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The Lovable Lawyer with Steve Gibbs, Esq.


Dec 2, 2019

All right. Hello and welcome to the lovable lawyer podcast. Really excited to be with you guys for episode three and thought we'd jump right into some heavy duty knowledge this morning and talk about, you know, what exactly is a state planning, cause there are a lot of misnomers out there about what estate planning is. There's obviously confusion about whether it's needed oftentimes because of the misnomers out there. So let's talk about it. The state planning, it's really a general term. It's jargon because the average person isn't walking around saying, well I think I might need some estate planning. Most of the most people out there don't think they have an estate. Right? You know, you would think maybe that's reserved for the “uber wealthy” crowd. So that's the first misnomer that needs to be corrected. That anybody with any assets to speak of has an estate in terms of having some assets and having some things that need to be managed, you know, in the event that, you know, something happens to them.

In terms of death or disability or, or, or these kinds of life contingencies that can happen. So an estate is, is a general term that should be probably simplified to just say, you know, asset planning or you know, asset distribution planning would be a much more accurate way to look at this kind of area of planning. And it would immediately probably remove the veil for a lot of people in terms of understanding what it is and whether they need it. So I've, for purposes here, let's, let's talk about, you know, asked asset management and distribution in the event of certain things happening and which would be either death or disability, these kinds of things. So, and the next question that always arises is, you know, when do you need it and what kinds of things do you need? So, and these things can be in very based on circumstances.

They can be very different for somebody with minimal assets as opposed to somebody with the largest state. So you know, somebody with minimal assets is going to need some more basic documents to basically transfer authority to somebody in the event that they can't make their own decisions concerning their assets. So that's where you get this sort of bundle of, of a state legal documents. And the most basic is the last will. I'm sure that many people listening understand that and any have your medical authorities, so you have a living will in the event you can't make medical decisions and you have things like guardianship or conservatorship or depending on what state you're in. All right. So some of these laws will vary state to state and some of the terms of vary as well as the formalities around these documents and what would say a valid will in Florida versus a valid will in California for example.

So there's differences and yet another difference would be a guardianship versus a conservative conservatorship. As in Florida, you'd have a guardianship. In California you'd have a conservatorship and so you have just different things going on. You have different things in the probate laws and trust administration and in various aspects all across the board. So you need to know your state, but this is more for general knowledge, this particular podcast. So we'll try to stick to that. So you've got your last, will you catch your medical documents? The most misunderstood document in my experience is the power of attorney. A lot of people think that when somebody passes away that they need a power of attorney to administer assets. And the, it's critical to know that your power of attorney is no longer valid upon death. So that's something that people need to understand. So powers of attorney are for disability.

If you are disabled, you need somebody to make business decisions for you. And so that's really when that becomes important to have. And powers of attorney can save literally thousands if not tens of thousands of dollars in court costs for having to be having to be appointed guardian and these kinds of things. So powers of attorney are really important and many States about 10 years ago began redoing all their power of attorney laws. So just to simplify them and to try to eliminate power of attorney abuse. And so what a lot of States did is they eliminated what was called a springing power. And now a lot of powers of attorney have to be an immediate, and this is diving in deep to powers of attorney, which we may do it at one, one point here in the podcast to later. But right now we are staying general, just know that powers of attorney are for disability and a durable power is for, it's particularly for if somebody is lacking capacity and would need a power of attorney.

So it would stay in effect even if the person was disabled or lack capacity. All right. And I know you get all these jargon terms, capacity just means you're in the right mind to sign the documents. You've got to have that for any kind of state planning document that you would sign. And so that's, those are your basics. And then of course, trust planning, living trust planning is a big one that a lot of people wonder about. And a lot of people are thinking about, particularly in States like California, where you have very high real estate values. So one of the big selling points to any kind of a living trust is that you're going to avoid probate if it's done properly. And I've seen a lot of improper trusts done over the years. So we really want to encourage people to get the right advice and not necessarily try to do things on their own.

Although I think it's important to know as much as you can on your own and then go from there. But a lot of people didn't, you know, maybe didn't do something right with their trusts in the end up having to have a probate in their family anyway. Probate's a very expensive and particularly places like California where it can be on a rather expensive piece of real property in a lot of times probate fees are related back to the value of that property. So there's, there's things to consider with that. So in a nutshell, you know, you do a living trust, you have your property titled in that living trusts, which then can allow transfer to heirs without any kind of need for a probate court order. So hopefully that gives a little bit of light on living trusts and what the major purpose of the living trust is.

And there were so many other purposes around living in, you know, around living trusts that can be included within that trust document. So, for example, special needs planning, preserving assets for kids from a previous marriage, just many things that are very circumstantial. Trusts for grandchildren's education can be a big one, which we've seen a lot of those. You can also, for bigger States, there can be tax planning provisions. And when I, when I refer to tax planning guys for any kind of future podcasts, usually when we talk about tax planning, we're talking about state tax planning. So we're really trying to avoid the death tax. And this tax doesn't even kick into effect until you're passing over about 11.5 million almost as a single person or 22.8 around there for a married couple, you get twice the amount of assets for a married couple.

So you know the estate tax discussion is not really relevant at this point under current laws, and this is 20 late 2019 the date of this podcast, and so we don't know next year it could change. The exemption couldn't go down. It's been very low in history and this is as high as it's, it's been, although I shouldn't say that it was unlimited at one point for a year. So that was a good year to die I guess you'd say. So and now it's at a very high threshold, so that is not a concern for many folks. Although in the top 1% certainly can be a concern and that calls for tax planning within the trust. It also will call for more some more advanced strategies, which we're not going to dive into in this podcast, which is really about, again, what is estate planning? So estate planning is taking your goals and what is important to you and the values that you hold dear and transmitting those into a legally enforceable document.

Okay. So which may be a trust as we just mentioned it, it would minimally be a last will and then also pointing the right people to act on your behalf. And those are those other two documents, the, you know, the living will the healthcare call it a healthcare power of attorney or healthcare surrogate guardian conservator and of course your financial power of attorney that we just mentioned. So that's really your basic bundle and documents and then giving you guys a little picture of what is estate planning. Now a lot of times when we do these podcasts, we'll bring in the life insurance component to an extent. And as I mentioned in the initial origin story podcast one and then a little bit touched on it yesterday in, in the second episode regarding offense and defense. Life insurance can be a critical part of estate planning.

It can, for example, facilitate the transfer in the buyout and transfer of a business from partners. It can fund state taxes. That's a been a very major use of life insurance for the high net worth estates where there actually is an estate tax and there's just a lot of other things that life insurance can be used for within the picture. And the most important thing if you're a practitioner listening out there and attorney or an accountant that the life insurance needs to be coordinated with the rest of the documents in the estate plan. In other words, you really would rather they, you don't want them to conflict. And by conflict, I mean maybe the life insurance policy designates a certain person or entity as beneficiary and the trust documents don't mention that and they designate somebody else. And so you have these conflicts and they're issues that can come up.

So hopefully that sets the stage guys for what is the state planning gives you some things to chew on. And of course I always welcome comments and questions and please feel free to share, subscribe and we'll be hitting a lot of topics, not just legal. We'll be venturing into the life insurance side and other areas of interests, legal stories, life insurance stories, and want to be mindful of what you guys are looking for too. So please feel free to send your feedback and I'm thankful to be with you and we will talk to you in the next episode.