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After working hard and saving for a lifetime, you will want to leave an inheritance to your loved ones without having to worry about some third party taking that money. 

Unfortunately, many people see a sizable inheritance as a reason to try to take what they can get from your heirs. Receiving the bounty of your hard work may make your children vulnerable to financial predators.

There are things that you can do while still alive to protect your heirs from gold-diggers and opportunists. A California estate planning attorney can explain how to protect an inheritance from divorce, creditors, and lawsuits.

Responsible Adults Doing the Right Things

We often hear about people wanting to set up a spendthrift trust to protect a child who does not manage money well or a similar arrangement for a loved one with special needs, mental health challenges, or addiction issues. One does not often think about protecting adult children who work hard and handle their finances responsibly.  But even responsible adults may face circumstances that jeopardize their inheritance.

If your child receives assets directly from your estate, they could lose much of that money one day through no fault of their own. Here are a few examples of common scenarios in which this may happen: 

• Your child could marry someone who sees the inheritance as a financial opportunity. People have been marrying for money as long as there has been a concept of money. For example, if your child uses inherited funds to buy jointly-titled assets like a marital home, your child may unintentionally gift half of that inheritance money to their spouse. The spouse could file for divorce and walk away with half or even more.
• Your child could be cheated by a business partner. If your child starts a business with inherited funds, a business partner could siphon off money from the company and even disappear with the embezzled funds. Your child may be left with massive debts and no way to pay them. Your child may file for bankruptcy, but the bankruptcy trustee may then take the remaining inheritance money and use it to pay the business debts.
• California has unusual laws about liability. Let’s say that someone else causes a multi-car accident, hitting your child and several other vehicles. If the at-fault driver does not have enough insurance coverage or money to pay for the severe injuries from the collision, your child could end up getting sued along with the negligent driver. It is possible for a judge to assess one percent of the fault to your child and order your child to pay the unpaid damages out of inherited funds even though your child did not cause the crash.

Every single one of these scenarios could possibly be prevented by an effective estate plan.

Spendthrift and Inheritance Protection Trusts and IRA Legacy Trusts

If you set up your living trust to include language that creates a Spendthrift Trust, also known as an Inheritance Protection Trust, gold diggers and opportunists may be unable to get their hands on your child’s inheritance. In a nutshell, these special trusts work by letting your child control and use the inherited assets but not own them. Some or all of the funds may remain in the trust until the child reaches a certain age, or even for the child’s entire life.  The trust may also provide that shares of the trust may be distributed to the child when he or she reaches certain ages.  So long as the assets remain in the trust, no one can take away from your children what they do not own. Your child would get all of the benefits of the inheritance without the risk of loss to others. If you already have a living trust without these terms, you could execute an amendment or restatement to add inheritance protection trust provisions to your living trust.

If you have a retirement account that needs protection in a similar manner, you may execute an IRA Legacy Trust. Retirement accounts no longer have the protection from creditors that they used to enjoy, but an IRA Legacy Trust can fix that issue, just as a spendthrift or inheritance protection trust may protect non-IRA assets.

Living trusts should not be DIY projects.  If you make a mistake on these sophisticated legal documents, your child could lose all of the protections you intend to create. A California estate planning attorney can draft the documents you need to protect an inheritance from divorce, creditors, and lawsuits. Contact our office today for a free consultation.

Changes in probate and estate laws can have a significant impact on your estate plans. However, changes in tax laws can also positively or negatively impact your estate. Therefore, we strongly recommend periodically discussing your estate plan with our California estate planning attorney, especially after changes in tax laws such as California’s Proposition 19.

Before discussing how Prop 19 can impact your estate plan, it helps to understand how the state of California taxes real estate.

California Real Estate Taxes 

California collects a yearly property tax calculated based on one percent of the assessed sale price of the property. Counties can increase property taxes each year to account for inflation. The limit for yearly inflation increases is two percent.

Adding improvements to real estate may trigger a property tax reassessment. The county reassesses the taxes based on the date you complete the improvements. 

