Money Matters

Estate Planning in Retirement in San Diego

26 Apr 2024 by: Matt Showley 

As you embrace retirement, crafting an estate plan is pivotal to protect your legacy, assets, and loved ones’ futures. An estate plan is essential to safeguard the assets you’ve worked decades to secure and avoid legal issues, financial risks, and medical uncertainties. We’ll explore the ins and outs of estate planning, how you can ensure peace of mind in retirement — and why you already have an estate plan and may not even know it.

What is Estate Planning?

Estate planning is the organized and directed management and distribution of your assets if you become medically incapacitated or pass away. The documentation required is all-encompassing and typically includes five essential documents:

  • A revocable living trust is a legal arrangement in which a trustee holds and distributes assets to a beneficiary or beneficiaries according to the trustor’s (your) wishes. 
  • A will is a legal document that outlines your wishes regarding distributing your personal property, such as personal property, jewelry, or collectibles, and who will care for your minor children. 
  • A HIPAA authorization form allows an appointed person or party to share specific, relevant health information with another person or group, given privacy rules and regulations. 
  • A durable power of attorney assigns someone the ability to act on your behalf if you become incapacitated. You should consider someone who you trust to pay your bills, manage your bank accounts, apply for any benefits you might be eligible for, or more while recovering.
  • Advanced healthcare directives outline medical instructions and those who can make decisions on your behalf if you cannot, which may be different from the person handling your finances.

What Are the Benefits of an Estate Plan?

An estate plan can help protect you, your family, and your assets during incapacity or unforeseen events. Outlining your instructions ensures your personal, financial, medical, and asset information lands in trusted hands and is managed according to your wishes. Here are other benefits of estate planning:

    • Privacy and avoiding probate court: A properly drafted estate plan allows your heirs to distribute assets outside probate court. Probate involves a court overseeing the distribution of your assets if you don’t have an estate plan or there are concerns with your estate plan, such as failing to properly fund a trust or name a beneficiary for an asset. This costly and lengthy process also subjects heirs and your financial affairs to public scrutiny. 
    • Control over asset distribution: You specify how to distribute your assets, and when, which can help avoid family uncertainty or conflict.
    • Tax advantages: An estate plan can help minimize estate taxes and liabilities for your heirs with tax-efficient strategies such as gifting, trusts, and charitable giving.
    • Forward-thinking planning: Estate planning allows you to consider possible scenarios, such as long-term medical care and incapacitation, and outline instructions and decisions clearly and proactively. 
    • Minor guardianship: Without a will, it is ultimately up to the courts to decide who takes care of your children should you pass away while they are minors. It’s important to note that even if your children are older minors, the court still has the final say in the decision of guardianship. If you leave it up to the courts, the person they choose may not be who you would have selected. 

Ultimately, an estate plan provides peace of mind that your wishes will be honored during your lifetime and after your death.

When Do I Need to Build an Estate Plan?

There are two main reasons you may need an estate plan:

  • You have significant after-tax assets: If your after-tax assets exceed $150,000 to $200,000 as an individual or $300,000 to $400,000 as a married couple due to income or an inheritance, an estate plan is advisable. It helps navigate financial complexities, minimize taxes, avoid family conflict, and protect your wealth for your loved ones and future generations. A transfer-on-death (TOD) account or assignment may be sufficient for assets below these thresholds, as it’s a more straightforward option suited for a single asset to a single person. It becomes more complex if you have multiple assets or heirs.
  • There are people to whom you want to pass down your assets: If you have children or others you want your assets to go to or protect, you should consider an estate plan. As we’ve mentioned, without one your assets and the guardianship of your minor children will be subject to the probate process. Therefore, you may draft an estate plan as soon as you have children, as early as your 20s or 30s.

Why Do I Need an Estate Plan in Retirement?

An estate plan becomes more important in retirement because it protects all the assets you’ve worked hard to accumulate. Additionally, as you age, incapacitation concerns become more probable. An estate plan allows you to consider and designate beneficiaries and powers of attorney, outline your medical directives, and navigate taxes to minimize liabilities for your heirs. You can focus on your retirement knowing your affairs are in order, and there will be a seamless transfer of wealth to your loved ones after you’re gone.

How Do I Build an Estate Plan?

