Estate Plans 101: The Basics for Those Just Starting Out

by Brandon Lee Spivack

Imagine a young entrepreneur (“Jacob”), recently graduated from college and living at home to save on expenses. Business is growing and the future is bright until Jacob suffers an unfortunate accident, leaving him incapacitated. Suddenly, Jacob is faced with a series of important issues:

• Who is going to make medical decisions for Jacob?

• What are Jacob’s medical instructions?

• Who will run Jacob’s business?

• How will Jacob pay his bills?

Dispel the idea that estate planning is only for old, wealthy clients who are married and own property. Estate planning is relevant to young adults who are single or married, rich or poor. Directions on how you want your wishes to be handled in the event of your incapacitation or death is one of the most important \gifts you can make to your family and friends.

Without an effective estate plan, the court will need to appoint a Conservator of the Person and the Estate to act on Jacob’s behalf. These issues are further complicated if Jacob is not properly insured. Where does Jacob’s Conservator get the money to pay his medical bills, legal fees, student loans, and business expenses? Establishing an estate plan forces a person to confront these issues.

An Advance Health Care Directive is a core document in a complete estate plan. It nominates an agent to make medical decisions on Jacob’s behalf. The nomination can eliminate the need for the appointment of a Conservator of the Person. Also, Jacob can include instructions for medical care, such as limitations on end-of-life care and restrictions on experimental treatments. Jacob can also include burial wishes and instructions for organ donations and autopsy.

A complete estate plan also includes a Durable Power of Attorney, allowing Jacob to nominate a person or financial institution to manage his or her finances if Jacob is unable to do so. In our example, nominating a person to manage Jacob’s financial assets would facilitate timely payment of Jacob’s expenses. Also, Jacob’s agent would have access to Jacob’s financial records, allowing his agent to make informed decisions about whether Jacob qualifies for public benefits. Executing an Advance Health Care Directive and a Durable Power of Attorney is easy and should be done by all people after attaining the age of 18 years. If you do not have the money to hire an attorney, form documents are available through the California Probate Code. See Cal. Prob. Code. §§4401and 4701.

Another element of estate planning is insurance. In our example, Jacob is unable to work, but his expenses continue to mount. Without insurance and with limited savings, Jacob will need to receive financial assistance from his family, friends, and/or the government to pay his expenses. Evaluating cash flow and liquidity needs is part of establishing a complete estate plan. Most young adults have insufficient funds to support themselves or their loved ones if they are unable to work. A common tool to address this issue for young adults is insurance. First, insurance is usually cheaper when purchased at a younger age. Also, young clients (on average) are more insurable because they have not developed any significant health conditions. The value provided by an insurance policy and the ease in which such a policy can be purchased are reasons why young adults use insurance to provide short-term and long-term cash flow in the event of death or incapacity. Your estate planning attorney can introduce you to an insurance professional that can help develop a solution for your needs.

Michael and Caitlin are a married couple in their 30s. They have careers, two children, and modest assets that they accumulated during their marriage. Like many young couples, they intend to take care of their wills and other financial affairs but cannot find the time to meet with an estate planner. They understand that California adopted several laws to facilitate the administration of a deceased spouse’s estate and to protect the surviving spouse’s interests in community assets, including family allowances, spousal property petitions, and custody of minor children. Accordingly, Michael and Caitlin do not feel any urgency to establish an estate plan. However, there are many reasons the couple should still make the investment:

• Guardianship – If Michael and Caitlin die before their children attain the age of majority, a court will need to appoint a guardian to care for each minor child. A complete estate plan allows for the nomination of a guardian.

• Avoid Probate – Following the death of a spouse, the surviving spouse can avoid probate if the couple holds their assets in a trust.

• Trust for Young Children – Michael and Caitlin, like most parents, do not wish for their young children to receive their inheritance outright. Without a trust, a parent can only delay distribution of a child’s inheritance until age 18, or age 25 if the parent executes a will expressly delaying all distributions from a custodial account until age 25.

• Divide and Allocate Duties – It is common for young couples to have a person that they want to make decisions about the care of their children (e.g. day-to-day activities), but trust a different person to manage the assets left for the benefit of the children. With a complete estate plan, Michael and Caitlin can divide and allocate these responsibilities; one person can serve as the guardian for their children, and a different person can serve as trustee to manage and distribute the assets (to the guardian) for the benefit of the children.

A proper estate plan is an opportunity to dictate your care and the management and distribution of assets if something happens to you. Regardless of your age and wealth, everyone needs to have a plan.

Brandon Lee Spivack specializes in tax and estate planning. He has significant experience assisting clients with trust adminis tration and probate procedures. Brandon develops business succession plans, executes estate freezes, and addresses a variety of income tax, transfer tax, and property tax issues. Brandon received his Juris Doctor from the University of Miami School of Law and received his LL.M. degree from the Heckerling Graduate Program in Tax and Estate Planning at the University of Miami School of Law. Brandon is admitted to both the State Bar of California and the State Bar of Florida. Brandon is a Certified Specialist in Estate Planning, Trust, and Probate Law by the California State Bar, Board of Legal Specialization. To learn more about Brandon and Spivak Law, APC, please visit www.Spivack.law.