The most common way the county increases property taxes is by reassessing the value of real estate when it is transferred by sale, death, or gifting. 

For more than forty years, an important exclusion to this method of increasing real estate taxes has been through exemptions for transfers of real estate between spouses, from parents to children, from grandparents to grandchildren, or for individuals over 55 years old buying a home.

What is California Proposition 19?

California Proposition 19 is also better known as Prop 19. California voters approved the ballot measure by over 51 percent in November 2020. The measure limits the exemptions for parent-to-child and grandparent-to-child transfers to generate additional county revenue, with some of it dedicated to wildfire relief. 

Beginning on February 16, 2021, the exceptions from reassessments for real estate transfers to children from parents and grandparents, and the increases in property tax amounts that often accompany reassessments, became much more limited. Prop 19 resulted in the following changes:

• Property used as vacation rentals or investment property is no longer subject to the exclusion. The county reassesses these properties for property tax purposes even when the property is transferred to a grandchild or a child.
• The county conducts a partial reassessment when the property value increases by more than $1 million. Beginning 2023, the $1 million threshold increases yearly based on inflation. 

There are still exclusions for transfers to children or grandchildren who intend to use the home as a primary residence. However, the exclusion only applies to property under the $1 million threshold. 

How Can Estate Planning Help Avoid Property Tax Reassessments?

Estate planning offers several potential solutions to this new problem. First, an estate attorney may review your entire estate plan to determine the best ways to protect all assets from taxes and assessments. 

Creating an irrevocable trust could be a possible solution to avoid Prop 19 taxes. Transferring the real estate to an irrevocable trust may help avoid Prop 19 issues and may also preserve your step-up basis for capital gains tax benefits. However, the disadvantage of an irrevocable trust is that you lose control over the property. For these reasons, it is best to discuss all options with an experienced California estate planning lawyer to ensure you design a plan that addresses all issues in the best possible manner. 

Contact Our California Estate Planning Attorney for More Information 

Many factors could affect your estate plan. Discussing your goals and needs with our California estate planning attorney identifies the issues to address now so that you can provide for your family and protect your legacy for future generations. Contact our office today for a free consultation.

The debts of a deceased person can wipe out the inheritance a beneficiary might have expected to receive. California has its own rules about the notification of creditors and payment of creditor claims when administering an estate. If you are trying to handle the estate of a close friend or relative, you probably have many questions, like “When do I start paying my deceased loved one’s creditors?” 

A California estate planning attorney can answer your questions and help you administer the estate. Being named as the executor of a will, the trustee of a living trust, or the administrator of an estate, does not mean that you have to perform those tasks without professional help.

Step One is to Find Out All the Debts Your Loved One Had

California law requires that you promptly notify all the known creditors of the deceased person that the person died. You do not want to make the mistake of assuming that a person’s debts die with them. The estate will have to pay valid debts. You cannot distribute money to the heirs before dealing with the debts.

After you notify the decedent’s creditors, they will have 60 days to file a claim against the estate. The estate representative will then review each claim and either approve or dispute the individual creditor claims.

What Happens if the Estate Does Not Have Enough Money to Pay All the Valid Debts of the Decedent?

Usually, creditors cannot hound the relatives of a deceased person to pay the decedent’s debts. In California, however, there are two exceptions to this general rule: 

1. Joint debt accounts. If you were a cosigner on a loan with the decedent, you will have to continue making payments after your loved one dies. It does not matter if you ever owned the asset. Also, if the deceased person added your name to a joint account, like a credit card that had an outstanding balance, you might have to pay off that debt out of your assets if the estate lacks sufficient funds to do so.
2. Some jointly held assets. California is a community property state. If the estate cannot pay off all the valid debts of your loved one, the surviving spouse might have to pay the debt on community property.

This is merely a quick overview of what you might face if the estate does not have sufficient assets to satisfy all debts of the decedent.

Who Gets Paid First?

California probate law categorizes creditors by the level of priority. You cannot distribute money or other assets to the heirs until you satisfy all the valid debts of the decedent.

