When a family member or friend dies, there is a natural process of grieving, which can interfere with our ability to make decisions. In addition, grief can sometimes impact already-strained family relationships. A person's death often terminates or changes relationships, especially if the deceased person was the only common link between other people. For example, a surviving spouse may have less contact with the deceased spouse's children from a prior marriage.

Many of the emotions we feel after someone's death are natural, healthy, and probably unavoidable. However, some emotional problems could be reduced or eliminated by advance planning. And consideration of the impact of probate proceedings and estate taxes can often avoid hardships.

Death is not the only event you should plan for. Due to illness or accident, many people become incapacitated, either for brief periods or permanently, and cannot make their own decisions. If you are disabled, your family and friends will be emotionally distraught and yet may need to make very important decisions for you.

Making decisions for an incapacitated person is always difficult. The person making the decisions will feel more comfortable if the incapacitated person has left advance instructions and has selected a specific person to make decisions.

Estate planning must address the emotional needs of your family, your friends, and yourself.

If one parent dies or becomes incapacitated, then usually the surviving parent will retain sole custody of any children, unless special circumstances exist. If both parents die, then usually there must be a court action to appoint a legal guardian for the children.

In such a proceeding, the court will always look first to the desires of the parents, preferably expressed in a written Nomination of Guardian. The court is required to appoint a nominated person as guardian unless this would not be in the best interests of the child.

Of course, it is very important to carefully consider who would be the appropriate guardian of your children. Consider many options: will this person be able to care for your children until they are 18 or 21? Even if one person is suitable, might there be an even better choice?

Be sure to ask your "nominee" if they would agree to care for the children if something happened to both parents. Don't risk putting someone in the awkward position of first learning of your nomination after you die. Even the most supportive and caring friend or relative may have good reasons for declining to take on the burden of caring for more children.

You should also nominate alternate choices for guardian, in case your first nominee is later unable to take your children.

Caregiver's Authorization Affidavit: For short-term care situations, the California legislature enacted a new law in 1994 (Family Code Section 6550). A non-parent caregiver can complete the new "Caregiver's Authorization Affidavit" to enroll children in school and to obtain medical treatment for the children. This form can avoid the need for formal guardianship proceedings where a parent is temporarily unable to care for children. Formal guardianship is still preferable if the parents have substance abuse or mental health problems, or if custody or visitation disputes are anticipated.

Protecting Children via Guardianships: During the past several years, I have handled a number of guardianships under unpleasant circumstances, usually because the parents have substance-abuse problems. In these cases, I usually represent a grandparent or aunt of the children; the guardianship is intended to protect the children from neglect or abuse by the parents.

If you or a family member is in this situation, it is vital to obtain legal advice. If the caregiver cannot afford legal advice, contact your county's Volunteer Legal Services Program (for example, the Alameda County Bar Association's Volunteer Legal Services Corporation, at 510-893-1031) Note that some public benefits, including AFDC and Medi-Cal coverage, are often available for the children even if the caregiver's own family does not qualify.

Legal guardianship is essential if there is any risk that the parents might seek to reclaim the children for reasons that are not in the children's best interests (for example, in order to qualify for AFDC or other public assistance benefits, with a substantial risk that the money will be mismanaged or used to buy drugs or alcohol).

A non-parent caregiver faces all the stresses of a parent, plus the extra load of dealing with both the children's anguish and the parents' guilt and anger about the situation. I urge all my clients in this situation to seek counseling and support groups to deal with the unique pressures of their circumstances.

Special Issues for Divorced Parents

After divorce, if either parent dies, then the surviving parent will normally have full custody of the children (even if the deceased parent had primary custody). If one parent believes that the other should not have sole custody, advance planning is essential so that other family members are prepared to petition the court for a guardianship in the event of the custodial parent's death.

In addition, if a deceased parent fails to name a "guardian of the estate" for any property left to a child, the surviving parent will normally be entitled to manage and control the money. Since many marriages fail because spouses do not agree about financial matters, many divorced parents prefer to nominate a different person to manage the child's money. (Generally, the use of a trust or custodianship is preferable to a court-supervised guardianship.)

What Is Probate?

Not all of a deceased person's property is subject to the probate process. Life insurance, retirement accounts, and "joint tenancy" property all pass directly to the appropriate beneficiary automatically, without any court confirmation. If the person created a "living trust," any property held in the trust is not subject to probate. A bank account or motor vehicle title may also specify a death beneficiary.

