When you start a new job, you sign a lot of forms.  Tax forms, health care forms and retirement beneficiary designation forms.  Your first few days on the job you take the forms and read them, think about them, sign them and turn them back in to your boss or human resources department.  After that you probably never think about them again.  Big mistake.

One of the most poignant examples of this mistake comes out in a New York Post story back in 2001.  The story “Pension Pickle!” tells a twisted tail of Anne Friedman’s nearly million-dollar pension.  Anne was a lifelong New York City school system employee.  In 1974, Anne named her mother, uncle and sister on her beneficiary form with the Teachers’ Retirement System.  A year later, Ann met and married Bruce Friedman to whom she was happily married for the next two decades.

During her entire marriage, Anne never updated her beneficiary designation.  So after her death, Anne’s sister was the sole surviving beneficiary of Anne’s retirement plan and only her sister had the right to receive Anne’s pension money.  Anne’s sister exercised her right, took nearly a million dollars of Ann’s pension and left Bruce with nothing.  Bruce sued, lost, appealed and lost.

The moral of this tale, don’t be like Anne.  Always update your retirement plan beneficiary designation form, especially after a life-changing event, such as marriage, divorce or the birth of a child.  If you don’t you may end up leaving your loved ones with a broken heart and nothing else.

Unfortunately, not updating your beneficiary designation forms isn’t the only mistake that people make.  Many people assume that if they have a Will, the Will takes care of all the details.  Sorry, it just doesn’t work this way.  Beneficiary designations always trump what’s in a Will.  Even if Anne’s Will stated that all of her pension money is to go to Bruce, Anne’s sister would still end up with the money.  Sorry Bruce.

Alternatively, if you fail to name a beneficiary for an IRA, you are robbing your heirs (excluding your spouse) the right to maintain the same tax advantages that you derived from having the IRA in the first place.  That’s a tax bill that I’d just as soon have my heirs avoid for as long as possible.  For that matter, you’re also going to want to name multiple primary and secondary beneficiaries.  Again, if you don’t pick them yourself, the court will and you won’t have any control over how much goes to who or when it gets to them.

In the end, we all have to come to terms with the reality that each and everyone of us started our estate plans on the very first day of our very first jobs.  We may not think of them as estate plans because the words Will and Trust are nowhere to be seen, but these plans are deciding what happens to our stuff after were gone.  Wouldn’t you call that estate planning?  Just like a formal estate plan put in place by a qualified attorney, these plans need to be looked at and updated over and over.  Remember that estate planning is a lifetime process for the benefit of you during your lifetime and your heirs after you’re gone.

Pay attention to what you’re signing.

Estate planning is not just about reducing taxes.  Estate Planning is also about making sure your assets are distributed as you want both during your lifetime and after you’re gone. The fact is that when most people think about their assets they include not only the obvious tangible wealth they have accumulated (house, cars, bank accounts, stock, retirement accounts, etc.), but also their intangible wealth (their hopes, dreams and personal values), which they want to pass on to the next generation.  In order to ensure these goals are met you need to consider a number of questions.

It would be nice to start with the first questions in everyone’s mind – “Who should inherit my assets and how much should they get?”  But, before you can even think about that issue, you need to consider your marital status and where you live.  Here in California we are a community property state.  Regarding your material assets the term community property means that everything you or your spouse earn during your marriage is shared between the two of you 50/50.  For example you earn $100,000 a year and purchase a $500,000 house.  (Granted, I know that these numbers are impossible in California because you could never buy a house for $500,000 even with the decline in real estate prices.)  Your spouse is entitled not only to half the money you have earned, but also half the value of the house.  Regardless of whether or not your spouse has ever earned a penny during your marriage.

Most people think community property applies only to divorces.  Not true, we also have to look at it in regard to estate planning.  What can you give away with your estate plan?  Simple answer: only half of the community property.  Also, should you die without a will your surviving spouse is not only entitled to half of the community property, but also one third of your separate property, e.g., property you had before you got married or which you received by gift or bequest.  Even with a will or living trust, if you provide less for your spouse than state law deems appropriate, the law will allow the survivor to elect to receive the greater amount.

Once you’ve settled on a method of distribution for your spouse you should then ask yourself a few more questions.

Do you want your children/beneficiaries to share equally in your estate?

Do you wish to include grandchildren or others as beneficiaries?

Would you like to leave any assets to charity?

Do you have a method for passing on your intangible wealth?  Here at Chhokar Law Group, P.C. we offer “Priceless Conversations” which allow you to pass on your values, hopes and dreams to your family and friends.  You can learn more about our methods of passing on your intangible wealth at www.yourtotalestateplan.com.

Which assets should the beneficiaries in the questions above inherit?

You may also want to consider special questions when transferring certain types of assets. For example: If you own a business, should the business pass only to your children who are active in the business?  Should you compensate the other children not involved in the business with assets of equal value?  How do we solve this problem?

If you own rental property, should all beneficiaries inherit?  If so, should they all inherit in equal shares?  How should they inherit the rental property, as joint tenants or tenants in common?  Do they all have the ability to manage the property?

How much do the particular financial needs of each beneficiary play a part in what they inherit?

When and how should they inherit the assets?  In determining the answer as to how your beneficiaries should inherit your assets, at a minimum you should focus on the following factors: (1) The potential age and maturity of the beneficiaries; (2) The financial needs of you and your spouse during your lifetimes; and (3) The tax implications at every level considering Income Tax, Gift Tax, Estate Tax and Generation Skipping Tax.

Outright bequests offer simplicity, flexibility and potentially some tax advantages, but you have no control over what the recipient does with the assets once they are transferred. Trusts are advantageous when the beneficiaries are young or immature, when your estate is large, and especially for tax planning reasons. Also, trusts can provide for professional asset management capabilities an individual beneficiary may lack while allowing for the trust maker to set up his or her own terms for how and when the beneficiaries are to receive inheritances.