Here are the seven categories of creditors, starting with the top priority (who must get paid first):

1. The costs and administrative expenses to administer the estate.
2. All secured debts, liens, and deeds of trusts.
3. Funeral expenses.
4. Medical bills from the last illness that led to the death.
5. A reasonable sum for the surviving spouse or children who were not intentionally disinherited. This amount is called the family allowance, and must generally be approved by a court.
6. Wage claims of employees or contractors of the decedent, within limitations.
7. Any other valid debts that do not fall into categories one through six.

You may be looking for ways to protect an estate from being depleted by creditor claims. You may also be faced with frivolous claims filed by parties hoping to receive a nuisance settlement. A California estate planning attorney can help you with these situations, and many more, and explain strategies that might be beneficial to protect the estate and to protect you from liability. Get in touch with our office today.

Having a complete and comprehensive estate plan is the most effective thing you can do to protect your family as a whole, and ultimately your legacy. But estate planning in California is known for being incredibly complicated and confusing if you aren’t a California estate planning attorney.

The first step to making it less intimidating is to have a more thorough understanding of it. To start, understanding some of the essential terminology and vocabulary involved in estate planning is essential. Here are the terms you should know to better understand your estate planning options.

Advanced Healthcare Directive

Also known as a living will, a healthcare directive ensures your wishes for treatment or interventions are followed in the event of your incapacitation.

Assets

Assets are, generally speaking, anything that someone owns. This includes homes, investments, bank accounts, insurance policies, art, jewelry, and other physical possessions.

Beneficiary

A person, charity, or other entity that is named as a recipient of some portion of the decedent’s assets.

Codicil

This is any change, or amendment, to a will. It will explain, change, or revoke portions of a previously established document like a will.

Decedent

The decedent is the person that passes away, and whose assets or estate are being distributed.

Distribution

Any payment via cash or assets to a beneficiary or other entitled party.

Durable Power Of Attorney

This is a document that grants another party, person, or institution decision-making power on your behalf in the event of incapacitation.

Estate Settlement

The process of valuation, payments, distributions, and other final affairs following someone’s death.

Incapacitation and Incompetence

The state of being unable, either physically or mentally, to manage one’s own affairs. This can be a temporary or permanent condition.  

Inheritance

Assets a beneficiary receives from a decedent.

Intestate

If someone dies without a will or any estate planning measures, they are said to be intestate. Intestate situations often require court intervention.

Joint Tenancy

Co-ownership in a property allows the property to pass to the survivor automatically.

Probate

The overarching process of validating a will and settling an estate.

Revocable & Irrevocable

Important terms that dictate whether or not documents related to a trust can be changed.

Testator

The owner of the estate and assets, and the maker of the will.

Transfer On Death / Pay On Death

Accounts that are set up specifically to pass to named beneficiaries upon the passing of the account owner.

Trust

A legal document that allows the management of assets on the behalf of one or more beneficiaries

Trustee

The person or entity that administers the terms of the trust for the named beneficiaries.

Trustor or Settlor

The person that creates and sets up the trust for the beneficiaries, and who will eventually become the decedent.

Will

The will is the legal document that lays out all of the details for the distribution of assets and guardianship of minor children following death and is considered the most basic element of estate planning.

Let Experts Handle the Details

Reach out today to our office with any questions, or for more information about starting your estate planning documents.

A charitable trust can provide advantages for you, your heirs and beneficiaries, and to one or more charitable organizations that you name in the trust. You have options about which kind of trust you want to create, depending on your objectives.

Charitable trusts can come with tax incentives and other financial benefits. A California elder law attorney can review your situation and offer guidance about which type of charitable trust may be the best fit for you. Here are four things to know about a charitable trust:

1. Your Charitable Trust Must Comply with the IRS Rules

Charitable trusts often involve a “split interest” in the trust assets. This means, for example, that a charity may receive the income or a limited percentage from the trust assets for a certain period, with the remaining funds paid to other beneficiaries after that period expires, i.e., a “charitable lead trust.”   