Benefits of Probate

Once the probate "creditor's claim period" expires (generally four months after the executor is appointed) it is very difficult for creditors or others to claim any interest in the estate. For a professional (such as a doctor, accountant, or attorney), probate may bar later lawsuits that would otherwise be difficult to defend without the help of the deceased person.

Drawbacks of Probate

Probate Delay: Formal probate takes at least six months to a year. Sometimes, probate can drag on for several years, or in extraordinarily rare situations, for decades.

Often, these delays are not important. The surviving family members usually have immediate access to joint bank accounts, and rapid access to life insurance proceeds. If special needs exist, the probate court will usually allow preliminary distributions or payment of an allowance to family members.

However, in certain situations, probate delays can create problems. For example, a small business or professional practice must often be sold quickly after death to avoid losing clients. If a deceased person owned stock options related to employment, those options may lapse if not exercised quickly.

Probate Fees: Second, probate can be expensive, because of fees paid to the attorney and to the executor. The actual fees paid to the probate court are minimal, typically about $200 for filing fees. For property other than cash or its equivalent, a probate referee must appraise the property, for a fee equal to one-tenth of 1 percent (0.1%) of the value of the property. (Even if probate is avoided, the IRS may require an appraisal.)

The executor's fee and attorney's fee are much larger. The California Probate Code provides that the executor and attorney may each charge a fee that ranges from about 3 percent of a modest estate to less than 1 percent for a vast estate. These probate fees are computed only on property which is subject to probate (and thus usually won't include life insurance, retirement accounts, or joint tenancy property).

However, if the executor is also the sole beneficiary of the estate, he or she will usually waive the executor's fee, since it is subject to income tax. In addition, the attorney's fee is negotiable; many attorneys charge hourly rates, with the statutory fee set as a maximum fee for ordinary probate legal services.

Finally, even if probate is avoided, the fees might not. An attorney and/or accountant usually must be hired to help administer a deceased person's trust or non-probate estate. In addition, the trustee of a "living trust" is usually entitled to claim a reasonable fee for managing the trust, although many family members do not actually request fees.

The costs and delays associated with probate are well known and widely publicized. Often, the best way to avoid probate is to create a revocable "living trust." You probably already know this, if you've read any articles or books about estate planning.

However, there are other ways to avoid probate, and some people should consider these alternatives.

The most common non-trust way to avoid probate is to simply shift property so that it is not subject to probate proceedings. For example, real estate, bank accounts, and securities owned in "joint tenancy" will not be subject to probate when one owner dies. For this reason, many married couples own their property as "joint tenants."

Further, automobile titles and most bank and financial accounts can include a "pay on death" or "transfer on death" designation (sometimes called an "in trust for" account by banks). Such property passes automatically to the named person without any probate court supervision.

If all of a deceased person's property will pass to the surviving spouse, probate can be avoided by filing a "spousal property petition," seeking court confirmation that the surviving spouse owns the property.

Even if property is left to someone other than a surviving spouse, if the total value of a deceased person's property otherwise subject to probate is less than $60,000, an affidavit procedure is available to transfer personal property, and transfer of real property can be confirmed through a relatively simple petition proceeding.

It is important to realize that some people may benefit from the finality of a probate proceeding. For example, a probate proceeding will usually prohibit new claims from being raised after a short claim period. Also, if anyone is expected to contest the deceased person's disposition of property, a probate proceeding can resolve these claims in an orderly way.

Unfortunately, owning property as "joint tenants" can seriously affect the taxation of any subsequent sale of the property after the death of one spouse. This is because the U.S. Internal Revenue Code provides special treatment for property owned by a married couple as "community property," but not for similar property owned as "joint tenants."

Special Tax Benefit for "Community Property"

Thus, if Mr. and Mrs. Jones buy a house as "joint tenants" for $200,000, the IRS considers that each paid $100,000 for a one-half interest. If Mr. Jones later dies, Mrs. Jones automatically owns the entire house, and Mr. Jones' share of the house is revalued as of the date of his death. If the house was worth $400,000 when Mr. Jones died, then Mrs. Jones is treated as if she paid $300,000 for the house -- computed by adding her share of the purchase price ($100,000), to the value of Mr. Jones' share when he died ($200,000).

In contrast, the IRS treats "community property" as if it were owned completely by the deceased spouse, in applying this special "adjusted basis" rule. (For other purposes, such as computing estate taxes, only one-half of the value of community property is counted.) Therefore, if Mr. and Mrs. Jones bought their house as "community property" for $200,000, and Mr. Jones later died, leaving his share to Mrs. Jones, the entire house would be assigned a new "basis" at current fair market value.

