THE COVID-19 Pandemic is a scary reality which affects everyone globally and has shut down the global economy. Individuals over 65 are more at risk of having serious complications with this virus. Although we cannot completely control how we would respond to such virus, we can prepare our finances and estate incase the worst happens.
Legally, there are several ways you can do this.
- Create a Living Trust
If you pass away with at least $166,250 in gross assets and you do not have a living trust (even if you have a will), your beneficiaries would have to open up a probate case before title to the assets can pass to them. When I say gross asset, I mean regardless of how much debt you owe on them. For example if you own a house valued at $350,000 at the time of your death, it does not matter that your mortgage balance is $300,000, a probate case has to be opened in order to pass title to that property. The same is true with other types of assets such as owning a business, a professional practice, bonds, equities, etc. This is a very low threshold to exceed specially in California where real estate prices, even after the economic crisis, remains in the upper end of the curve among the 50 states.
Commencing a probate case is expensive and a very slow process. Someone qualified will have to file a Petition with the probate court to have someone appointed as executor or administrator. The Petitioner’s attorney gets paid a statutory rate for attorney’s fees commencing with 4% of the gross estate. The probate referee will have to be paid for appraising the assets of the estate. If it is necessary to post bond, the premium on the bond would have to be paid as well. There is also the cost of administering the estate such as selling some of the assets to satisfy the estate’s obligations and to divide the estate according to the will or the intestate line of succession if there is no will. The entire process could take up years specially if certain beneficiaries and creditors file certain claims. The probate court file would be public record.
On the other hand if you have a living trust, your estate can avoid the entire court system and court supervision. In certain situations, the process may also save you estate taxes which may be substantial if your assets exceed a certain threshold. Basically, you and/or your spouse can be named as the initial trustee of the trust while you are alive. The trustee is the person who manages the trust. This means you retain control of all your assets the same way as if you never had a trust. For revocable trusts, you can later on, at any time during your lifetime, revoke the entire trust if you change your mind.
The assets held in your living trust will be managed by the trustee and distributed according to your directions without court supervision and involvement when you pass away. This can save your heirs time and money. Since the trust would not be under the direct management of the probate court, your assets and their value and your beneficiaries’ identities would not become a public record. Your heirs and beneficiaries would still have to be notified about the living trust and advised, among other things, of their right to obtain a copy of the trust.
Having a trust is also beneficial in case you become incapacitated. The person you name as successor trustee can step up and manage the assets in your trust on your behalf.
- Power of Attorney
A power of attorney designates another individual the power to manage your financial affairs on your behalf. You can limit this power and define what the scope of the power you are giving your attorney in fact. A power of attorney is also revocable if you decide to cancel the power you have given this individual. By giving another person the power of attorney, you do not lose the power to manage your financial affairs. You can continue to make financial decisions on your own affairs.
- Durable Power of Attorney for Healthcare
A Durable Power of Attorney for Healthcare allows your to designate specific individual to have the power to make healthcare decisions on your behalf incase you no longer have the capacity to make decisions for yourself due to health conditions. You can define the scope of your agent’s authority. This is also revocable if you change your mind in the future. Your agent will have the authority to access and review your medical records and sign any authorization on your behalf. This is helpful incase you are unable to make healthcare decisions for yourself.
- Last Will and Testament
A Last Will and Testament allows your to designate how your assets will be distributed after you pass away. This allows you to customize how your estate will be divided and distributed. In the absence of a Will, you would pass away intestate and the probate court would simply follow the California intestate succession laws which are in the probate code.
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Please note that this article is not legal advice and is not intended as legal advice. The article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This article does create any attorney client relationship between you and the Law Offices of Kenneth U. Reyes, P.C. This article is not a solicitation.
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Attorney Kenneth Ursua Reyes is a Certified Family Law Specialist. He was President of the Philippine American Bar Association. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. He is a graduate of Southwestern University Law School in Los Angeles and California State University, San Bernardino School of Business Administration. He has extensive CPA experience prior to law practice. LAW OFFICES OF KENNETH REYES, APC is located at 3699 Wilshire Blvd., Suite 747, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail [email protected] or visit our website at Kenreyeslaw.com.
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