A California Estate Plan Guide and Checklist for Your Parents

If you’ve done your estate planning and created and funded your living trust, good job! Your family and assets are better protected.

But what about your parents? If they don’t have a living trust estate plan or if the one they have is outdated, you and your siblings will pay the price if they need a conservatorship or if you have to probate their estate.

If you have a relationship with your parents that will allow you to ask, you should ask them about their estate plan. I understand that not everyone can have this conversation with their parents. I recall one of my clients who told me his father considered him and his siblings the enemy in regard to his estate plan, and he would never discuss his estate planning with them.

If you can have that conversation, there are two main topics to discuss with your parents: 

1. Have they set things up so you or your siblings can help them if they become incapacitated or otherwise need help managing their finances and health care; and 

2. Do they have an up-to-date living trust estate plan? If they do, you and your siblings will avoid the cost and hassles of probate, and your parents' estate administration will be straightforward and efficient.

Below is a description of the issues you should discuss with your parents, followed by a checklist.

One way to start the conversation is to say that you’ve just completed setting up your estate planning and you learned how important a living trust estate plan is to protect your family and assets. You might also want to mention your great experience working with Clark Allison LLP (duh!) and how easy it was to set up your customized California living trust estate plan.

Can Your Children Take Care of You If You Need Help?

Many people think an estate plan is only needed when they die. This is not true. A complete living trust estate plan will include a Durable Power of Attorney, an Advance Health Care Directive, and HIPAA which will allow the people you trust to help you if you become incapacitated.

What happens if you need help with your banking and bills? Have you set things in place to allow your children to help you?

Here are several ways to put things in place so your children can help you.

Help With Your Finances

Add your child as a co-signer to your bank accounts. But you only do this if you completely trust your child not to run off with your money. If you trust your son or daughter, you can give them access to your accounts so they can pay your bills and manage your accounts.

A better solution is to name your son or daughter a co-trustee on your living trust and complete the paperwork with your bank and financial advisor to add them as co-trustees on your accounts. Don’t have a living trust? Well, you probably need one. See below.

Get a Durable Power of Attorney. A durable power of attorney can name your son or daughter to act on your behalf with your bank and investment accounts. There are two types of durable powers of attorney, springing and immediate. A springing durable power of attorney only goes into effect if one or more of your doctors say you are incapacitated and can no longer manage your affairs. An immediate durable power of attorney immediately kicks in and gives your agent immediate power to act on your behalf.

Banks tend not to like durable powers of attorney, so if you rely on one to give your children access to your accounts, be prepared for a fight. I wrote about this here. Banks will eventually accept your durable power of attorney, but if you can, it might be more effective to add your children to your accounts or to name them as co-trustees of your living trust.

If you do not have anything in place to allow your children to help with your finances, then you could face a worst-case scenario - conservatorship. Once you are incapacitated - whether it be a diagnosis of dementia or Alzheimers, it may be too late to sign documents. If so, your children may have to hire an attorney and petition the court for a conservatorship. Conservatorships are expensive and complicated. Definitely something you and your family should avoid. But a conservatorship can be easily avoided if you prepare a living trust estate plan with a durable power of attorney while you still can.

Help With Your Health Care

You need an Advanced Health Care Directive and HIPAA. These California-specific documents authorize your son or daughter to talk to your doctors and make health care decisions for you if you can’t.

These are not the same as a durable power of attorney, which deals with managing your assets. The advance health care directive and HIPAA address health care decisions.

Living Trust Estate Plan

A well-written living trust estate plan will include the documents we discussed above—a durable power of attorney, advance health care directive, and HIPAA—but it will also include the centerpiece of a California estate plan—a living trust.

What is a living trust, and why is it important? If you have assets that would go through probate, then having a funded living trust will allow your children to avoid probate. In California, if you own your home (whether or not it is paid off), it will go through probate when you die. In addition, bank and investment accounts worth more than $184,500 will also go through probate. However, if you have a living trust and you transfer those assets to your living trust, then your family can avoid probate.

Why is probate bad? It’s expensive, usually takes at least a year to complete, and exposes your private financial and family information to the public probate court record. You can read more about California probate here. Probate is bad. The only ones who win in a probate are the probate attorneys. You should avoid probate.

If you already have a living trust, you must ensure it is funded and up to date.

Funding Your Living Trust

Title to Your Home

What do I mean by funding your living trust? Funding means transferring the title of your probate assets to your living trust. Does the deed to your home name your living trust as the owner? If not, your home may still be subject to probate even though you have a living trust. 

How do you know if your home is titled in the name of your living trust? Check your deed. If you don’t have a copy of your deed, get one. If you are working with us, we will pull your deed for you. This is very important. You don’t want to guess. You need to know that your home is titled in the name of your living trust.

Your Bank and Investment Accounts

Are your bank and investment accounts titled in your trust? The California probate threshold is $184,500. We generally recommend that you transfer accounts valued at $50,000 or more to your trust. The $184,500 is a cumulative amount, so if you have four $50,000 accounts = $200,000, they would be subject to probate.

Your Retirement Plan Beneficiaries

Make sure you have named primary and contingent beneficiaries. If you named your spouse as the primary beneficiary and your spouse has died, you must name new beneficiaries. Most of our clients name their children as the beneficiaries of their retirement plans if their spouse has died.

We generally recommend you name individuals as your retirement plan beneficiaries rather than your living trust. However, if you want your retirement plan to go to minors or individuals who need others to manage their inherited IRA for them (individuals with disabilities or alcohol or drug addictions, or individuals who are really bad with money), then you may need to name your living trust as beneficiary.

Your Life Insurance Beneficiaries

Are your life insurance beneficiaries up to date? Unfortunately, we’ve seen many cases where the insured named his spouse as his only life insurance beneficiary. And after his spouse died, he didn’t name a new beneficiary. When he died, he had no named beneficiary, and the life insurance company required probate. Make sure you have named beneficiaries who are still alive. 

Is Your Living Trust Up-To-Date?

Maybe you set up your living trust decades ago. Has it been reviewed or updated? We often review old living trusts and find provisions that may have been appropriate twenty or even ten years ago but could now cause confusion and result in higher taxes. Make sure your living trust terms clearly reflect your current intentions and the current tax laws. If you have a living trust that hasn’t been reviewed for a while, you should have it reviewed with an experienced estate planning attorney.

Checklist for Your Parent’s Estate Planning

• Do they have an up-to-date Durable Power of Attorney - Immediate or Sprining?
  
  
• Should they name you or a sibling as co-trustees on their Living Trust and on their bank and financial advisor records?
  
  
• Should they name you or a sibling as a co-signer on their bank accounts

• Do they have an up-to-date Advance Health Care Directive and HIPAA?

• Do they have a living trust?
  
  
• If so, is it up-to-date? Has it been reviewed in the last few years?
  
  
• Is their living trust written clearly, and does it reflect their current intent regarding successor trustees, tax provisions, and distributions?
  
  
• Have they funded their living trust? Have they transferred title of their probate assets, such as their home, large bank and investment accounts, to their living trust?
  
  
• Have they named primary and contingent beneficiaries on their retirement plans?
  
  
• Have they named primary and contingent beneficiaries on their life insurance policies?

Hopefully, your parents have done their estate planning, and it’s updated. But it’s in their best interest and your best interest to find out.