Alternatively, you may choose a non-charitable beneficiary or beneficiaries to receive the income or a percentage from the trust for a certain period, such as the lifetime of those beneficiaries or a set number of years, with the charity receiving the remainder of the assets after that period expires, i.e., a “charitable remainder trust.”

Whether you select a charitable lead trust or a charitable remainder trust, your estate planning device must meet all the requirements of the Internal Revenue Service (IRS) to work correctly. A poorly-drafted trust instrument may not provide the intended tax savings.

2. Charitable Trusts Are Irrevocable

Similar to other tax-advantaged trusts, charitable trusts cannot be changed after you create and fund them. You may not be able to substitute a different charitable organization for the original one, even if you no longer agree with the goals or management of that organization. No matter how much it galls you, the trust may have to stand as is. 

You could set up a donor-advised fund for your charitable trust to avoid that problem. With this arrangement, you will have some flexibility about which charities receive the assets. You do not have to commit to any specific charitable organization at the time that you create the trust.  However, you will only receive tax benefits for gifts to charities approved by the IRS.

Also, the IRS may not care if you suffer a medical or financial crisis and suddenly need to take any of the assets out of the charitable trust. Once assets are retitled into the name of the trust, you cannot change your mind and take them back, unless you or your heirs can persuade a court to modify the trust based on changed circumstances that could not reasonably be foreseen.

3. How Charitable Lead Trusts Work

With this type of charitable trust, you will get a charitable donation tax deduction equal to the amount the charitable trust distributes to the designated charity each year. The charitable lead beneficiary will continue to receive these distributions for a certain period of years.  At the end of that period, the trust will distribute the rest of the principal to other non-charitable beneficiaries you select.

4. Charitable Remainder Trusts Can Provide Income During Your Lifetime

A charitable remainder trust pays you or your chosen non-charitable beneficiaries an income from the trust assets for a certain period of years, or for the lifetime of one or more of those beneficiaries.  The IRS gives you a tax deduction for the rest of the assets – the charitable remainder –  that you designate to go to a charitable organization after your life ends or the time period expires. At that point, the trust will distribute the remainder of the assets to the charitable organization.
These estate planning tools are sophisticated, so be sure to get good advice. A California elder law attorney can help you set up a charitable trust that can meet your needs and goals. Call our office today to schedule a consultation.

California does not impose a state inheritance or estate tax, no matter how massive your net worth is. However, your estate may still have to pay a federal estate tax, and your heirs might be subject to an inheritance tax if they live in a different state that levies an inheritance tax on its residents. Whatever your situation, it is useful to know how you can reduce inheritance taxes.

Some strategies to reduce taxes involve gifting during your lifetime to bring your estate below the federal estate tax exemption amount, or to at least minimize the amount of your assets that will be subject to the federal estate tax. Other techniques for reducing inheritance taxes involve having a California estate planning attorney draft documents during your lifetime that can help achieve this important goal.

The Federal Estate Tax

For 2021, the federal estate tax threshold is $11.7 million for individuals and $23.4 million for married couples. If your estate exceeds the federal tax threshold, however, you will only get taxed on the amount that is over the $11.7 million or $23.4 million cutoff. Even though our state does not have a state estate tax, California residents are subject to the federal estate tax, just like everyone else.

The Federal Gift Tax

You can get hit with a federal gift tax penalty if you give away too much money within any given year. The federal gift exemption for 2021 is $15,000 per person per year. If you exceed this amount, the Internal Revenue Service (IRS) requires you to notify them of the gifts, and may later charge you or your estate taxes on the excess amount. 

Gifting During Your Lifetime

Let’s say that you have a married child who has two children. You could give your child and son or daughter-in-law reach up to $15,000 per year. You could also give each of your grandchildren up to $15,000 per year. This technique will allow you to reduce your estate by $60,000 per year and $600,000 per decade.

Your gift recipients do not have to be family members. You can give money to friends, charitable organizations, or anyone else without incurring gift taxes as long as you do not exceed the annual limit per person. If your tax year runs from January 1 to December 31 and you decide late in the year to reduce your estate size, you could give any given person $15,000 in December and another $15,000 in January. With careful planning, it’s possible that none of these gifts will be included in the value of your estate when you die.

