Estate Planning

Where There’s A Will

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A will is just one tool in the tool-belt of an estate planning attorney. Like any tool, it works great for the right purpose. But if you apply the tool in the wrong way, it won’t help very much – and sometimes it might even ruin what you’re trying to build.

The same is true when it comes to the proper use of a will. A will is a limited tool. And, unfortunately, most of the time, we see it being used the wrong way, especially by those people who were mistakenly led to believe that a will is the only document they need to complete an estate plan.

This article attempts to identify the different limitations when it comes to a will for the purposes of estate planning, and then identifies some scenarios when a will can be useful.

What a Will Won’t Do

  1. A will does not avoid probate. One of the biggest misconceptions around is that a will prevents probate. Simply put, a will does nothing to avoid your assets from going to probate. In fact, having a will guarantees that there will be a probate. By definition, a will must be examined by the probate judge in order to determine if it is a valid document. If the purpose of your estate plan is to avoid probate (as is the case in most instances), then a will offers you very little mileage. It has often been said, “Where there is a will, there is a probate.”

RATHER: A trust can avoid probate.

  1. A will does not protect you from incapacity. A will comes to life only when you die. If you are incapacitated or in a coma, your will does not assist you and that means that because you cannot make legal, financial, or medical decisions for yourself, the government and strangers will make them for you – instead of your own family members.

RATHER: Powers of attorney & health care directives kick in when you are incapacitated.

  1. A will cannot transfer various kinds of property. A will cannot transfer your interests in certain properties. These include properties you own as joint tenancy, property in a trust, life insurance proceeds with a named beneficiary, qualified plans with named beneficiaries, TOD or POD accounts. Many potential beneficiaries and family members are shocked to learn they will end up with nothing, even though they are named in a will!
  2. Don’t rely on your will to leave behind funeral instructions. I got a call recently from a man who was panicked. It was a common problem I’ve seen in my practice. The man’s father passed away in Southern California and the man, who lived in Northern California, wanted his father buried, but the father’s new spouse insisted the body be cremated. Because the coroner’s office named the new spouse as next of kin, and she was more local, the body eventually was cremated. Practically speaking, a will is typically not read or found until weeks after a death. Therefore, it is generally impractical to believe that the wishes left in a will as to last rites will be followed.

RATHER: a set of Final Disposition instructions – as part of one’s trust – is a better avenue for planning, where a lawyer who drafted it and others who have copies of it know the instructions and can be forced to abide by them.

  1. A will cannot avoid the estate taxes. If you are in a state where the estate tax is an issue, or in a legal situation where the federal estate tax applies to you because of your assets or citizenship status, you better start planning. Because a will does nothing to avoid or minimize this large tax on your assets, and the tax can be as high as 40%-55%.

RATHER: Certain types of trusts can avoid or minimize the estate tax.

  1. Conditional gifts. You can’t leave a gift that is contingent on the marriage, divorce, or change of religion of a recipient. And making conditional gifts (like graduating college) are hard to enforce, when it comes to executing a will.

RATHER: A trust can create conditional gifts and hold people accountable lest they lose their distribution.

  1. Guardian Nominations for Minor Children. A will often will name who the guardians are for your minor children. However, there are several problems with this approach, including the following:
  • Practically speaking, naming guardians in a will does not work. If you and your spouse die in a car accident, for example, the police officer on scene is not going to know that you have a will at home located in the bottom drawer of your bookcase in the living room. He is not going to know that you named guardians on page 3 of that will. Instead, he is going to immediately call the Department of Children & Family Services to take custody of your young children and will rely on them and the courts to sort out what happens with the issue of guardianship. This is the most common way children of deceased parents find themselves in the hands of the courts.
  • A will only names long-term guardians – it does not name short-term guardians. Again, as a practical matter, it is just as important to name short-term guardians for your minor children. It is the short-term guardians who generally can keep your children out of the custody of the police or foster care, not your long-term guardians.
  • Most guardians lack the authority to act. Too often, we have clients who come to us after they did their estate plans with another lawyer. When I review their plan, I ask if their guardians have copies of their documents. Even I am still shocked to hear not only do the guardians not have the documents, but some guardians don’t even know they were named! In the event that a guardian arrived on scene to an accident where you passed away, chances are they won’t have the will in hand or won’t be able to find it in time. This could easily be fixed if the guardians and the family’s lawyer were in communication; again, many lawyers charge extra for that kind of service, unfortunately.
  • Your guardianship nominations won’t matter if you are incapacitated. As alluded to earlier in this article, a will only takes affect if you are dead. What happens if you are in a coma or become incapacitated? Your nominations lack any authority, and again, your children will fall into the hands of the Dept. of Children and Family Services.

So why have a Will?

It’s the right question to ask, and there are only a few answers.

  1. A will is a great tool if your assets will not go to probate. In California, if you have real property with a fair market value above $50,000 or total assets above $150,000, then your family will be stuck in probate. For those estates under those values, a will can still be beneficial, although the above limitations will still apply.
  2. A will in probate avoids intestate succession. To understand this, you need to understand what normally happens at the conclusion of probate court. Once assets are finally ready to be distributed in a probate proceeding (which could be many years and thousands of dollars later), the probate judge will use California’s laws of intestate succession (Probate Court sections 6400-6414) to determine to whom the assets can be distributed. For example, the first in line is your spouse, then your children and grandchildren, then your parents, then your siblings and nieces and nephews, then your grandparents, then to the children of your predeceased spouse, and it continues on and on. If you don’t have a will, this is your will; in other words, the judge must follow this distribution whether you wanted it or not. If you do have a will, the judge will distribute according to your will and avoid the rules of intestate succession. But remember, you are still stuck in probate court and still have to go through probate in order to avoid intestate succession. Instead, a trust not only avoids intestate succession but it also avoids probate.
  3. A pour-over will can be a parachute. So why do people who have a trust still have a will? It’s a good question. The answer is that if they do everything right, they don’t need the will. But in the event that they don’t properly fund their trust – a common problem of those who have trusts – then the assets not funded in the trust will go to probate.   When they do go to probate, they will need a will to get those assets back into the trust – that will is called a “pour-over” will because it is supposed to pour the assets back over to the trust. In this regard – along with a trust – a will is recommended and useful as a last resort.

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