Introduction:
This short book will give you, the client, an in-depth guide to estate planning, the
options, and the benefits of a comprehensive estate plan. This book is designed as a
guide that will help you determine if you need an estate plan, the right option/type
of estate plan for you and your family, and the triggers of when you need to update
the estate plan.

What is an estate plan and why do I need it?
An estate plan is the comprehensive document that people create to protect their
families and their assets to ensure that their assets go to their loved ones rather
than the government or creditors upon their passing. It can also be used to protect
your assets during the course of your lifetime in the event that you are sued. An
estate plan also is commonly referred to as a living trust or simply a trust. This is a
bit of a misnomer because an estate plan has many documents within it and the
trust is simply one document. The ONLY way to protect your assets in the state of
California from probate is the creation of an estate plan. This estate plan can protect
not only from the state probate process, but also the federal government death tax,
and from creditors (people trying to sue you). This document is the most important
document that you will create for you and your family. If done correctly, it can even
protect you in the event of a divorce when combined with a post-nuptial agreement.

What comprises an estate plan?

An estate plan is a testamentary document that should have all of the following sub-
documents within it: trust, pour-over will, durable power of attorney for
finance/asset management, durable power of attorney for health care and
conservatorship, HIPAA, schedules, and guardianship (if applicable). These
documents combined make a complete estate plan.

What is a trust?
The trust is the most powerful of the estate planning documents. The trust allows
you to protect your assets from the state government, the federal government, and
creditors. This is also the document that dictates who your beneficiaries are, what
amount of money/assets they get, and when they get these assets. You may also
condition the distribution of your assets to your beneficiaries, such as my son has to
have a college degree before he gets any money. The beneficiaries of your trust are
the individuals who will receive your assets upon your demise. Within the trust you
will also assign successor trustees (also known as first appointees) to make financial
and health care decisions for you. These individuals will also reappear in the
durable power of attorney documents that will be discussed later.

What is a will, specifically a pour over will?
This pour over will is the second document in an estate plan. It functions as a back
up to the trust to “catch” assets inadvertently left out of trust. This is the main
function of the pour over will. You can also use this document to release the
executors (same people as successor trustees in the trust) from having to carry a
bond.

What is a durable power of attorney (DPA) for finance/asset management?
This document is the first durable power of attorney document and allows you to
assign someone (over the age of 18 and a U.S. citizen) to make financial decisions for
you if you are incapacitated. The people you assign to do this for you are called
successor trustees or appointees (they are also called executors in the will). The
document we create is valid nationwide. This document is used if you are unable to
make your own decisions. For example, you are in coma from a car accident or you
start to suffer mental ailments/sicknesses that prohibit proper decision-making.

What is a durable power of attorney (DPA) for health care/conservatorship?
Similarly to the DPA for finance, this document allows you to assign someone to
make health care decisions for you if you cannot do so for yourself. The people that
do this for you are called successor trustees or appointees (again the should be over
the age of 18 and U.S. citizens). This document is also valid nationwide but can be
supplemented by a directive at your local hospital for more specific wishes like
transfusion-free medicine or surgery, or declining the use of life saving drugs. The
DPA for health care also goes by the names “advanced directive” or “living will.”

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What is the HIPAA directive?
HIPAA stands for the Health Insurance Portability and Accountability Act of 1996.
This legislation provides for data privacy and security provisions for safeguarding
medical information. For the DPA for health care to be most effective, this document
must be included as a stand-alone document at the end of the health care directive.
This allows your chosen health care successor trustees to have access to your
medical file to make appropriate decisions for you. If you do not have this
document, no access to your medical file will be provided which will make it difficult
for you to make health care decisions for your loved one.

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What are schedules?
Schedules allow you to give items of sentimental value to whomever you choose.
The schedules can be used to give away anything except for cash and real property.
People commonly use these documents to give away jewelry, china, pictures,
paintings, wedding rings, card collections, or even valuable jerseys of your favorite
player (especially when signed by such player). In our office we will notarize this
document for you and you can fill it in at your leisure. It will be valid anytime
thereafter.

