Every New Year many of us resolve to lose weight, eat better, and organize our personal life. However, normal life gets in the way and things we want to do get put off to another day. COVID-19 has changed everything. We are not sure when normal life will resume and many of the things that we do every day cannot be done. Even something as simple as having a meal with friends and family is no longer allowed (at least for now). This lack of control over everyday life decisions and the uncertainty of not knowing when things will return to normal has many of us feeling lost and anxious. As we stay home and watch this pandemic get worse and worse, we ask ourselves what we can do to protect our families and loved ones. You are doing the most important thing by staying home and taking care of your family. What else can you do to help mitigate some insecurity?
In this time of uncertainty, what we can all do is make sure that certain life decisions are made or communicated so no one is caught off-guard if and when an unfortunate event occurs. Accepting one may become incapacitated or face death unexpectedly may be a difficult and emotional journey; but one, if approached with planning and an open mind, will help you achieve some certainty and peace of mind. Thinking and talking about these issues can be overwhelming but remember that you are doing it for the people that you love and care about the most. If you are new to this, below are some topics and terms that we believe will help you start the process:
Estate Planning – This should be a fairly familiar term. Estate planning is a legal method to specify your wishes (or how you want things to happen) at the end of your life, whether naturally or unexpectedly. Proper estate planning is achieved through the execution of certain instruments and/or undertaking certain actions in advance of an unexpected event through which you can communicate your intentions and wishes to loved ones.
Probate – Probate is the legal process where an estate gets settled under the supervision of the court because certain legal documents were not created to transfer the deceased’s assets to the intended beneficiaries. In the State of California, most people prefers to avoid probate because it is expensive, time-consuming, lacks privacy, and additional ancillary probate proceedings are needed if you own properties outside of California. The average time for a probate proceeding in California is 9 months to 2 years and involves spending thousands of dollars that are nonnegotiable since it is all controlled by statute.
Revocable Living Trust – A revocable living trust provides for private administration, no court supervision, or statutory fees. It is a legal document that allows you to have full control over the property and the right to use and spend the property as if it was never put into trust. After you die, all your properties will pass onto your beneficiaries according to your wishes without any interference or expenses from the court. If you become incompetent, no conservatorship (formal court proceedings to manage an incompetent person’s assets) is needed to manage your property. Again, there is no court supervision or expenses involved. There are many additional benefits to a Living Trust such as tax planning efficiency, total control of your distributions, privacy and limited protection against creditors (protection applies to the assets of the beneficiaries and not that of the settlor/ trustee).
Transfer on Death Deed (TOD) – On January 1, 2016, California’s transfer on death deed law went into effect. The TOD deed allows a homeowner to transfer title to one or more beneficiaries upon their death without costly and time-consuming probate process. California legislature’s intent was for single seniors and widows to use a TOD deed to avoid probate. This is a great option for a person whose only asset is the home in which they live. This is also a possible contingency for a family who has not had time to create a comprehensive estate plan. However, there are some pitfalls to watch out for: joint titles, beneficiary is a minor, and longer time to clear title and sell the inherited property.
- Joint titles: Married people’s homes are titled as joint tenants or community property with rights of survivorship so the surviving spouse inherits the property, and this would supersede any TOD deed. If time is of the essences, co-owners would execute separate TOD deeds if they both want the same beneficiaries after they both die.
- Minor beneficiary: Under California law minors can own real property but they are not allowed to sell or purchase property even if it’s held directly under their names. Depending on the circumstances, it might be a necessity to sell the property, but since it’s owned by a minor then the sale cannot occur until they reach the age of majority.
- Excessive time needed to close the sale: Since TOD deed is revocable, there is opportunity for fraud and the stacking of multiple TOD deeds, thus making it hard to obtain title insurance during sale of the property. Depending on the number of possible beneficiaries, litigation can result creating more expenses and time delay.
Beneficiary Designations/Payable of Death (POD) – Certain types of assets if titled properly are transferred immediately upon death and are not subject to probate. Two common forms of joint ownership are joint tenancy and community property with right of survivorship. When a spouse passes, his or her interests are transferred to the surviving spouse. This is a band-aid solution to avoid probate but does not consider tax efficiency for estates with significant assets. Certain accounts such as bank accounts, retirement accounts, annuity contracts, or life insurance passes directly to the named beneficiaries upon the death of the owner without probate if proper beneficiary designations or payable on death (POD) forms were executed and filed with the financial institution. Once a death certificate is available then the beneficiary(ies) can have the accounts retitled so that funds are available immediately to pay for the family’s financial obligations such as bills and mortgage.
