Estate Planning 101: A Q&A with Wood Legal Group, LLP

Updated: Jan 25

An estate plan is often assumed to be a tool for the "rich." When we hear the word "estate," we think of men in polo shirts, kids attending private schools, and thirteen bedroom mansions on top of a hill.

This assumption could not be more wrong.

In my interview with Portia Wood, an accomplished Partner at Wood Legal Group, LLP, she broke down the definition of an estate plan, explained who needs an estate plan and why, and provided other valuable information to educate our community on how to use an estate plan to pass on generational wealth. Check out our interview below!

What is an estate plan?

An estate plan is a tool available to you to protect, and deploy your assets while you are alive, and ultimately to direct the dispersal of your assets after you die. Working with an estate planning attorney, your estate plan is a plan you set out in writing to continue to guide critical aspects of your family’s financial well-being, after you have passed.

Who should create an estate plan?

Anyone with assets valued above the threshold for a probate estate in their state, who wants to retain control over how and when their assets will be distributed, should probably create a professional estate plan. Assets that make up an estate include everything you own (real estate, autos, securities, jewelry, art collections, intellectual property rights, etc.). Almost every adult has an estate. But if we don’t create our own plan then we will be subject to the State’s default plan (probate). The State’s plan is unlikely to provide for your family in the way you would, and it is costly and time consuming. Creating your own plan keeps the State out of your affairs.

What is the difference between a Will and a Living Trust?

A Will and a Living Trust are each tools for dispersing your assets. A key difference is that not all of your property can pass by Will but a properly crafted estate plan designates what happens with all of the property you have titled in the name of your living trust .

Additionally, if your assets exceed the threshold for your State, a Will is likely to have to be “probated” through the probate court. In California, that threshold is $166,250 gross (everything you own regardless of what you owe).

Upon your death, a properly funded and executed trust will disperse your assets in the manner and on the timetable that you laid out while you were alive. Spelling out your wishes in your trust documents allows you to avoid probate court entirely.

What is a Trustee?

A trustee is the person or entity legally authorized to manage the assets inside of a trust. While you are alive you will typically be the Trustee of your own trust.

Do you need a living trust if you have life insurance?

This depends on your goals. Generally speaking, the answer is yes. If you have a million dollar life insurance policy and your young adult or minor child is your beneficiary, you will probably want to use a trust to control how and when those funds are dispersed. You are not likely to want your 18 year old to receive a $1,000,000 insurance check. Your living trust can specifically address this circumstance.

Why do couples in Community Property states need a trust?

This is a perfect example of the kinds of issues comprehensive estate planning helps couples dig into. First, it is highly unlikely that both parties will die at the same time. And while it is true that in a Community Property state the surviving spouse would be entitled to the community assets, it is also true that they are likely to remarry in time. Frequently what happens is that the assets of the first marriage become commingled into the Community Property of the new marriage. Children from the first marriage could unintentionally be disinherited at the subsequent divorce or death of their parent whose assets are tied up in the property of the second marriage.

Even if there is no new marriage, without an estate plan in place once the surviving spouse dies, the assets of the Community Property estate will need to go through the probate process to be transferred to the next set of beneficiaries. Probate is a time consuming, costly and public process.

What assets should be included in a living trust?

Just about everything you own should be included in your revocable living trust. The easiest way to think about this is, if your property is not titled in the name of your trust but in your own name, the probate court has to take it out of your name (real estate, bank accounts, etc.) to pass it on to your beneficiaries. Assets titled in the name of your trust do not go through probate.

For accounting reasons there may be some assets you would leave outside of the trust. But this would need to be determined on a case by case basis, with respect to tax considerations, and the goals of the individuals.

What is the risk of leaving assets to the probate process?

The probate process is time consuming, expensive and can result in assets being transferred to unintended beneficiaries. Leaving the courts in control of your family's inheritance diminishes the value of your estate. Between court fees, attorney fees, executor fees, etc. much of the estate can be eaten up. Having a proper plan in place means you remain in control of how, when and where your assets are disbursed to the beneficiaries you have named.

What are non-probate assets?

Assets that are beneficiary designated, like retirement plans and life insurance do not need to go through probate to pass to beneficiaries. However, depending on the beneficiary (age, special needs, etc.) even with beneficiary designated assets serious unintended consequences can result if you do not have an estate plan that spells out how the funds are to be handled for your special needs or minor children.

When should individuals/families consider adding multiple trusts to the estate plan?

This is among the many reasons to invest in a professionally drafted estate plan. No two families’ circumstances are the same. Some examples of additional types of trusts families might require are a bypass trust, a charitable remainder trust, a special needs trust, or others. All of this depends on what the goals of the the people creating the trust(s) are, and the amount of value inside of the estate. A capable estate planning attorney will discuss with you the types of trusts that will best serve your family’s needs and your particular goals. You will then be prepared to make informed decisions about how to proceed.

Why is it important for communities of color to create estate plans?

The primary reason it is important for communities of color to create estate plans is to maintain control over the distribution of our assets. Upwards of 40% of wealth in the United States is inherited wealth. One of the greatest hindrances to black wealth advancement has been the loss we experience at the generation transfer. Between 1910 and 1997 African Americans lost an estimated $28 billion dollars worth of land value through the heirship process. This was in the American south alone.

Like others, communities of color can have non-traditional family structures, blended families, children or parents who are receiving government services for special needs, incarcerated family members, child support and other obligations. We need to feel comfortable talking about all of these issues with attorneys who can help us craft estate plans that contemplate these many different needs, to protect the gains we've made and provide a solid financial foundation for the next generation.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.

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The mission of The Little CPA is to share information I have learned as a Certified Public Accountant that will

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