Choosing your executor is an important and necessary task, though potentially morbid and depressing. The executor is the person who carries out your wishes when you’re “gone” – yes, I mean no longer with us, you’ve left the building, entered a new plain of existence, etc.  Basically, you’re picking someone who will do all the things that you wanted done after your death regarding your assets and loved ones.

The responsibilities can be extraordinarily broad or limited.  As such, it’s important to select a person who’s trustworthy and capable of doing the job.  For example, you may trust your 97-year-old grandfather implicitly, but do you really think that he’ll have time to wrap up your affairs between games of bridge and bungee jumping excursions?  Yes, I’m stereo typing 97-year-old grandfathers, because I like to believe that at 97, I’ll have a full and rich social life and take up high-adrenalin sports.  Back to topic: depending on your estate, it may be helpful if the individual that you pick has business or investment experience.

Some examples of what your executor will be responsible for include making funeral arrangements, preparing final tax returns, distributing assets as defined by your will, paying final debts (no you can’t get out of this even after your gone), informing banks, initiating probate if necessary and a host of related actions.

Really any adult can be your executor; it can be a trusted friend, relative, or you can appoint a professional executor.  Although the executor is required to follow the directions left by the person who died, the executor may be forced to make judgment calls that were not planned for, so knowing that the appointed person would act according to your wishes is important. With more complicated estates, a professional executor would likely be better to able to handle the responsibilities.

Selecting a person who resides in the local area where probate proceedings will take place is also a good idea, as an out-of-state executor may find it more difficult to work with heirs and file paperwork in court. Also, certain states have strict rules regarding out-of-state executors.

Before appointing someone as your executor, remember to ask them if they are willing to accept the responsibility.  Just imagine all your effort in analyzing who will be your executor, naming them and then having them pass on the responsibility.  Naming an alternate executor, in the event that the primary executor cannot serve in the role, can also be helpful and will prevent the court from intervening and appointing the new executor for you.

In the end, any good estate planning attorney will walk you though the process of naming your executor while drafting your estate plan.  So once again when your decisions are this important, make sure you’re working with someone whose practice is completely and totally dedicated to estate planning and only estate planning.

The vast majority of people don’t even start thinking about planning their estates until they reach retirement age.  If that’s your plan then you’re making at least two mistakes:

1. (1) You are gambling that nothing will go wrong until you’re ready to plan; and
2. (2) You are severely limiting what you can accomplish with your estate planning.

We all know that we will eventually die but understandably it’s an uncomfortable subject for all but the most morbid among us.  The problem is that having the “I know it’s something I should do but I’m still young and I don’t want to think about it right now” or “I know I need it, but I don’t have time right now so I’ll just wait until next year” philosophies will leave you family in a world of pain after you’re gone.  Emotionally for all of the obvious reasons, but also financially and legally because of the probate procedures that anyone without a well executed estate plan has to go through.

Life rarely happens exactly as most people anticipate: people have children without getting married, people get divorced, they marry more than once, then again, they may never marry or have children.  Real life is full of options, choices and twists of fate.  In short, it’s life.

You have to be prepared for the unknown and provide for your loved ones who depend on you in case you’re not around.  Every time we leave our homes and get in our cars, we are at risk of being in a car accident.  Sorry, but that’s the reality.  The point is that nobody is immune from the unknown or unplanned; accidents can happen to anyone and you have to be prepared for those unknown eventualities.  So how do you plan for the unknown?  Well there’s always insurance – every insurance agent on the planet will tell you to buy their insurance to plan for the unknown.

Here’s the rub, insurance, in and of itself is limited.  My auto insurance isn’t going to do a thing for me when the next big earthquake hit’s California causing a Giant Redwood Tree to lose a gargantuan branch.  This branch will then hurtle to earth at astronomical speeds and land perfectly on the little toe on my left foot causing much pain and a trip to the emergency room. After reviewing my auto insurance policy, I will unfortunately confirm that I’m out of luck getting my insurance company to pay for an “act of God” never mind that I wasn’t in my car at the time of the incident.

Remember … life happens and no one can predict it. This is one of the reasons why estate planning is the best and most inexpensive long term insurance coverage that you can ever buy.  We can’t plan for everything specifically, but we can have a solid plan for every eventuality.  For example, if that tree hit my toe and I was in such unbelievable pain that I couldn’t communicate (as would likely be the case because I have a child like tolerance for pain), the person I’ve selected as my Health Care Agent could tell the doctors what to do about my toe!  Excellent, that’s one less worry keeping me up at night.  What would I have done without my little toe?  Which little piggy would have gone “wee, wee, wee all the way home?”  Thank goodness for estate planning.

We take precautions to try and extend our lives for as long as possible. We make sure our cars are in working order.  We eat healthier foods, exercise, and have regular checkups.  And as a result of certain global events we have all become more aware of our surroundings and any threats to our security.  There are no guarantees in life, but we are doing the best we can.

The key issue then becomes: what if that is not enough?  What if you don’t make it to the end of the “normal” road of life?  What would happen to your loved ones if you died today?  Will there be enough money to provide for them the way you would want?  Will they even be able to get to the assets you leave behind or will your assets be tied up in courts, held ransom by the painfully slow probate process that can take up to 12-16 months or more (keeping in mind your assets are tied up in the probate court this entire time)?  How much will they really get (probate in CA can cost up to 5% of the entire value of your estate)?

Wouldn’t it be better to make sure that the people you care about will be taken care of the way you want no matter what happens during your life?  Of course it would.

