Funny what some people think about estate planning.

Posted by on Jun 11, 2013

Funny what some people think about estate planning.

Ask your average person on the street about any number of topics—baseball stats, the latest scandal news running on CNN, where to buy a good lawn mower, whatever—and you’ll probably get an earful of mostly accurate information. Ask the average person what he or she knows about estate planning and you might get some real doozies of misinformation.

I think that’s because estate planning is about getting old, death, family and finances—and that’s a combination a lot of people would rather not think about.

I am continually amazed by some of the things new clients tell me when it comes to estate planning.

Many have no idea how their major asset—their home—is owned. They don’t know what it means to have other individuals on title on their deeds. They don’t know the tax implications of holding property as “joint tenants” when it should be “community property.”

And many people worry about the wrong things. Here are just a few—and the illogic behind some of these ideas.

Some clients worry that if they die without a will before their children turn 18, their children will not be allowed to live with any of their relatives but instead will be forced into foster homes and will become “wards of the state.” If that were really true, wouldn’t most young parents rush to attorneys’ offices to do Wills? They don’t. Nor does the state have any interest in raising anyone’s children. If parents die without a Will nominating their choice of Guardians, a relative or friend may certainly house and take care of a child while in the process of becoming court-appointed as a legal Guardian.  Of course, parents should have Wills in place naming their choices for Guardians for minor children, but if they haven’t done it yet, there is no risk that their children will be taken into orphanages.

One pair of clients, who are not legally married and have two children together, believe that if she dies while the kids are young, her relatives may swoop in and take the children away from him, the other biological, legal parent.  This makes no sense. As long as a child has two legal parents, when one of them dies, the other parent does not lose his or her (constitutionally protected) parental rights!

Most common among the general public is the belief that if someone doesn’t have a Will, then upon their death, all their property will go to the State of California. Wow, if that were true, there would be no California budget crisis and we’d have plenty of money for schools and roads.

What is true is that a Will alone will not prevent the need for a court-supervised probate proceeding if one dies owning $150,000 or more worth of assets that are not in a trust or held with designated beneficiaries. Probate is no boon to the government. If anything, it clogs up the court system with matters that are easily avoided. Probate can be financially advantageous to probate attorneys, who can earn in the neighborhood of four percent of the value of a decedent’s assets.  But probate probably costs the state money as it is unlikely that the filing fees cover all the expenses of a lengthy court procedure.

The state government gets your property only if you have no estate plan and you have absolutely no relatives, called “heirs at law,” who inherit if you don’t specify otherwise. There’s a fun word for when the state inherits property: it’s called “escheat.” But even if you have some long-lost cousin, that’s who will get your property before the state does.

And property includes not just real property, i.e. buildings and land, but also intangible personal property, which is cash and its equivalents, plus tangible personal property, which is anything one can touch, such as jewelry, artwork, vehicles, gadgets, etc.

While a living trust is crucial for preventing probate and for holding property for beneficiaries until they reach a certain age, it is not a magic cure-all for any legal problem. Many people are surprised to learn that having a trust will not get them out of debt or prevent them from being sued for negligence or various misdeeds. Wouldn’t everyone have a trust if it could shield them from creditors?

My personal favorite is married people who believe that if one of them keeps money in her or his name only—money they earned while married—that it belongs only to the person whose name is on the account. This idea defies the purpose of community property law. When you’re married (or a registered domestic partner), California community property law dictates that—unless you’ve got a pre- or post-nuptial contract stating otherwise—earnings are community property, belonging half to the other spouse or partner. Putting only one name on an account does not change that legal fact, though it may help one or the other partner feel like they’ve got some spending money.

Most of you, readers, have been through the estate planning process and already know this stuff. Most people in our society do not.