One vital part of the estate planning process is making sure that assets with beneficiary designations are updated to be consistent with the other provisions of your estate planning documents. In general, this means that you want these assets to be distributed in a manner that is similar to how the other assets in your trust are distributed.

Assets with Beneficiary Designations

Generally, assets with beneficiary designations include life insurance policies, retirement accounts (such as IRAs and 401ks), as well as Pay-on-Death (aka "POD") accounts. 

Married Persons

In cases where spouses are married, it is often beneficial to have each spouse name one another as the primary beneficiary of retirement accounts. This gives a spouse the chance to inherit the other spouse's retirement account and continue the tax-deferred growth of that asset. In this scenario, usually the couples' joint living trust will be named as the secondary beneficiary on the retirement account.

Naming Minors as Beneficiaries

If your plan calls for naming minors as beneficiaries, you will want to make sure that the forms provide that the money will be held in a custodial account (often called "CUTMA" accounts) until a certain specified age (usually between 18 and 25). Without having such a provision, it's possible that a special person has to be appointed by a Court to receive and account for the money.

For some of you, especially those of you who have been diligent in contributing towards your retirement accounts, these types of assets can represent a significant portion of your assets. By planning properly, you not only ensure that the proper people receive these assets, but also significantly reduce potential tax consequences.

One of the most common estate planning documents in California is the Revocable Living Trust. You can think of a Revocable Living Trust kind of like a container to hold your assets while you're alive. This container is governed by a set of specific instructions that you lay out in the document that creates the trust, and tells others how the assets inside the trust are to be used for your benefit while you're alive and how the assets are to be distributed after you pass away. Depending on your marital status, there will be different ways to create a trust.

Single Person

If you're single, or not married and not in a registered domestic partnership, you will most likely have a revocable living trust that holds all of your own assets. Also, any assets that use a beneficiary designation, such as life insurance policies or retirement accounts will likely have the trust named as its primary beneficiary so that the proceeds from those assets can be distributed in accordance with the revocable living trust provisions.

Married Persons

If you're married, it is likely that you and your spouse will create a single joint revocable living trust that holds both of your assets--whether it is community property or the separate property of both spouses. Occasionally, couples will create 2 or more revocable living trusts--one to hold the couple's community property, one to hold one spouse's separate property, and perhaps one more to hold the other spouse's separate property. The specific combination will depend on factors such as:

1. Whether and/or the amount of separate property that each spouse has.
2. The value of the assets that the spouses' own overall.
3. The similarity or disparity in how each spouse wants to distribute his or her assets.
4. Other personal factors such as each spouse's belief in the other's ability to handle financial affairs.

Day-to-Day Life Remains the Same

So long as you (and your spouse, if you have a joint living trust) are alive and fully functioning, there's no practical change to how you handle your financial affairs once the trust is set up. Because revocable trusts can be amended, changed, or revoked by you, they do not provide any immediate benefit for tax or creditor purposes (though this is not necessarily the case after you pass away). If a trust is revocable and amendable, then:

1. Transferring assets to the trust does not cause any adverse tax consequences.
2. Income taxes as a result of rent, dividends, capital gains or losses are treated the same as it was prior to creating the trust. 
3. The trust assets will be included as part of your estate.
4. There is no reassessment of your real estate for real property taxes (a huge benefit for long-time residents in counties where the property tax bases tend to be much lower than the fair market values of the property, such as in Los Angeles County).

Schedule of Assets

In most trust documents, there's a separate schedule which lists all of the assets that you own and is supposed to be contained within the trust. This is helpful for at least a few purposes.

First, if you die and haven't otherwise kept a good record of the property that you own, this schedule can be useful to your successor Trustee, who can use the list to track down your assets.

Second, if you forgot to re-title those assets in the name of your trust, it could serve as the basis for a "Heggstad" petition, which is a special procedure to transfer those assets to your trust without the need to go through a full probate process.

So there you have it, a few basics of a revocable living trust. 

Once your lawyer has produced draft documents to your specifications, the final step is to go in to the estate planning lawyer's office to have all of them signed. Because of the formalities involved, we have a strong preference for having our clients come to our office in Los Angeles so that we can oversee the entire process. Doing so allows us to have one final review with the client and to make any last-minute modifications to the documents before having them executed. It also allows us to make sure that the proper legal procedure is being followed as the documents are being signed.

If Coming to the Office is Not Convenient

On some occasions, where a client is not able to come to our office, we may arrange to visit the client and their home. This allows us to oversee the execution of the documents, but makes it difficult to make any last-minute changes. Additional witnesses may also need to be called to the client's home.

Finally, in instances where a client lives too far from our offices in Los Angeles County, California, we will prepare a detailed memo about how the documents should be signed. 

Post-Meeting Steps

After the meeting to sign the documents, you will be given an overview of the steps to ensure the effectiveness of your estate planning documents. These include:

1. The lawyer will take care of the process of recording any real property deeds to transfer them to your trust.
2. If you've created a revocable living trust, this means making sure that you properly re-title your assets in the name of the trust. The lawyer will likely have taken care of this with respect to any real estate that you own, but it is often up to the client to ensure that this is done with respect to financial accounts (the lawyer is often available for guidance).
3. Ensuring that the beneficiary designations on your life insurance policies and retirement accounts are updated in coordination with your estate planning documents.
4. Making your family aware of where you keep those estate planning documents in case something happens. However, in our experience, it may not be advisable to share the contents of your estate planning documents, as you may amend them and therefore set false expectations of the beneficiaries you've named in them.

That's pretty much it! After that, you should probably contact your estate planning lawyer every 2-3 years or whenever there's a major life event such as the birth of a new child or the death of a family member. It's also a good idea to contact your estate planning lawyer if there's a substantial change in your net worth.

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.