What is guardianship?
Guardianship is one of the most important documents of an estate plan. If you have
little ones (minors), this document allows you to choose caretakers of your children
until they are the age of 18. A guardian like a beneficiary can be anyone in the
world. When your child turns 18, the guardianship will automatically fall off. This
provision is the one most parents care about and is extremely important.

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WHAT KINDS OF ESTATE PLANS ARE AVAILABLE?
There are many types of estate plans available. Unfortunately, I cannot talk about all
of them here in this mini-book, but the most common type of estate plan is called the
revocable trust. A revocable trust can be done for a married couple or for a single
person. If you have joint assets between you and your spouse, a married trust might
be the most appropriate.

However, if you have single assets, or are expecting an inheritance it may be wise to
have a single trust created. You do NOT have to be single to have a single trust
created. Single revocable trusts are designed to hold assets that are in your name
alone. Inherited assets are designated as sole and separate property but the mistake
that married people make is that they combine these assets with their spouse. If

you do that, and your marriage dissolves, then those assets are distributed via
community property distributions, which in California is a 50/50 distribution.

Tax planning trust

A tax planning trust is a trust that married couples use to help limit their liabilities
to the estate tax (also known as the death tax). This tax rate ranges from 40%-55%.
Every year an exemption amount is set, if your gross valuation is above this
exemption amount, upon your passing for every dollar above it there is a tax. In
2022, the IRS code states that the single person exemption for federal death or
estate taxes is $12.06 million and a married couple can shield $24.12 million dollars.
Also, the death tax rate is 40% for 2022. This means that if the gross NOT net
valuation of your estate is less than $12 or $24 million (for single or married
persons), you get to keep your money. If your estate is more than the exemption
amount there is a 40% tax for every dollar over the exemption amount for 2022.
This $12 million exemption is set to expire in 2026 and be reduced by half. For now,
however the amounts have increased since 2021. You are still responsible to pay
for an estate tax return, your income taxes, car payments, house payments, and all
other creditors upon your death. However, with a higher exemption amount you
are able to pass more of your assets onto your loved ones. Understanding death
taxes (or estate taxes) is an extremely important concept since these exemption
amounts can be changed yearly.

Is asset protection part of a revocable trust? What is a land trust?

The most common estate plans are revocable and amendable single or married
trusts. These types of plans can include asset protection measures within them. If
they do have asset protection (which means protection from creditors or people
trying to sue you), they are referred to as “land trusts” or “REITs.” A land trust is a
testamentary instrument that allows you hold your assets in a revocable trust, but
makes it appear as if you have no assets connected to you. There is a wonderful
article about land trusts on our website www.sharmakliche.com under the estate
planning blog section entitled “land trusts.” This blog will break down the land trust
and give you a layman explanation of the benefits. Essentially, the land trust uses
hiding mechanisms to hide your assets from creditors. It also allows for deed
manipulation to hide ownership of property, name camouflaging to hide your
attachment to your trust while still maintaining control of the assets held in trust,
spendthrift provisions to protect your beneficiaries from creditors, the use of
nominee trustees in certain cases to hide the fact that you created your trust, and
more. It is an exceptionally useful tool for you to use in your estate plan. Although
some of the terminology used in this paragraph sounds confusing it really is not.
Here, in our office we offer free phone strategy consultations to thoroughly explain
our process and the different options available.

Do I need an attorney to create an estate plan?

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Today, there are a variety of options for people to use when thinking about estate
planning, however the best plans with the most comprehensive protective measures
need to be created with an attorney. There are two main reasons for this; the first is
if you use an attorney that attorney/law firm has a fiduciary duty to protect you.
This means that if there are updates based on law that need to be done, it is the job
of the law firm to inform you as to when those should be completed. Secondly, if
there is a mistake in your estate plan and it gets overturned in court, the
beneficiaries have someone to hold accountable, namely the attorney.
If you choose to use companies that offer to hold themselves out as document
preparers but are NOT attorneys (such as the online companies currently out there),
they specifically state that they are not attorneys and therefore they do not
guarantee the accuracy of their documents. This language is there to let you know if
you use them, it is not their problem if the document does not do what it is you
want. Although cheaper to use these online companies, the document quality differs
greatly between what an attorney can provide you versus what an online company
will give you. For example, I have yet to see any online company offer asset
protection measures in their revocable trusts. Instead they simply say asset
protection is not available for revocable trusts, which is completely false.
In short, this document is the most important document you will ever create. Make
sure you complete it with someone who is credible, reliable, and knowledgeable.