Power of Attorney – A power of attorney gives someone that you picked the authority to act in your place. That authority, however, ends when you become incapacitated unless it is a “durable power of attorney,” which will allow the power of attorney to continue even if you become incapacitated. With the proper durable power of attorney for finance and health, the trusted person(s) you named can continue to take care of important matters for you. They stand in your shoes so they can pay your bills, resolve financial and legal issues, buy and sell stocks, and make medical decisions when you are unable to do so.
Health Care Power of Attorney – Under California Probate Code Section 4701, an Advance Health Care Directive allows you to give advance instructions about your own health care and/or to name a person to make those health care decisions for you. You can name an individual, such as a family member, to make health care decisions for you when you become incapacitated or even if you are able to make your own decisions. You can choose to limit or allow your agent/designee to make all or part of the health care decisions for you. Some of the decisions that are often covered under an Advance Health Care Directive include whether to:
- take emergency or extraordinary measures in medical treatment, including whether to withhold or withdraw treatment to keep you alive as well as pain provisions;
- consent or refuse any care or treatment affecting either a physical or mental condition;
- select or discharge health care providers and institutions to be in charge of or take over your care;
- approve or disapprove diagnostics tests and medications;
- to donate your organs, authorize an autopsy, and direct disposition of remains; and
- specify any other medical wishes as it pertains to your moral or religious beliefs.
NOTE: this is not a comprehensive list of all medical decisions that can be covered.
Your Advance Health Care Directive can either give specific instructions about any aspect of your health care (including those listed above) without naming an agent or designee; or you can elect to just leave all of these decisions to your named agent/designee if and when the need arises. Please note that you always have the right to revoke or replace your agents at any time as long as you have mental capacity.
Financial Power of Attorney – There are 2 types of financial power of attorney. Most are familiar with a limited financial power of attorney that are often used for real estate closings when a party is not available to attend the closing in person. Once the real estate transaction is completed then the agent’s power ends. A durable financial power of attorney, however, allows someone you appoint to manage your finances on an on-going basis if and when you become incapacitated (unable to make decisions for yourself). The durable power of attorney gives your agent or designee the legal power and authority to act on your behalf. You can decide how much or how littler power you want your agent to have. Some of the powers are:
- Use your assets to pay your everyday expenses and those of your family
- Buy, sell, maintain, pay taxes, and mortgage on real estate and other property
- Collect government benefits such as social security and Medicare
- Invest your money in stocks, bonds, and mutual funds
- Handle transactions with banking and financial institutions including retirement accounts
- Buy and sell insurance policies and annuities
- File and pay taxes
- Operate your small business
- Claim property you are entitled to
- Transfer property to a trust you’ve already created
- Hire legal representation
The agent is required to act in your best interest, maintain accurate record, not commingle your accounts with theirs, and avoid conflict of interest. The person you named does not have a be a financial whiz and can just be someone that you trust to carry out your wishes or act in your best interest (or those of your family). Your agent can hire experts and advisors to help them. Note that some banks and financial institutions have their own financial power of attorney forms which you would also have to complete. Most importantly, you always have the power to revoke or cancel your durable financial power of attorney. You can name a new agent at any time as long as you are mentally competent.
HIPAA Release – HIPAA (Health Insurance Portability and Accountability Act) is a U.S. law that provides data privacy and security for safeguarding medical information. The HIPAA privacy rule establish the first national standards in the United States to protect patients’ personal health information. In doing so, many parents and caregivers are now barred from receiving any medical information for anyone 18 years or older without a signed HIPAA release. A signed HIPAA authorization is like a permission slip that allows healthcare providers to release your health information to anyone that you choose. This release can be limited to whatever information you choose to share such as restricting mental health records, communicable diseases, alcohol/drug abuse treatment or it can be your complete medical history. You determine how long the authorization is in effect for. This document does not require notarization or witnesses to finalize. During a medical emergency, your family can focus on getting you the care you need and the necessary insurance approvals without any legal roadblocks.
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End-of-life planning is normally a long process where you work with your advisors over a period time to discuss what legacy you would like to leave behind, your wishes relating to end-of-life, your intentions for your estate, and how to care for your family. Unfortunately, with the uncertainty of the current pandemic, time is of the essence to create a contingency plan and make some of these decisions earlier rather than later. We hope that you find the above information helpful and that this will provide some guidance as you navigate the planning process.