in one place.

A sample Personal Inventory and a Net Worth Calculation Worksheet that you can use as templates in preparing your own are shown below.

Personal Inventory
Use this form to prepare an inventory of your assets and property.
What Is It?	Where Is It?	Who Owns It?	How Much Is It Worth?	Electronic Access?
Cash
Checking Accounts
Checking Account #1234-6789	Bank of America; Duane Street	John and Mary	$12,000	PIN # = 4321 PW = Family ID = 1234-789
Savings Accounts
Savings Account #1234-6789-123	First State Bank	John	$1,000	No
Certificates of Deposit (CDs)
Certificate of Deposit #123-567-890002 3-year term; matures 2009	Citibank	Mary	$25,000	No
Safe Deposit Boxes
Box 1162	Bank of America Duane St.	John and Mary
College Savings Plans and Custodial Accounts
Custodial Accounts
Charles Schwab, CUTMA Account, No. 34-999 For benefit of Jane	Account statements in financial binder, left bookcase	John is custodian	$10,000	Yes: PIN #: 567-888JKL
529 Investment Plans
Scholars Choice College Savings Plan Billy’s: Account No. 12-56, Jane’s: Account No. 13-56	Colorado plan; statements in file cabinet of desk	Mary is custodian; John is backup custodian for both	Billy’s: $8,500 Jane’s: $3,500	Yes: User ID = DoeFamily Password = elvisrocks
Education Savings Accounts
Edward Jones, Coverdell Education Savings Account, No. 23-888 For benefit of Billy	Account statements in financial binder, left bookcase	Mary is owner	$4,000	No
Real Estate
House
House	1234 Redbud Lane, Center City, CA	John and Mary, husband and wife, as joint tenants	$675,000 mkt. value; $600,000 equity	No
Condo	1126 Union Court, #23 City, CA	John, Mary, and Jane, as tenants in common	$355,000 mkt. value; $255,000 equity	Mortgage account can be accessed: PW = mollycat, ID = 1234-90
Other Investments
Brokerage Accounts
Charles Schwab One Account, No. 23-456	Schwab	John	$23,000	User ID = HWong PW = sailboat
Mutual Funds
Franklin-Templeton Investments, Tax-Free Bond Fund, Acct. No. 123-999	Franklin-Templeton	John and Mary, JTWROS	$10,000	None
Partnerships
Stock Options
Retirement Investments
Roth IRA, Number 123-456	Vanguard	Mary	$45,000	PIN = 23-45
401(k)	TIAA-CREF	John	$62,000	PW = parkingspace2
Automobiles
2015 Minivan	home	Mary & John	$10,000	No
2014 Camry	home	John	$4,500	No
Personal Property
Jewelery
wedding ring	home	Mary	$3,000	No
Furniture
miscellaneous	home	Mary & John	$8,000	No
Other Collectibles
Art
Life Insurance, Pensions, and Annuities
West-Coast Insurance Co., 20-year term life policy (expires 2020)	File cabinet of desk	Mary, Policy Number 123-4567; beneficiaries: John, primary; children, secondary	$500,000	No
West-Coast Insurance Co., 20-year term life policy (expires 2020)	File cabinet of desk	John, Policy No. 123-4559; beneficiaries: Mary, primary; children, secondary	$500,000	No
Planters Beneficial Life, Universal Life Insurance	Safe deposit box at Bank of the North	Mary, Policy ABX-009-YHHT; beneficiaries: John, primary; children, secondary	$500,000	No
Large Company, Group Life Policy	Check with H.R. department at work	John, Group Certificate No. 234-56	$900,000	No
State Employee Pension Plan	Information is available at the state website	Mary, No survivor benefits; Employee ID No. 345-56-7889	Depends on when Mary retires	Yes: User ID = MDoe Password = sail
Planters Beneficial Life	Policy is in safe deposit box at Bank of the North	John, Beneficiary: Mary Doe Fixed Annuity Contract, No. 2307777	$25,000	No

 