The result is that if Mrs. Jones decides to sell the "joint tenancy" house for $400,000 shortly after Mr. Jones' death, she would realize a taxable capital gain of $100,000 (the $400,000 sale price minus her $300,000 "adjusted basis," computed two paragraphs above). If the same house were owned as "community property," however, she would recognize no capital gain, because her "adjusted basis" would be the same as the sale price.

Of course, no tax will be due from the sale of the former "joint tenancy" home if the seller quickly bought another home at the same or higher price. Also, the surviving spouse might avoid or reduce the capital-gains tax even if the house were owned as "joint tenancy," if she can still use the once-in-a-lifetime $125,000 exclusion available for the sale of a home by a person or couple over age 55.

Drawbacks of "Community Property"

However, to capture the best of both situations, it is possible to transfer property into a "living trust" (thus avoiding any probate court proceedings) while also retaining its character as "community property" (thus obtaining a full "adjusted basis").

It is possible to file a spousal property petition (or initiate probate) and include "joint tenancy" property in the petition, arguing that it was community property all along. However, this uncertain procedure eliminates the benefit of the joint tenancy form of title, which is the automatic transfer of title at death.

Another drawback of "community property" ownership is that the entire property becomes liable for the debts of either spouse. In addition, "community property" will usually be equally divided in case of divorce, while "joint tenancy" property can be traced to separate-property sources to permit unequal division.

But Beware of Declining-Value Property

However, in the recent California real estate market, this general rule hasn't always been true. If Mr. and Mrs. Jones bought their home in 1989 for $400,000, it is possible that the current fair market value might be only $350,000. If so, it would be preferable to own the property as "joint tenants" to avoid having the survivor's basis in the property reduced to $350,000. (Instead, the basis would only be reduced halfway, to $375,000.)

One proposal being considered by Congress would either eliminate the "adjusted basis" at death, or would impose a capital-gains tax on the adjusted basis at death. Although passage is unlikely, such a change would have a substantial effect on estate planning.

$600,000 Exemption Equivalent: Technically, the estate tax is imposed on all estates, but each taxpayer has a huge tax credit of $192,800; this corresponds to the tax on an estate of $600,000. The practical result is that there is no estate tax if a deceased person leaves less than $600,000 worth of property. In late 1994, Republicans pledged to increase the estate-tax exemption from $600,000 to $750,000, and to index it to rise with future inflation.

No Estate Tax for Bequests to Spouse or Charity: There is no estate tax on any property left to a surviving spouse or to a qualified charity. Wealthy married persons can leave $600,000 to their children and the balance of their estates to a surviving spouse (or charity), completely avoiding any estate taxes.

Property left to a surviving spouse will be subject to estate taxes at the time of the survivor's death, if it is not left to charity (or to a new surviving spouse).

Forbes magazine wrote in October 1993 that Warren Buffett was then the richest man in America, with more than $8 billion in assets. According to Forbes, Buffett and his wife plan to leave their entire estate to private charitable foundations after they die -- avoiding $4.4 billion in estate taxes.

Tax Rates: The estate tax is computed based upon the total value of all property transferred due to the deceased person's death (excluding bequests to a surviving spouse or to charity). Usually, the value for estate tax purposes will be larger than the "probate estate," which usually does not include life insurance, retirement accounts, or joint tenancy property.

As of January 1995, the estate tax starts at a marginal rate of 37% at $600,000, rising gradually to 55% for estates of $3 million or more. A 5% tax surcharge applies to estates from $10,000,000 up to $21,040,000. This marginal 60% bracket "phases out" the $192,800 credit and lower tax brackets, so that a full 55% tax is collected on estates above $22 million.

Because the trust is revocable, it is treated as a fictional entity during your lifetime. You pay taxes on any trust income during your lifetime, and your creditors could seize trust assets to pay your debts.

However, at your death, the trust becomes irrevocable (since you are no longer around to revoke it), and takes on new life as a truly separate legal entity. Any property owned by the trust is not subject to probate, because it is not owned by you or your estate at all. However, the probate court has authority to resolve disputes about the trust, and the trust usually remains liable for your debts (including any estate taxes).

If a husband and wife jointly create a revocable trust, then when one spouse dies, the trust is usually split into two parts: one contains the surviving spouse's property, and remains revocable, while the other part is irrevocable and is usually earmarked for the use of the surviving spouse, with any balance remaining at the survivor's death passing to the couple's children. However, many different trust arrangements are possible, each with differing legal and tax consequences.

