CORONAVIRUS PANDEMIC ESTATE PLANNING
By: David L. Crockett, Attorney, CPA
UCLA Law School ’69, UC Berkeley ’66
Newport Beach, Ca 92660 949-851-1771
A QUICK STUDY OF WHAT YOU MAY NEED AND THE CONSEQUENCES OF BEING UNPREPARED
TRY TO GAIN SOME BASIC UNDERSTANDING
Our way of life has laws and rules in place so that there will be an orderly and legal transfer of money and property to the next generation upon death or disability. The law allows a person to make his/her own estate plan. If no plan is in place and the worst happens then each state has detailed laws which govern the situation.
This article pertains to California law and California residents. While there are a lot of similarities among states, the laws of the state of residence are what controls the situation.
California law allows a person to make his/her own estate plan which is in effect a legally enforceable contract as to what happens to one’s money and property. If there is no estate plan, then the California Probate Code has details laws explaining and governing nearly every type of situation. For example, if a person has 3 children then an estate plan could be prepared allowing for one child to get the bulk of the estate and to leave lesser amounts or none to the others. If a person does NOT have an estate plan in place, then the Probate Code says the estate will be divided equally among all 3 children.
Various other blogs and discussions on this website describe estate planning, wills, trusts, powers or attorney in more detail which may be helpful in understanding the overall situation.
BASIC DECISIONS TO MAKE BEFORE DOCUMENT PREPARATION.
Before estate planning documents can be prepared a person needs to decide upon the following:
1. Who will be the person to make health care decisions and take care of your money and property in case you are deceased or unable to make such decisions? You may have different persons for health issues than for money and property. You also need backup persons in case your first choice is unavailable.
2. Who will inherit your money and property and in what percent-ages? Any special gifts to certain people or organizations or charities?
3. If there are children under age 18 who will take care of them and their money and property? Do any of them have disabilities which might require special planning?
4. Will your money and property be held for a period of time in trust or simply distributed upon death?
FIVE LIKELY ESTATE PLANNING DOCUMENTS NEEDED.
If the worst happens, most estate planning attorneys would agree that certain documents should be in place for various reasons. These documents are generally custom prepared to suit the individual situation so what they contain depends largely upon the skill and experience of the drafting attorney. Documents prepared by our office are based in part upon our decades of experience in Administration of trusts and estates, preparation of Tax returns and Accountings, and in Court Litigation about trusts and estates. Documents simply copied out of form books or off the internet may not cover things which are essential to orderly Administration or which can prevent expensive Litigation. For example, most living trusts do not specify when the estate is to be distributed so then the general law of distribution within a “reasonable time” is what applies. We have had to file many court petitions/lawsuits to compel the distribution because the executors/trustees refuse to distribute or delay for sometimes many years. Such litigation can cost tens of thousands of dollars and go on for at least a year.
Here are the basic types of estate planning documents and the likely consequences of not having them:
1. ADVANCE HEALTH CARE DIRECTIVE/POWER OF ATTORNEY (LIVING WILL)
What is it? This legal document (the HCD) appoints a person (known as your health care agent) to make health care deci-sions for you in case you are unable to do so and also names backups in case the person you select is unavailable. It also typically contains end of life/terminal illness instructions and other instructions pertaining to your individual health situation. While this can be custom prepared, our office generally uses the most recent version of the California Medical Association yellow booklet form because it is readily recognized by all California hospitals and health care providers. There are various topics and choices in the booklet which we counsel clients on how to fill out and what their options are.
What if you don’t have a health care directive? Confusion and delay in treatment can result if there is not a designated per-son. Also, if you don’t use the California Medical Association yellow booklet then the health care provider would have to read and interpret the document which may cause delays. Without a HCD, then usually only spouses or children will be listened to by the health care provider or hospital but what they can decide is not certain. Unmarried partners, fiancees or friends will not have any authority to make decisions without a HCD specifically naming them. SPEED in getting treatment in the current pandemic situation is essential so the CMA booklet is the best.