There are several steps to building an estate plan to ensure it’s legally binding and properly drafted:

    • Consult professionals: We recommend consulting a financial planner, attorney, and tax professional to inventory your finances, understand your objectives, and ensure your plan is comprehensive and optimized to meet your needs. For example, a common oversight in estate planning is failing to properly title your assets or fund a trust, deeming it irrelevant. Professionals can help identify these kinds of gaps.
    • Consider beneficiaries: Decide who will inherit your assets and special financial considerations for minor children, elderly relatives, or those with special needs. 
    • Gather essential documents: Begin drafting and gathering essential documents, such as a will, durable power of attorney, HIPAA release, advanced medical directives, and revocable living trust.
    • Review and update regularly: Ensure you make changes according to your marital or financial status, births, or other circumstances.
    • Share your wishes: You may consider openly discussing your estate plan and intentions with your family to avoid confusion or conflict later.

This is not legal advice but rather a quick overview intended to serve as a great starting point.

What Happens If I Don’t Have an Estate Plan?

The reality is that we all already have an estate plan; the question is whether we decide to go against what the state has planned for us. If you die without a defined estate plan, you’re considered “intestate,” which defaults to state rules and means your assets will pass according to how your resident state dictates they should pass, often through probate. Without estate planning, your assets may not align with your wishes, creating a costly and time-consuming situation for your heirs. 

Are There Estate Planning Considerations for San Diego or California?

Living and retiring in San Diego present additional estate plan considerations. 

  • Intestate in California: California law dictates that intestate assets pass to relatives in a particular order. 
    • If you are survived by a spouse but no children, the surviving spouse inherits your entire probate estate. 
    • If you are survived by a spouse and one child, your spouse will inherit all community property, and your separate property will be distributed to your surviving spouse and child, one-half to each.
    • If you have a surviving spouse and more than one child, one-third of the separate property goes to your surviving spouse, and two-thirds goes to your children.
    • California probate code outlines further rules dictating who receives what based on their relationship to the deceased.
  • The probate process: Probate typically affects assets held solely in your name. Assets that bypass probate and pass to the surviving co-owner or designated beneficiary, whether or not you have a will, include:
    • Assets held in a trust
    • Jointly owned property (such as real estate or bank accounts)
    • Property that has beneficiary designations (IRAs, retirement accounts, or life insurance)
    • Securities held in TOD accounts or payable-on-death (POD) accounts

In California, assets not covered by trusts or beneficiaries may undergo probate, which may last 18–24 months and incur fees of 4% to 7% of the estate’s total value. Property less than $166,250 may avoid certain probate processes, but owning real estate means you likely qualify for probate.

  • Community property: California is a community property state with real estate tax provisions like Propositions 13 and 19, which have tax implications and new inheritance rules. A legal professional can help you decipher these laws and revise estate plans from non-community property states if needed.

Estate Planning in California: How CCMI Can Help

Admittedly, thinking about these scenarios and when you will have to use these documents is not a fun exercise, but we’ve seen both sides play out when people are prepared and when they are not. 

At CCMI, we understand the significance of estate planning, especially as you transition to retirement. Our skilled advisors specialize in estate planning and the technical and personal sides of money management during significant life events. A trusted advisor with specialized training can help reduce complexity, boost confidence in your decisions, and support timely actions. Our team can also help with:

  • A holistic approach: We’ll guide you through the financial and non-financial factors to tailor an estate plan to your retirement goals.
  • Collaboration: We will partner with your attorney and other team of professionals to ensure you develop a comprehensive plan.
  • Family facilitation: We can help you communicate your wishes to your family so everyone understands your intentions.

Having the right documents in place is crucial for you and your loved ones and is a crucial part of comprehensive retirement planning. We highly encourage you to consider getting your estate plan in place if you haven’t already done so. Let us help you approach estate planning confidently, knowing you’re taking proactive steps to protect your assets, provide for your heirs, and preserve your legacy in retirement. If you have any questions or need a referral, please reach out.

PLEASE SEE IMPORTANT DISCLOSURE INFORMATION at https://myccmi.com/important-disclosures/

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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Matt Showley is a CERTIFIED FINANCIAL PLANNER™ professional and Accredited Estate Planner®️ who advises individuals, families, and business owners on portfolio management, financial planning, tax and estate planning, real estate, cash-flow modeling, and education planning. In addition to his role as principal and owner, Matt continues to oversee the firm’s operations and work with new and existing clients. Matt joined CCMI in 2006 and has contributed significantly to the firm’s wealth management and financial planning processes and client relationships.

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