How an Irrevocable Trust Can Reduce Estate Taxes

Many people set up irrevocable trusts as a way to reduce taxes. Here is how this strategy works: Your estate is the amount of net assets you own at the moment you die. If you transfer your assets to someone or something else, then you no longer own those assets. When you set up an irrevocable trust, the trust owns those things, not you.

The sticking point of an irrevocable trust for many people is the word “irrevocable.” You can never, ever change your mind. If you need those assets for medical bills or some other pressing financial hardship, you are out of luck, unless you can persuade a court to save you from your own decisions. Otherwise, you cannot take back the assets. If you left assets to someone with whom you later had a falling out, you cannot change the beneficiary. 
A California estate planning attorney can explain which options will work best in your situation. Call our office today to schedule a consultation.

California law does not place limits on how often you can change your will and trust instruments. For most people, the opposite problem arises. They may know that they need to update their estate planning documents regularly, but instead, put it off.  Or they may not realize that they need to review and update their documents on a regular basis, especially following significant life changes.

A California estate planning attorney can help you evaluate your circumstances and let you know if you should revise your will or trust documents. Whether your question is how often can I change my will or how often should I change my will, an estate planning attorney can help guide you through your decisions. 

Marriage and Divorce

Getting married creates legal rights and obligations for both spouses. Even if you have a prenuptial agreement, you should review and likely revise your estate plan, to clarify each of your intentions concerning inheritance. Without a legally binding agreement to the contrary, state law may prevent you from disinheriting your spouse, especially with regard to your community property. You do not, however, have to leave everything to your spouse.

When you divorce, you will also need to seek advice concerning your existing estate plan. Family law may set limits on whether or when you may modify your existing estate plan.  But you’ll want to consult with an estate planning attorney to explore your options.  Upon the termination of your marriage, you will likely want to change who gets your assets when you die, and also who will serve as your trustee and executor of your estate.

Also, you will want to take a look at other estate planning documents like your financial power of attorney and your advance health care directive. Few people would want their former spouse handling their money or making their medical decisions if they become incapacitated.

Children

If you already have an estate plan in place, you may want to update it when you and your spouse are about to have a baby. You do not have to wait until the baby is born and you are sleep-deprived to make revisions to your estate planning documents.

They Grow Up So Quickly

One day you may be in the carpool lane waiting to pick up your child from elementary school.  Seemingly the next day, you may look at your adult child and marvel at the adult they have become. At this point, you might want to consider updating your estate plan to make your child your trustee and executor of your estate. The decision may turn on your family’s overall situation.

When Your Loved Ones Struggle

You might want to talk to your estate planning lawyer about how to best protect the inheritance for your loved ones who may have intellectual impairments, mental illness, substance abuse issues, or if you have other concerns about their ability to manage the assets they inherit. 

For example, you may execute a trust agreement that names an independent trustee to oversee distributions to these heirs until they are ready to manage the assets themselves, or perhaps for the rest of their lives. An independent trustee may help a loved one who does not manage money well, who is easily duped, or who has a spouse that may not be trustworthy.  

Protecting Your Friends from Your Family

Sadly, many of us have close relatives who do not care for the people we choose to have in our lives, or who believe they have a better claim to your assets than the friends you choose. Your friends may have no legal rights to your estate unless you create and affirm those rights with effective estate planning instruments that make your intentions clear and enforceable. 

We advise that you talk with a California estate planning attorney about your options for minimizing the damage and circumventing such a relative – to ensure that your chosen beneficiaries receive the gifts you intend for them.

Contact our office today to set up a consultation to discuss your options. 

Traditional estate planning is changing. Instead of merely focusing on tangible property, such as real estate, vehicles and personal property, an estate plan may also include digital assets. Digital assets can have significant value and may be managed solely online. However, because virtual assets can be overlooked, they can be lost. Talk with a California estate planning attorney to ensure that your digital assets are protected after your death.

What Is Digital Estate Planning?