2. HIPPA WAIVER
What is it? This release authority applies to any information governed by the Health Insurance Portability and Accountability Act of 1966 (“HIPPA”) and all other applicable state and federal law. The agent you specify constitutes a “personal representa-tive” as defined by HIPPA. This allows your personal representa-tive/agent to obtain from any healthcare provider any and all of your individually identifiable health information. Without such authorization, federal and state privacy laws prevent others from accessing your records. This is typically stated as a separate paragraph in your HCD and in your living trust. However, in these pandemic times, we are now in addition preparing a separate stand alone HIPPA waiver document. Especially if you have existing health care issues, then it would be advisable to give a copy of this to your primary care physician along with your HCD and also obtain copies of your own health care records before something happens to you.
What if you don’t have a HIPPA waiver/release? Your medical care in a life threatening emergency could be compromised. Your family, friends and your health care agent most likely will not be able to see or copy your file. Your health care treatment if you are hospitalized may not be the best or most appropriate if your medical records are not available or can be seen. With the confusion and hurry of pandemic medical treatment you cannot assume that the place you are being treated will have access to records which are more likely to be available quickly in normal times. Also, your designated health care agent is more likely to be able to make intelligent crisis decisions if he/she can see your records. Medical care providers while having the best of intentions are likely to appreciate your agent seeing and having copies of your records and make treatment recommendations along the lines that you would most want to have done.
3. LAST WILL AND TESTAMENT
What is it? A will, sometimes called a last will and testament, becomes legally effective on your death. It is amendable and changeable before your death if you are legally competent. This legal document states the essentials of who inherits your estate and names your personal representative/executor who is legally responsible for carrying out your wishes. If it complies with the legal requirements of the Probate code for being a valid will, then is can be filed with the California Superior Court and legally enforced through a probate court proceeding. There are also various optional topics which can be included in a will such as guardianship nominations for your minor children, no-contest clauses, disinheritance clauses, detailed definitions of who is to inherit as backups in case your primary beneficiaries are deceased. Also, if you have a living trust, that is typically mentioned as well.
What if you don’t have a Will? If you die without a will, then you would have an “intestate estate”. In that situation, since there would be no instructions, the California Probate Code detailed laws on intestate succession would apply and tell how your estate is to be divided up. The law has built-in formulas as to who gets what percentage depending upon if you are married or not and how many children you have. Without a will, there would no way to divide your estate unequally so all of your children would inherit the same percentage as an ex-ample. All children would inherit 100% of their share of your estate when they reach age 18. Without a will, nobody outside of your family would be entitled to anything. If you have a close friend of or non-married partner (who is not a registered domestic partner), or if you are engaged to be married, none of those persons would inherit anything without a will. Without a will, then your assets, money and bank accounts would be frozen until the Probate court appoints someone to be in charge.
4. REVOCABLE LIVING TRUST
What is it? A living trust is a legal entity that begins when you sign a declaration of trust. It is a custom written legally enforceable private contract that specifies how your money, assets and property are to be handled and distributed both while you are alive (hence the term “living trust”) and after you are deceased.
While wills and health care directives are largely similar, there is a large variation in the way living trusts are written and what they contain. This office has developed many custom paragraphs for trusts based upon decades of experience with trust Administration, income and estate taxes and Trust court litigation. Our custom prepared trusts thus cover many topics to usually covered. Trust declarations can be as short as one of two pages but are more typically thirty pages or more. A living trust goes way beyond what a will contains and the subject matters covered. A living trust is revocable and changeable while you are alive and mentally competent. Given that it is revocable and changeable, you can begin with something shorter and basic to get you through this pandemic and then expand it later.
A living trust is private in the sense that it is not regis-tered with any government agency and when the trust maker (the Trustor) dies, the trust and its provisions are known only to the heirs and persons who are to receive benefits (the Beneficiaries). A living trust once it is prepared and funded avoids having to have a probate court proceeding and expensive mandatory probate attorney’s fees. A living trust can control the trust assets for many years after the Trustor dies. For example, it could specify that Beneficiaries would only receive their shares at specified ages such as 10% at age 25, 50% at age 30 and the rest at age 35. The various provisions which a living trust can contain are beyond the scope of this article but the reader is directed to read other postings on this website for more details about living trusts.
What if you don’t have a living trust? Most likely your estate will need to have a probate court proceeding which will take a year or more and will make your estate public. The reader is directed to other blogs and portions of this website for infor-mation about probate. Your money and property will be frozen and tied up for maybe a year or more. More importantly, you won’t have a comprehensive plan in place. You would not be able to disinherit anyone. You would not be able to prevent lawsuits over your estate. Beneficiaries at age 18 would get 100% of their share with no restrictions. If you have a business or income producing assets they could be lost or mismanaged and maybe prematurely liquidated without a succession plan that a trust could contain.
