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.

This coming week I’m attending a conference of the National Network of Estate Planning Attorneys (NNEPA) in Cleveland, Ohio.  I know that many of you might say that the thought of attending a series of seminars for an entire week all about estate planning and tax sounds like as much fun as a box of rocks.  But for me it’s exactly what I want to do.  The NNEPA is the oldest and one of the biggest groups of attorneys dedicated to making sure that all its members are exceeding their clients’ expectations.  That means being on the cutting edge of tax law changes and drafting strategies.

More than that, I’m excited about attending because of a promise that I made to myself.  I said that I would never just do the Minimum Continuing Legal Education (MCLE) required by the California Bar.  The California Bar requires that all attorneys complete 25 hours of MCLE every three years.  That’s a little over 8.3 hours a year.  By the end of next week I’ll have done 55 hours for 2009.  Yes, that’s over 6 ½ times what most other attorneys do.

Why do I study so much?  Well it all goes back to the fact that this is my firm.  I’m not just looking to get people in and out so that I can sell them documents and never see them after.  I’m looking to be their personal family lawyer for life.  I study harder because that means when my clients call, I’ll know how best to counsel them.  Frankly it also means that if I can’t answer the question, then at least I’ll know how to get them to the person who can answer it.  In the end, it’s all about exceeding expectations.

Most estate planning attorneys tell you a lot about what they’ve done professionally, who’s money they’ve saved, what schools they’ve gone to and that’s about it.  Next, they jump into what you should do with your money and family (usually in that order).  In my opinion, that doesn’t make me feel warm and fuzzy.  If I’m letting someone into the deepest recesses of my life and telling them the whole truth, well I want to know a bit more about them too.  So here we have it.  Keep reading and eventually I’ll tell you everything about me!

When I started Chhokar Law Group, P.C. I decided that I was going to have a different type of law firm.  Why?  Because I can … I’m in charge.  That means that if we fail or succeed, I’m taking the blame and in turn the credit.  It’s simultaneously, terrifying, frustrating, enlightening and invigorating.  A lot of people have asked me how I could even think about starting my own shop in this “recession.”  Well the answer is really simple … I love coming to work everyday.   I wonder how many of those people asking me the question can say the same thing.  I love what I do, I’m passionate about how I do it and I adore the people I work with every single day.  It may be scary and hard but it’s also oh so much fun.

So my promise to you here and now is that my firm is not your average law firm and nor will it ever be!