Digital estate planning involves organizing your digital property and assets to ensure these assets are included in your estate. Many people assume that digital assets only include financial accounts. However, your digital assets include all online accounts. Examples of digital assets include:

• Online bank accounts 
• PayPal and other online financial accounts
• Social media accounts
• Marketplace and e-commerce accounts, such as Amazon, eBay, etc.
• Loyalty program benefits, including credit card points, frequent flyer miles, etc.
• Email accounts
• Ongoing gaming accounts
• Any accounts used to store personal information, including photographs, documents, etc.
• Online accounts for utilities, credit cards, and other debts

The funds held in online accounts are not considered digital assets. The account is a digital asset, but the money held in the account is a liquid asset. It is included in the estate as a tangible asset. Cryptocurrency accounts are an example of a digital asset that holds funds that are included in your estate. 

It is essential to create an estate plan that includes your digital assets. The personal representative for your probate estate should control all assets included in your estate for distribution to heirs. However, you also need to appoint a digital executor to manage accounts not passed to heirs through your estate.

What is a Digital Executor?

A digital executor is a person you trust to carry out your wishes regarding your digital assets. This person will have access to all of your online accounts and digital assets. The personal representative for your estate may be your digital executor or you could appoint someone to serve in this role that is different from the person who manages your estate.

Your personal representative will need access to any assets that are included in your estate. Anything of monetary value may be subject to estate taxes and intestate distribution laws.

However, your digital executor is the person you designate to destroy or distribute your digital assets that are not part of your probate estate. Even though a digital executor is not a legally enforceable or binding designation, it can be wise to include this designation in your will, as well as what you desire to happen to your online accounts. 

Tips for Digital Estate Planning

Some tips that can help you protect your digital assets include:

• Name a digital executor who understands how to access and manage online accounts. 
• Create and routinely update an inventory of logins and passwords for each account to avoid losing assets.
• Ensure your digital executor understands your wishes by discussing your wishes with the person and putting your wishes in writing.
• Keep your inventory and other related items in a secure location that your digital executor can access after your death.

Consulting with an estate planning lawyer is one of the best tips for creating a digital estate plan. An attorney may best understand how each digital account and asset are treated by probate law. Therefore, an attorney can advise you on the best way to handle these assets now and before your death to ensure that your wishes are carried out should something happen to you. 

Contact Our California Estate Planning Attorney for More Information

Creating a digital estate plan protects virtual assets. It also protects your online assets from fraud, hacking, or theft. You also make it easier and less stressful for family members by providing them with a detailed inventory and instructions for your digital assets. 

Call our office to discuss your estate plan with an experienced California estate planning attorney.

Many people put off estate planning thinking it is something they should do once they get older. What’s worse, some people don’t do any estate planning thinking that it is something that only celebrities or the ultra-rich should do. However, estate planning is not something that you should wait to do, nor should you disregard it altogether.  

Whether you have many or few assets, estate planning helps to organize your finances and shields your family from financial chaos that you may leave behind upon passing. And since you can die at any age, you should opt to get your estate in order as soon as possible. So how do you organize your estate planning in California, and how can an estate planning lawyer help? Below is a checklist of seven critical things that should be a part of your estate planning checklist.  

1. Name Your Beneficiaries

Who do you want to inherit your money in your various accounts or insurance policies if you passed away? Selecting a beneficiary is one of the most critical things you will need to do to prepare your estate.  

2. Draw Up a Will and Advance Health Care Directive

Some people know that they should have a will, but they put it off until it’s too late. However, it is best to have a will written primarily before and after major life-changing events such as divorce. It is also a good idea to have an advance health care directive in place. This will express your intentions about your life if you cannot due to being in a coma or otherwise incapacitated.

3. Have a Living Trust in Place

A living trust is also an important document to have in the state of California. It helps protect your assets and ensure that they remain in your family’s hands.  

4. Assign a Power of Attorney for Health and Finances

What do you want to happen if you are unable to make decisions for yourself? For example, designating a power of attorney for your health and finances is better than having the state of California appoint them for you. 