5. DURABLE POWER OF ATTORNEY FOR MONEY AND PROPERTY
What is it? This is a legal document in which you as the “Prin-cipal” give authority to your “Agent” to deal with your money and property in specified ways. A power of attorney becomes invalid and automatically terminates on your death. A power of attorney also becomes invalid when you become mentally incompetent unless it is prepared in such a way that it is a “Durable power of attorney” under the provisions of the Probate code. If you do have a power of attorney it is recommended that it is a Durable power of attorney. It can be effective immediately when you sign or effective in the future under specified conditions such as if you are declared mentally incompetent by doctors. Because it is custom prepared, there are many provisions that it can contain, should contain and should not contain, depending upon the circumstances.
A durable power of attorney does not as a practical matter give the agent as much authority as he/she thinks he has. Banks are reluctant to recognize powers of attorney to let others sign on bank accounts and to withdraw money. A living trust is a much better alternative for being able to deal with trust money or property. There have been a lot of abuses of powers of attorney by relatives using them to give away or sell or transfer assets of elderly persons without their knowledge. Agents also sometimes try to amend the living trust and make changes that the Principal would not actually want which can lead to litigation.
Unless there is a business enterprise involved in your es-tate, then I generally do not recommend having a power of attorney. Sometimes a limited special power of attorney is recommended to deal with specified situation such as the management or sale of a particular parcel of real estate.
What if you don’t have a revocable living trust? If you have a living trust then you generally don’t need one. There are often better alternatives. If you have a living trust you would have the power in the trust (if included) to add someone as a co-trustee and/or a signer on trust bank accounts. A living trust also can specify that if you become mentally incompetent that another is appointed as a successor trustee who would then have power to deal with your money and property as well as your personal care. That way the person appointed is restricted to following the trust instructions. On the other hand, making a person as the Agent under a power of attorney, gives the Agent unlimited and broad powers which may be more difficult to supervise, or change or question.
HOW TO KEEP YOUR MONEY AND ESTATE MANAGEABLE
In addition to having estate planning documents in place, we recommend the following:
1. Have some money in a joint checking account that is not in your living trust. When money is needed in a hurry to pay bills or otherwise, a joint account with your spouse or children or trusted friend will avoid any red tape and delays that a power of attorney or living trust might create. Caution-money in joint accounts is not controlled by the trust so for example if the Trustor dies with a joint account of $10,000 with his friend, the friend will get the entire $10,000 and the family will not have any claim to it.
2. Make copies of all estate planning documents and also make PDF computer copies. Send the PDF copies to family members or trusted friends so there is no question about what the trust says. Caution-trusts are not registered with any government agency so if the document disappears then expensive litigation will be the only way to determine how to divide the estate.
3. If you do establish a living trust, make sure it is “funded”. This means that real estate is transferred into the trust with deeds recorded with the county recorder. Bank and securities accounts have to be changed with the institution to make the accounts be in the name of the trustees and the trust. Before something happens to you and while you are mentally competent, make sure that everything that you want to be in the trust is transferred into the trust. Warning– Property, money and securities that are not transferred into the trust cannot be accessed after your death or mental disability without first filing probate court proceedings which take many months and cost thousands of dollars in fees and court costs.
4. Make a written record of all email providers, websites, user names and passwords for all the banking and other websites that you regularly use. Your estate planning documents should give your personal representatives authority to access this information and make reference to the new California law known as the “Uniform Fiduciary Access to Digital Assets Act”, effective January 1, 2017 and found at California Probate Code §§870-884. There are detailed procedures required by that law for your personal representatives to follow for them to obtain access to all of your electronic and internet information including but not limited to data, emails, contents of emails sent and received, catalogues or lists of electronic communications sent or received or stored, texts, images, videos, sounds, codes, user names, passwords, computer programs, software, databases and other items with like characteristics. Unless this law is followed, much of this information will not be obtainable.
CAUTION. This blog describes broad general legal principles for this area of the law. However, the law is constantly changing and being interpreted by court cases so don’t rely on this as legal advice for specific situations. A legal professional should be consulted before taking any action or refraining from taking any action because there may be legal deadlines and other applicable legal issues which are outside the scope of this blog which may apply.