The coronavirus pandemic is a good reminder of the importance of having your estate plan prepared. Here are the basic documents you should have in the event you become incapacitated or pass away.

Durable Power of Attorney

The agent that you select under a durable power of attorney can generally take care of your financial affairs if you are no longer able to act for yourself. The agent may be able to transact with financial institutions on your behalf as well as to sign legal paperwork or file your taxes.

Advance Health Care Directive

Like the Durable Power of Attorney, the Advance Health Care Directive allows you to select an agent to make health care decisions for you. The agent can also speak to medical professionals on your behalf. Due to privacy laws surrounding medical information, this document may be the only way anyone can get information about your health situation.

Revocable Living Trust

Most estate plans today utilize a revocable living trust to avoid the various hurdles of the costly and time-consuming probate process at the time of your death. The revocable living trust also has the added benefit of providing a plan for the management of your trust assets in the event that you become incapacitated. The key to utilizing a revocable trust effectively is to ensure that appropriate assets have been properly transferred to your trust.

Will

For most people, the revocable living trust is the primary document that describes how their assets are to be distributed. However, Wills are still prepared as part of a complete estate plan and are usually where guardians for minor children are nominated. Typically, clients who have a revocable living trust also have an accompanying “pour-over” Will that states that any assets that the client may have forgotten to put into the trust while they were alive be put into the trust after their death. The person in charge of carrying out the wishes in your Will is known as the Executor, and is often the same person as the successor Trustee of your revocable living trust.

Transfer / Title Documentation

If you have a revocable trust as part of your estate plan, you should also make sure that any bank and investment accounts, real estate, or any other asset (other than retirement accounts and life insurance policies) are re-titled in the name of your revocable living trust. This will ensure that those assets will be distributed in accordance with your trust rather than your Will (the latter of which may require a probate proceeding).

Beneficiary Designation Forms

Some assets are only distributed by way of beneficiary designation forms. Typically, life insurance and retirement accounts (e.g., IRAs, 401ks, SEP-IRAs, etc.) fall into this category. It is therefore critical that you review these from time to time to make sure that you’ve named the appropriate beneficiaries.

Asset List

This is rarely mentioned, but practically speaking, simply putting together a list of your assets can be immensely helpful to your Trustee, Executor, or beneficiaries. Often, when a person dies, his or her family members do not know where to look for the assets. A simple list with information such as the address of any real estate that you own, the places where you have banking or investment accounts, or the legal names of the businesses that you own can greatly reduce the burden faced by your loved ones.

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For some clients, tax minimization or avoidance makes up a large part of the work related to their estate plan. Usually, those with higher net worths confront these issues. Among them are the gift tax, estate tax, income taxes, and property taxes. Let's briefly touch upon each one.

Gift Tax

Gift Taxes occur as a result of making lifetime transfers of assets to others. As a practical matter, only a small number of individuals face this issue. This is because until 1/1/2026, a person may transfer approximately $11,200,000 in assets without facing gift taxes. In some scenarios transfering assets and paying gift taxes can be more beneficial than having those assets continue to be part of the estate and therefore taxable for estate tax purposes.

Estate Tax

In simple terms, Estate Taxes are paid based on a valuation of the assets you own at the time of your death. If your estate is less than $11,200,000 (as of 2018), then you may not owe any estate taxes (depending on whether you made transfers during your life that utilized the estate tax exemption amount). Many estate plans for married couples take advantage of the "marital deduction" to defer estate taxes until the death of the surviving spouse.

Income Taxes

One area that estate planning lawyers focus on when it comes to income tax is the tax basis for a transferred asset. For example, recipients of assets by lifetime gift generally have the same tax basis as what the gifting party had. On the other hand, recipients of assets through an inheritance after the death of the owner may receive the asset with a "stepped-up" basis. Consequently, if you receive an asset from a living person, you may pay higher capital gains tax than if you had received the asset from someone who has passed away (for example, through that person's will or trust) if you later decide to sell it.

Property Taxes

In California, real property is reassessed for property tax purposes whenever there's a change of ownership. Transfers between parents and children and grandparents and grandchildren may be exempt from reassessment entirely or up to a certain dollar amount.

Because of the property tax system in California, it's possible that someone with highly appreciated property is still paying very little in property taxes. This is especially true if this person has owned the property for a long period of time. Planning how to transfer your real estate intelligently may allow your family to reap significant benefits in the form of maintaining low property taxes.

These are just some of the considerations and potential obstacles that taxes pose in estate planning.

You may not know that California is considered a "Community Property" state. In Community Property states, assets owned by married couples or registered domestic partners are considered either "community" assets or "separate" assets. Whether an asset is community or separate property has a significant impact on how those particular items are distributed.

(Simple) Definition

Community property, in general, includes assets that you earn through your labor (such as a salary) after your are married. If you own property that is considered community property, then the income from that property would also be considered community property. Community property is considered owned 1/2 by each spouse or registered domestic partner.

Separate property, in general, is assets that you owned prior to marriage, or assets gifted or inherited directly by you at any time, and would include the income generated from separate property that you own.

If couples want to be sure that their assets can be properly characterized at a future time, it is critical to keep community and separate property separate.

Transmu-what? (Transmutation)

Married couples or those in registered domestic partnerships can agree to "transmute" their property. That means, they can:

1. Convert community property into the separate property of either of them.
2. Convert separate property of either of them into the separate property of the other of them.
3. Convert separate property of either of them into the community property of both of them.

There may be a number of reasons for why a couple might want to do this, as it can affect the way assets are distributed at the time of death, and can help the couple achieve certain tax minimization goals.

It's important to note that registered domestic partners are not considered "married" under federal law. Therefore, the federal tax benefits available to registered domestic partners are limited.

If a couple meets with an estate planning lawyer, this is certainly going to be a part of the conversation, so be prepared.

After the first real meeting, the estate planning lawyer may have additional follow-up questions. But at this point, assuming you've made some key decisions, the lawyer should have enough data to begin researching any issues (if any) and drafting your estate planning documents. A typical estate plan in California consists of the following documents:

1. Revocable Living Trust
2. Pour-over Will
3. Durable Power of Attorney (Financial Decisions)
4. Advance Health Care Directive
5. Assignment of Assets
6. One or more real property deeds

Draft Documents

After an initial draft of the documents have been prepared, the estate planning lawyer will typically send them to you via e-mail or regular mail so that you can look them over and ask any questions you may have. Alternatively, you may wish to set up an appointment to go over each document with the guidance of your lawyer. This meeting doesn't need to be in person, and can be over the phone.

Revisions

If during your review you notice things that you would like to change or things that don't accurately reflect your wishes, now is the time to tell the lawyer so that he or she may update the documents before you sign them. The estate planning lawyer may re-send you the updated documents to ensure that the content has been revised to your specifications.

The end result should be a set of draft documents that is ready for signing, witnessing and notarizing.