Net Worth Calculation Worksheet
List your assets and liabilities on this worksheet.
Assets	Value	Liabilities	Net Value
Your house	$675,000	$75,000 mortgage	$600,000
Condo	$355,000	$100,000 mortgage	$255,000
Cash (savings, checking, CDs)	$38,000	$5,000 credit card debt	$33,000
Nonretirement investments (brokerage accounts, mutual funds, etc.)	$33,000		$33,000
Retirement accounts	$107,000		$107,000
Life insurance policies (what they would pay out if you died)	$2.425 million		$2,425,000
Personal property (cars, jewelry, etc.)	$25,500		$25,500
Annuities	none		none
Business assets (what you think they could be sold for)	none		none
Total Net Worth			$3,478,500

 

FORM
Personal Inventory and Net Worth Calculation Worksheet. The Nolo website includes downloadable copies of the Personal Inventory, and a Net Worth Calculation Worksheet. See the appendix for the link to these and other forms in this book.

If you don’t own many assets (for example, if you rent an apartment, have a small checking account, and a 401(k)), doing an inventory should be fairly simple.

But if finding and organizing all of this information sounds daunting, remember that you can do it in small pieces. Keep in mind that much of this information isn’t likely to change often. After the initial inventory, you’ll just need to update when you open a new account, close an old one, or buy a new home. Or you can just take an annual look at the list to see what, if anything, has changed. I recommend that my clients do this in January, when they get 1099 forms in the mail for their tax returns.

As you start identifying and valuing your assets, don’t be overly concerned with exact financial figures. The inventory isn’t meant to substitute for a financial plan. The reason you want to try to place a value on your assets is so that you can determine, in a general way, how much would be left behind for your family and loved ones should you die unexpectedly.

You also need to know what kinds of things you own so that you can be sure your estate plan properly deals with them all. That’s what the rest of this book is for—but to get the best use of it, you need to do some homework first. I’ve also included a Current Beneficiaries List in this book (see sample in Chapter 10) that you can use to list the current beneficiaries of your retirement, life insurance, and other beneficiary-designated plans.

How to Complete an Inventory

Your inventory is really just a list of:

• What you own. This includes your house and other real estate; all financial accounts (checking, savings, etc.); custodial accounts for children (discussed in Chapter 5); retirement plans and life insurance policies (discussed in Chapter 10); automobiles and vehicles; jewelry and other personal property; life insurance, pensions and annuities.
• Where each asset is. This will help your executor find them after you die—it’s a list of where your accounts are held, or where your assets are stored.
• How you own the asset (for example, whose name(s) are on the accounts).
• How much the asset is worth. Don’t be overly concerned with exact financial figures. You basically want to place a value on your assets so you can determine, in a general way, how much you would be leaving behind should you die unexpectedly (especially important if you have children).
• How to access an asset electronically. Many of us store lots of important information and assets online. Make sure that your loved ones know where you’ve stored these assets and how to access them.

Your Safe Deposit Box

If you have a safe deposit box, be sure to write down (on your Personal Inventory) where it is and (very important!) where the key is. If you are going to store your important estate planning documents in the box, know that in California it can take several weeks after someone dies for the executor or trustee to gain access to the box. (Chapter 12 discusses storing your estate plan in more accessible ways.)

 

RESOURCE
Want to be even more organized? For a terrific book on how to organize all of your personal and family’s records, see Get It Together: Organize Your Records So Your Family Won’t Have To, by Melanie Cullen with Shae Irving (Nolo).

Special Estate Planning Issues When You Own Real Estate

If you own a home, you need to understand how you own it—in legal lingo, the way you hold title to it. This is important because if you own your home with others or create a deed that transfers ownership to another person at your death, the form of title affects who would own it upon your death.

If you don’t know how you own your house, you are not alone. Most people don’t remember what they put on the forms when they were signing that six-inch stack of papers to get their home loan. To find out, look for the grant deed that transferred legal ownership of your house from the former owner to you.

If you can’t find your grant deed, don’t panic—just read the tips below. If you have something called a deed of trust in that file folder that you have from when you bought the house, that’s not what you’re looking for. That’s what gives your lender the legal right to repossess your property if you don’t pay off the loan, but it isn’t the piece of paper that states that you own the house in the first place.

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