5. Make Sure Your Insurance Policies are Adequate

Are your insurance policies up to date? The best way to determine this is to look at your debts. Ensure that your insurance policies cover your debts and ensure the livelihood of your beneficiaries should you pass away. This will prevent financial burdens. 

6. Meet with a California Estate Planning Lawyer  

Even if you have all your estate documents in order, it is a good idea to visit with an attorney. Speaking with an attorney will help you discover other critical things you need to secure your estate before passing away.  

7. Ensure Your Family Can Easily Find Critical Documents

Some people work hard to plan their estate.  Then they forget to make the essential documents that they’ve worked so hard to prepare available to loved ones. Placing your documents in a safe or a deposit box that a designated person knows about can minimize confusion during this difficult time. 

Do you live in California and need an attorney to help you with estate planning? An attorney will cover the items on this checklist and more.  For instance, do you need to address any California community property laws that may apply to you? Or do you need to discuss a buy-sell agreement for your California business? Then, contact our law office today so that we can start preparing your personalized estate planning checklist.

When you decide who will one day receive your assets, you will want to keep some things in mind so that your generosity makes their lives better and does not cause problems for them. Despite your good intentions, failing to take into account certain factors could cause unintended consequences.

Every situation is different, so it can help to talk to a California estate planning attorney about your estate plan. Here are five mistakes to avoid with respect to beneficiary designations:

Not Considering How the Bequest Could Affect the Beneficiary

Giving money or other assets directly to certain individuals could cause more harm than good. For instance, if disabled beneficiaries receive government assistance like Supplemental Security Income (SSI) and Medicaid benefits that provide for their healthcare and other essential goods and services, receiving financial resources could cause them to lose eligibility for those benefits. 

A bequest of even a few thousand dollars could disqualify housing, food, medical care, and income programs. Instead of naming such individuals as direct beneficiaries, you could have the money deposited into a special needs trust that would protect their eligibility for benefits programs.

If some of your intended beneficiaries are minors or others who might find a sudden windfall challenging to manage, you could have their future assets put into a trust for them. People who struggle with substance abuse, mental health issues, gambling, and financial stability can do well with a spendthrift trust that distributes money to them for predetermined items, like housing or other basic living expenses.

Naming Your Estate as the Beneficiary on All of Your Assets 

While it may seem easier to simply designate your estate as the beneficiary of all of your accounts and other assets, it can be a mistake to do so. Some things, like life insurance proceeds, can get to the beneficiaries much faster if the insurer pays the individuals directly rather than having to go through probate.  There may also be tax benefits to naming beneficiaries directly.

Naming Only One Beneficiary and Trusting That Person to Share with the Others

No matter how much you love a close relative, you cannot expect them to share freely with others if you give them everything. Sometimes people will list only one sibling, for example, as the beneficiary of an asset, like a house, with the unwritten assumption that the named beneficiary will sell the asset and split the proceeds with the other siblings. When there is no legal obligation to do that, many beneficiaries will keep everything for themselves and their spouses, if given the option, resulting in unfairness and likely conflict.

Not Updating Your Beneficiary Designations After a Divorce or Death

When one of your beneficiaries dies, you need to update your beneficiary designations and estate planning documents. Otherwise, your heirs may find themselves in a lawsuit to determine what happens to the deceased person’s share. 

Also, you will need to review and update your estate plan and beneficiary designations when you divorce. A divorce may invalidate your existing instruments, and you could die intestate (without a valid will or trust) if you do not make new estate planning documents. 

The divorce will not necessarily change the beneficiary designations on things like life insurance policies and retirement accounts. Forgetting to change these beneficiaries can mean that your former spouse could get an unexpected windfall one day at the expense of your expected heirs.

Not Adding New Beneficiaries When There Is a Marriage, Birth, or Adoption

Finally, you will want to make sure that you update your estate planning documents and beneficiary designations when you get married or after the birth or adoption of a child or grandchild. Overlooking this step could result in some intended heirs getting “disinherited” by oversight. 

A California elder law attorney can review your documents and accounts with you to help you avoid these and other potential beneficiary designation mistakes. Contact us today for more information.