You could gamble and wait until the last possible minute to plan your estate.  You could be like those people who make estate-planning decisions from their deathbeds in the hospital.  But do you really want to be making some of the most important decisions of your life that will affect your family’s future, potentially for generations, in that kind of condition?  Wouldn’t it be better to put a plan in place now and then have the rest of your life to think about it, polish and fine tune it until it’s exactly what you want?  Remember, estate planning is a process and not an event; you can always make changes to your plan whenever you want.  Frankly having any plan in place is better than having no plan in place.

Planning your estate now doesn’t mean you will die tomorrow, just as buying life insurance doesn’t mean you’re getting ready to die nor does buying homeowner’s insurance mean your house will burn down tomorrow.  So if you act now, you won’t have to worry about what could happen to your family if your life doesn’t follow the normal progression…or about making bad decisions at the last second when you’ve run out of time.

It’s called peace of mind…and you can have it and you certainly deserve it.  So, when’s the best time to plan your estate? Now!

Often people will transfer title of their assets to their adult children while they are living, thinking it will make things easier for their children when something happens to them.  Doing this will prevent the court from controlling the assets if you become incapacitated and it will avoid probate when you die.  However, while there can be valid tax reasons to transfer some assets now, it can also create some serious problems.

Here’s the reality.  First, when you give away an asset, it’s gone. You may think your children will give it back to you if you change your mind, but they don’t have to and you can’t make them.  Also, we all know how family dynamics can drastically change when money is involved. They can do anything they want with the asset given to them: they could sell the asset against your wishes (e.g. a priceless family heirloom or jewelry with significant sentimental value). They could lose it to creditors or be influenced by a maliciously intentioned spouse (sorry, but they’re not a myth and have been know to exist in even the best of families).  If you outlive your children or they divorce, the ex-spouse could end up owning the asset and all of a sudden someone who you never intended to have it now owns your great grandmother’s one of a kind porcelain teapot collection.

Second, there could be tax problems with gifting to your kids. Currently, when you give someone other than your spouse more than $13,000 in one year, the gift tax may get involved.  That means if the gift has a value of more than $13,000, you must file a gift tax return and the IRS will be none too happy with you.  We all know how forgiving the IRS can be, so you may not need to worry about this failure to file.  Oh wait a second, I’m getting confused; it’s my mother who’s forgiving … not the IRS.  File the return.

One more big problem, when your children sell the asset, there will probably be a capital gains tax because, under current law, the asset would not receive a stepped-up basis.  The basis of an asset is the value used to determine gain or loss for income tax purposes; in other words, the basis is what you paid for the asset. If you give an appreciated asset to your children while you are living, it keeps your old basis (what you paid for it). However, if they receive it as an inheritance after you die, it receives a new stepped-up basis and is subsequently revalued as of the date of your death.  Not a fun topic to think about but let’s look at why you should pay attention.

Here’s an example.  Let’s say you purchased your home for $500,000 and it’s worth $1,000,000 when you die. If your children receive it as an inheritance after you die, the basis would be $1,000,000.  If they then sell it for $1,000,000 there would be no gain and thus no capital gains tax.

Part two of the example.  If you give the house to your kids while you are living, the basis would be $500,000 (what you paid for it). If they sold it for $1,000,000, they would have a $500,000 capital gain and would have to pay $75,000 in capital gains tax. Currently, the top capital gains rate on assets held longer than 12 months is 15%.  On one hand $0 and on the other $75,000 straight to the IRS.  Hmm, what to do?  What to do?

Substantial gifts may also disqualify you from receiving Medicaid and SSI (Supplemental Security Income) benefits for a significant period of time.  A good estate planning attorney can help ensure that your plan does not disqualify you from receiving these benefits through proper planning techniques.

Gifting can be a great way to reduce estate taxes if your estate is larger and you can afford to give away an asset.  Just remember to never give away an asset you may need later and make sure you consult with an experienced professional.  If you’ve still got question, give us a call at 858-384-5757 or check us out on the web at www.yourtotalestateplan.com.

What are you planning to give your teenager when he or she turns 18 and legally becomes an adult? A new watch? A car? A deposit for an apartment? A trip to Europe?

Those are all fine gifts, if you can afford to spend for them. But here’s one you may not have thought of … and it won’t cost you a bundle. Take your son or daughter to your attorney’s office and have them prepare a trio of documents: a simple trust or will, a durable power of attorney, and an advanced healthcare directive. Actually, it’s a gift for both of you, because once your child reaches legal age of adulthood, you will no longer be able to automatically make medical and legal decisions for him or her without the appropriate legal documents authorizing you to do so.

If your son becomes ill or injured and cannot handle his own financial affairs, you will not be able to step in for him and conduct business (sign checks, sell assets, etc.) unless he has a trust or a durable power of attorney and has named you as his successor or agent. If he hasn’t, you’ll have to go through the courts … and that will take time, cost money, and restrict you in ways you cannot imagine. (Some financial institutions also require their own forms; make sure you and your child check with each bank, etc.).

If your daughter cannot make her own medical decisions, it will be much easier for you to make them if she has already named you as her agent. And what if she should be so ill or injured that she is placed on life support before you get to the hospital? Unless she has made her wishes known through a legal document, you may not be able to abide by her wishes and have the life support equipment removed without court approval.

Finally, if your adult child should die without a will, the court will distribute his or her assets according to the laws of the state in which they lived … regardless of what you (or they) would have wanted.

Make sure your new adult understands that all of these documents will need to be changed as their life changes including: accumulating more assets, getting married, buying property, having children, etc.

Helping your child get started with this adult responsibility at the moment when he or she becomes an adult is just one more responsibility we have as parents. It fits right in there with how to balance a checkbook, how to handle a credit card, and how to buy insurance.

Chances are that it will be a long time before any of these documents will be needed. But you’ll be sending your child out of the nest with a full layer of protection … just in case.