How often do I need to update my estate plan once created?

Once you have a comprehensive estate plan, there are three trigger factors that will
require you to update your document. The first is if five years have passed. If it has
been five years since you have updated your estate plan, you will need to update it.
The durable powers of attorney need to be updated once every five years. The
second is if there is a change in congressional law that affects you. For example, you
are a same sex couple and now that marriage is legal for all, this is the perfect time
to adjust your estate plan. Thirdly, if there is change to your family, such as having
another child then the estate plan must be updated. A good estate plan changes as
your life changes. Your attorney should inform you about changes to the law, and
about the five-year rule. The changes to your family however are your
responsibility to report to your attorney.

Are there tax consequences when creating a revocable estate plan?

If you are creating a revocable and amendable estate plan, there are no tax
consequences. Your property taxes should remain the same, and you can still take
your income tax benefit for your mortgage. Be advised, the property tax assessor’s
office may request a copy of your trust especially if you call your trust something
other than your last name.

How important is my attorney client relationship?

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In estate planning this has the utmost importance. There are two main reasons for
this importance. One, there is a fiduciary duty your attorney has to you as the client
to provide the best quality plan he/she can create. Two, this estate plan needs to be
updated frequently. So, you should have a good working relationship with your
attorney. This means that both you and your attorney are on the same page with
the goals listed out in your plan, and you get along. There are going to be situations
where either you as the client or your attorney are not a good match. Personally, I
have told this to potential clients who I felt were not a good match with the
philosophies of our law firm. It is ok if you feel like you would be better matched
with someone else. This is something that you should tell your attorney and explain
why you feel this way. When I suggest to a potential client why it would be better to
for him/her to work with someone else, I do so thoroughly and kindly. It may be
that you are looking for language that is not common, and the attorney is not
comfortable writing the trust that way. Or you are looking for asset protection and
the attorney that you chose does not know how to do that. More likely than not, you
and your attorney will work together well. Having a good working relationship
between the client and the attorney is the key to success.

What should I look for when hiring an estate-planning attorney?

When hiring an estate-planning attorney there are four main parameters to
consider:
The first is competency. This means that the attorney is knowledgeable about the
law and has a good understanding about how your estate plan will protect you and
your family. This requires more than simply a basic understanding of estate
planning because the estate plan is the most important document you will create
during the course of your life. If the attorney is not able to fully answer your
questions, please get a second opinion.

The second is affordability. The old adage of “you get what you pay for” remains
true especially in estate planning. There are large discrepancies in the quality of an
estate plan. The best attorneys cost more, but the additional costs are worth it.
Remember, you will have to update your trust at least every five years and you want
to make sure that the law firm that you are using is going to up to date on new laws,
changes to existing laws, and able to provide you with the most current information
that can be used to protect you and your family.

The third is accessibility. This is hardest part of an attorney client relationship is
accessibility. The most common complaint about attorneys from clients is that the
attorney never returns my calls. Accessibility is extremely important in estate
planning because the laws change frequently. Your attorney should be able to
return your call within 24 hours. You as the client should feel comfortable calling
whenever you have a question. Depending on the type of estate plan you decide to

get, especially ones with asset protection, business related questions might come up
frequently which means you will need access to your lawyer.

The fourth and final one is your gut. Usually, your gut will tell you if the attorney
you chose is a good match. I never go against my gut and I recommend the same for
my clients.
Closing

The type of estate plan, the attorney/law firm that you choose, and the accessibility
of the attorney to the client are the most important factors when making a decision.
It is my hope that this information has been useful for you and will allow you to
make the best decision for your family.

We have offices throughout Southern California from Valencia to Carlsbad. For a full
list of offices, please go to our website: www.sharmakliche.com. We also offer free
phone consultations 7 days a week. Please call us for a free legal consultation at
714.642.3838.

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Disclaimer: this information is for educational purposes only. No attorney client relationship exists
from reading this document.
Copyright January 2021 – Sharma Kliche, LLP