Trusts can even keep all of your assets held in trust private and away from the court system and potential predators; unlike a will which requires you to go through the public process of probate in which fees and court costs can be as high 5% of the total value of your estate.

In the end remember that one of the simplest and best ways to define probate is as follows.  “Probate” is the filing of a lawsuit, against yourself, with your own money, in order to notify your creditors of their potential claims against you.

Let’s just avoid all of these issues and use a properly drafted and maintained trust designed for you and only you!

People often tell me that they don’t need a Will or Trust because they own all of their property in joint tenancy.  This idea seems to have gained a foothold in recent years, so much so that joint tenancy is sometimes referred to as the “Poor Man’s Will.”  Unfortunately, holding property in joint tenancy at the expense of not having an Estate Plan can wind up being an extremely expensive proposition (monetarily and otherwise).

Admittedly, holding property in joint tenancy (or tenancy by the entirety) with your husband or wife is an effective substitute for a Will at the death of the first spouse to die.   At that point, probate is avoided, and all jointly owned property automatically becomes the sole property of the surviving spouse.

The problem arises when the surviving spouse dies — at this spouse’s death, his or her property (if still owned in his or her own name) will become subject to probate. Furthermore, if the surviving spouse died without a Will (i.e. intestate), then all of this property will be distributed according to California law rather than according to the surviving spouse’s wishes.  For example: you may be estranged from your son because of his alcohol or drug problem, but if he is your only heir under California law at the time of your death if you die intestate, he’ll receive your entire probate estate.  No protections for your estate or for your son.

Probate and intestacy can be avoided if the surviving spouse does some estate planning after the death of the first spouse to die, but we simply cannot assume that this will happen.  Sometimes spouses die simultaneously, or soon after each after, and there’s simply no time to do estate planning.  Sometimes the surviving spouse becomes disabled, and doesn’t have the capacity to execute estate-planning documents.  Or sometimes the surviving spouse just doesn’t know enough about financial matters to think about seeing an estate-planning attorney.

Even bigger problems can arise if the surviving spouse places property in joint tenancy with one of his or her children.  Besides having potentially negative gift tax ramifications, making your child a co-owner of a bank account or home can greatly increase family strife.  In many cases, the surviving spouse does not realize the nature of the property interest that he or she has given the child.  What if the child empties out the joint bank account, or refuses to consent to the sale of the jointly owned home?  To the surprise of many people, both of these actions would be entirely within the child/joint tenant’s rights.  In addition, placing property in joint tenancy with a child can cause problems even after the surviving spouse’s death.  At that point, the surviving spouse’s other children may attempt to argue that the joint tenancy was established only for convenience (instead of for gift purposes), or that the child improperly influenced the surviving spouse’s decision to name the child as a joint tenant.

In the end, all of these issues can be avoided by simply talking to a professional estate planning attorney.

Most people assume that probate and estate planning issues are only for the elderly.  They think that it’s nothing to spend time worrying about until they’re at least 80.  The fact is that seasoned probate litigation attorneys know better.  Every family has to address these important legal issues sooner or later - sometimes much sooner than they think.  When proper planning isn’t done, it can and does often lead to trouble.

The Britney Spears case presents a good illustration.  At the tender age of 26, she became subject to a court-ordered conservatorship and guardianship.  Let me repeat, 26 years old.  Her father, Jamie Spears, has the legal right to make decisions for her, including controlling her finances; finances that are in relation to being one of the worlds best know pop stars.  The judge allows him to pay himself more than $16,000 every month, from his daughter’s money.  Although, given the remarkable turnaround in her life and her career, this fee may be well worth it.

In fact, Britney now seems to be in favor of her father’s control.  In October of 2008, she agreed not to oppose her father’s request to continue the conservatorship indefinitely (it was originally set to expire at the end of 2008).  Think this means the court case is done?  Not remotely.

Last week, an attorney named Jon Eardley, returned the case to court.  Eardley, just over one year ago, claimed that Britney had asked him by telephone to represent her to fight the conservatorship.  He even took the highly unusual step of trying to move the case to Federal Court, arguing she was denied a fair trial in the California Superior Court where the case was pending.

The Federal Court judge quickly ordered the case back to the California Court where it started, noting that the judge in that court had already ruled that Eardley could not represent Spears.  Because Spears had been ruled legally incapable of managing her financial affairs (which is why she needed her father to serve as conservator), both judges ruled she could not legally hire Eardley.  In fact, her father’s attorney and her own court-appointed attorney also argued Britney did not want Eardley to represent her.

So why was Eardley back in court on the case last week?  He appeared before the California judge claiming that Britney was being treated like Soviet dissidents subject to forced labor, as described in the Nobel Prize winning novel “The Gulag Archipelago”.

According to the article, Eardley claims he wants nothing to do with the case.  He was ordered in January not to represent Britney and not to file anything on her behalf in court.  Yet, there he was, essentially arguing to the judge that Spears was a prisoner and a slave.  Eardley claims he did so simply because he wants the restraining order against him removed.

So Britney’s money had to be spent on even more legal fees, for another court hearing (the most recent in a long line of court hearings).  Had she done proper estate planning, and created a revocable living trust, then she could have selected someone she trusted to manage her financial affairs if she became unable to do so, without the need of court involvement.  If such a trust had been properly created and funded, along with power of attorney documents, then the family could have gotten her the help she clearly needed with minimal court involvement — and maybe even avoided the courts altogether.

It’s never too early to plan, and it’s never a good idea to think that estate planning and probate issues only matter to the elderly.