This question can also be restated as- how old do I have to be to think about an estate plan? When should I start thinking about an estate plan?
Theoretically, everybody needs an estate plan – that is everybody should think about their death and think about matters that are important to them and come up with a plan for resolving their affairs. But, do you need a formal estate plan that is in writing? The answer to this depends on your particular situation (I told you there is a lot of which depends on the law). The age when you should start thinking about formalizing estate plans also depends on your particular situation.
Here are some factors that go into deciding whether you need an formal estate plan:
- Do you own a house or real property?
- Do you have minor children?
- Do you have step children or children that have no formal relationship to you that you want to inherit from you?
- Do you have a partner that you have not formally married that you wish to take care of at your death?
- Do you have more than $150,000 worth of assets?
- Do you have retirement accounts and how are these accounts held?
- Do you value privacy?
- Do you have particular wishes about what you want to do with your assets after you die – give them to charity, use them to help your pet, etc?
- Do you own a business?
If you answered yes to one or more of these questions, then consider formalizing an estate plan. The help of an attorney will come in handy in examining your life circumstances and helping you decide the reasons why, or why you do not, need an estate plan. These are some of the easier reasons to identify for most people and so these are the ones that I include here.
In California, if you have assets that are worth more than one hundred fifty thousand dollars ($150,000) then, you should consider creating an estate plan in order to avoid having those assets go through probate after your death.
What is probate?
Probate is the process by which the Court formally transfers title of property from the deceased to the next in line; there are some rules about how this is done that I will write about later. However, you should know that a probate attorney fees are statutory, and based on the gross value of the decedent’s (person who died) property. Probate can also have an administrative fee that is based on a percentage of the property. The other difficult part of probate is that it can take a long time. This cost of time and money can be avoided by creating an estate plan, which will help you avoid the entire probate process.
If you have retirement accounts, then you should also consider estate planning in order to make sure that this money is easily accessible to the people that you want to obtain it. You should review the beneficiary designations on these accounts and if you have kids, you may need to think about getting a trust so that they can use this money as they see fit.
Non monetary reasons to formalize and estate plan
If you have children, you should consider creating an estate plan in order to assign a person that will take care of them in the event that you pass away. Within an estate plan you can appoint a person to be the legal guardian of your children. If you have enough money to take care of the children at your death, or through life insurance – your children will not be able to receive that money until they turn 18 (and even then, would you trust your 18 year old self with a bunch of money?). Thus, you can appoint a person to be in charge of the money and give it to your children as they need it. This person can collect life insurance money, IRA money, and any money that you leave behind, and use it for the children’s needs, usually health, welfare, and education (but by creating an estate plan you can make up rules for this). You can also create a way to delay giving your children all the money until they turn a certain age.
Do you have step children, nieces and nephews that you wish to provide for? Under the normal rules of estate planning, step children, nieces and nephews, cousins, or unrelated young ones do not get to inherit from you (unless they are your only living relatives). This means that if you have not formally adopted your stepchild, they do not get any part of your assets under the intestacy laws (there are some exceptions to this, but generally speaking, this is the case). Thus, if you think of someone as your child, but you do not have the legal relationship with them, then you should look into obtaining a formal estate plan so that your wish to provide for these important people in your life can be accommodated.
If you are not legally married to somebody, they also do not get to inherit from you. And if you are legally married to somebody, then they do get to inherit from you via the default rules. If this is not what you want to happen, then you need to come up with an estate plan to change the default rules. California does NOT have common law marriage, and so even if you lived with somebody for your entire life, they do not get to inherit from you at your death. That means that if they lived in a house that you owned with them, then at your death, they would be homeless (not immediately, but they would not have a guarantee that they could remain an occupant of the property in question).
The flip side of the coin is that if you are married to somebody, but did not mean to make them the person that inherits your assets, then you need to create an estate plan to change the default rules.
If you own a business, then the same applies. Depending on how your business is formed – is it an LLC, a corporation, or a partnership – there may already be provisions regarding this situation in your incorporation documents. Figuring out what these documents say, and either changing it or incorporating it into a plan for your loved ones, can make the process of winding down your affairs after death easier for your family.
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