Drafting estate planning documents requires careful consideration of not only your current situation in life, but also how circumstances might change over the course of the remaining years you are alive. A well-drafted set of estate planning documents should carry out your wishes as they exist today and also provide enough flexibility to account for changes that may arise. 

Your Will and Revocable Living Trust may be modified or revoked during your lifetime, so steps can be taken to update them if necessary. In fact, major life changes such as marriage, the birth of a child, or a death in the family are almost certainly times when you should be reviewing your estate planning documents.

Below are some of the things that an estate planning lawyer might consider as he or she is drafting your documents.

Clear Definitions

Sometimes people use words in a colloquial manner that don't necessarily match what they intended in their Will or Trust. For example, if a person states that they want their assets to "be distributed to their children," are they including step-children, adopted children, or foster children? Defining key terms can help to clear up any confusion after the person passes away.

Alternate Beneficiaries

Often people will specify a gift to a beneficiary, but fail to consider what will happen if the beneficiary isn't alive at the time the gift is to be made. Should the gift go instead to that person's children? If not, should the gift be given to someone else? It's always important to consider contingencies when it comes to gifts.

Gifts to Young People

One aspect that people often forget is that minors may be legally unable to receive a gift from your estate. Moreover, even if they could, it may not make sense to give substantial gifts to young people who are not mature enough to handle the responsibility. In such situations, one may want to provide that the gift is to be held by a custodian or in a special trust for the minor beneficiary until he or she is old enough to manage it themselves.

Survivorship

What if a beneficiary related to you died shortly after receiving the gift from your estate? In that situation, it's possible that the anti-lapse rules (found in California Probate Code Section 21110) would apply and the beneficiary's children would receive the gift instead. If that's not your intent, including a requirement that the beneficiary outlive you for a certain number of days in order to receive the gift can help avoid this outcome. Here's the text of California Probate Code Section 21110:

(a) Subject to subdivision (b), if a transferee is dead when the instrument is executed, or fails or is treated as failing to survive the transferor or until a future time required by the instrument, the issue of the deceased transferee take in the transferee’s place in the manner provided in Section 240. A transferee under a class gift shall be a transferee for the purpose of this subdivision unless the transferee’s death occurred before the execution of the instrument and that fact was known to the transferor when the instrument was executed.

(b) The issue of a deceased transferee do not take in the transferee’s place if the instrument expresses a contrary intention or a substitute disposition. A requirement that the initial transferee survive the transferor or survive for a specified period of time after the death of the transferor constitutes a contrary intention. A requirement that the initial transferee survive until a future time that is related to the probate of the transferor’s will or administration of the estate of the transferor constitutes a contrary intention.

(c) As used in this section, “transferee” means a person who is kindred of the transferor or kindred of a surviving, deceased, or former spouse of the transferor.

Thinking through the various permutations can be difficult for the uninitiated, and certainly gaining the perspective of a skilled estate planning lawyer will help avoid problems down the road.

A durable power of attorney allows you (the "principal") to name someone (i.e., your "agent") to manage your assets. This can be especially helpful if you become incapacitated and want to avoid having a conservator appointed.

In fact, most comprehensive estate plans prepared by lawyers include a durable power of attorney. Durable powers of attorney, however, have some disadvantages that revocable living trusts do not have. 

Probate

A durable power of attorney does not avoid probate at the time of death.

Fiduciary Duty

Agents under a durable power of attorney generally have fewer obligations than trustees of a trust, and are tasked with only typical fiduciary obligations. The agent under a power of attorney is also not required to act on your behalf.

Accountings 

Agents under a durable power of attorney are not required to keep beneficiaries reasonably informed, unless demanded by the principal or by court order.  In contrast, a trustee of a trust has an obligation to keep beneficiaries reasonably informed of the trust and its administration.

Acceptance by Financial Institutions

One practical downside of durable powers of attorney is that financial institutions are often reluctant to accept the document. Sometimes banks and other institutions have internal policies requiring their own forms be used. Assets titled in the name of a trust, on the other hand, typically do not have this problem as financial institution usually feel more confident in relying on trust documents.

For most who own real estate in California or assets in excess of $150,000, a revocable living trust helps minimize the risk of probate. However, there are still some challenges associated with utilizng a revocable living trust. 

Startup Costs

If you don't own much in the way of assets, the cost of creating a revocable living trust may not be worth the benefit. For those with small estates, the California Statutory Will, which is free, may be all that is needed.

Re-titling of Assets

Many people who are tricked into the allure of cheap document preparation services to create their trust often don't take the crucial step of re-titling assets or updating beneficiary designations.

A trust is only effective if there are assets held within it. Because this step can take time, document preparation companies are often not in a position to advise and guide you through this process. Remember, a trust is totally useless to avoid probate if it does not hold title to your assets or if it is not named as a beneficiary in your beneficiary designations.

Court Supervision

Although the main benefit of revocable living trusts is probate avoidance, sometimes clients who anticipate disagreement among beneficiaries may wish to subject the estate to probate to ensure that there will be judicial supervision. This is very, very rare, but for clients who want this, use of a revocable living trust may be a disadvantage.

Lack of Family Protection Laws

Because a trust is not subject to probate, the family protection statues (e.g., probate homestead) are not applicable. Many clients, however, consider this a benefit, as they don't want their trust assets subject to these specific laws.

Creditor's Claims

In probate there's a 4-month period after "Letters" are issued in which creditors may bring a claim. After that time, claims are cut off. In contrast, a revocable living trust requires the trustee to affirmatively take steps to file, publish, and serve notice on possible creditors to start the time limit.

Although the list of disadvantages may seem extensive, for most clients, the benefits of a revocable living trust far outweigh the downsides. In fact, for many, the need for court supervision, family protection laws, and creditor claim limitations are more beneficial in theory, than in practice.

Sometimes we provide for gifts in our Will or other testamentary documents without thinking about the debt that is on the asset or what happens to it. This often comes up when someone wants to gift real estate to others, since real property tends to be purchased through financing.

Generally, we look to the express provisions of a deceased person's Will or Trust to determine his or her intent with respect to gifts that are made. California Probate Code Section 21102 provides as follows:

(a) The intention of the transferor as expressed in the instrument controls the legal effect of the dispositions made in the instrument.

(b) The rules of construction in this part apply where the intention of the transferor is not indicated by the instrument.

(c) Nothing in this section limits the use of extrinsic evidence, to the extent otherwise authorized by law, to determine the intention of the transferor.

In addition, where property is subject to a mortgage or debt, a specific gift of that property will be transferred and remain subject to that mortgage and debt, as provided in California Probate Code Section 21131, which states:

A specific gift passes the property transferred subject to any mortgage, deed of trust, or other lien existing at the date of death, without right of exoneration, regardless of a general directive to pay debts contained in the instrument.

To avoid this outcome, it is important for you to specify whether the debt on the property is to be paid off prior to the transfer, i.e., should the debt be "exonerated". Moreover, if your estate is not large enough to fully exonerate the debt, you may also need to think about which of your other gifts can be cut back and in what sequence they should abate.