If you properly transfer your property into a revocable trust, then your estate will not need to pass through probate at your death. A carefully-drafted living trust can also serve to reduce or eliminate federal estate taxes, but it is important to recognize that any estate-tax benefits available through a "living trust" can also be obtained by an equally-carefully-drafted will. (A will, however, is subject to probate.)

Some property shouldn't be put in a living trust. For example, your tax-deferred retirement plan or IRA is already held in a trust, and you cannot transfer these funds into a living trust without first removing them from the existing plan (and paying income tax).

If you fail to properly transfer assets into a trust, you may lose the benefit and your estate may be subject to probate anyway. For example, if you fail to transfer your home into the trust, it will be a probate asset after both spouses have died.

If the living trust is split after one spouse dies, additional accounting work will be needed, and each irrevocable trust must file its own tax return.

How Refinancing May "Undo" Your Trust

After the new loan was made, the homeowners were free to transfer the home back into the living trust, in order to preserve the probate-avoidance benefit. However, lenders rarely assist homeowners with this final step, and often the homeowner does not even realize that the home was removed from the trust as part of the mortgage refinancing transaction, since that deed was one of many documents signed in a short time.

The end result is that thousands of California homeowners, who properly transferred their homes into their revocable living trusts to avoid probate, may face probate anyway because their work was undone.

While it is often possible to obtain court approval to confirm trust ownership of a home if it was never formally transferred to the trust, it is very unlikely that a court would confirm trust ownership if the last document signed was a deed transferring the property out of the trust and into the owners' individual names.

If you or any of your family members or friends implemented a "living trust" and subsequently refinanced your home, it is important to review the documents to make sure that the home is currently held in the name of the living trust. If not, you should prepare and record a new deed returning the property into the name of the trust.

As a backup measure, I sometimes recommend that clients execute a new "Declaration of Trust" annually, confirming that all their property is held by them as trustees of their revocable living trust, regardless of the formal title arrangements.

"Unnecessary" Estate Taxes: Assume that Mr. and Mrs. Jones have assets of $1 million. Their goal is to use the income from that money for retirement, with the balance to pass to their adult children and grandchildren when both die.

Next, assume that Mr. Jones dies, leaving all his property to his wife. His $500,000 estate is not subject to any estate tax (both because it is less than $600,000 and because bequests to a spouse are tax-free). Mrs. Jones retains complete control over the $1 million estate.

However, when Mrs. Jones dies, leaving $1 million to her children and grandchildren, there will be an estate tax of $153,000, leaving only $847,000 for her heirs.

Capturing Both Exemptions: To avoid this large tax, Mr. Jones should have left part or all of his property to an "exemption trust," with his wife as trustee. His wife could then use the money in that trust for her "health, education, maintenance, and support." If Mrs. Jones wanted to do something not authorized by that broad standard, she could dip into her half of the $1 million.

When Mrs. Jones died, the "exemption trust" would not be considered part of her estate, so her estate would be valued at only $500,000. No estate tax would be due. The children could receive the entire $1 million estate tax-free.

Problems in "Exemption Equivalent" Planning: In the above examples, we have assumed that the $1 million estate remains constant after the first spouse's death. However, imagine the difference if Mrs. Jones survived another 10 years and the $1 million estate grew to $2 million. Her estate taxes would be $588,000. However, if she owned only half, the estate tax would be only $153,000.

But the reverse could also happen. If Mrs. Jones had high expenses or medical problems during her remaining years, her estate might drop from $1 million to $500,000 or even to nothing. This unpleasant possibility leads many couples to leave everything to the survivor, rather than making bequests to children or charity when the first spouse dies.

Benefits of Using An Exemption Trust: These planning considerations become less important when you realize that it is possible to create an "exemption trust" that can be used by the surviving spouse for "health, education, maintenance, or support" during his or her lifetime, and then passes to the children free of any additional estate taxes. For estate tax purposes, the exemption trust is treated as if it were taxed at the first spouse's death (although the exemption trust usually contains $600,000 or less, to avoid actually paying any tax).

Whether you think of this as a "technical rule" or a "loophole" or a "lawyer's trick" or anything else, it is important to recognize the importance of this option. It can save some estate taxes for any couple with assets expected to be worth more than $600,000 at the time of the second spouse's death. For couples who expect their total assets to exceed $3.6 million at the time of the second spouse's death, the estate tax savings would be at least $330,000.

For clients who are reluctant to place any limits on the survivor's inheritance, I often draft a "wait and see" estate plan that allows the survivor to re-evaluate their financial situation after the first spouse dies. If the use of an exemption trust seems justified, the survivor can "disclaim" property (which then passes into the exemption trust); absent a disclaimer, all property passes directly to the surviving spouse. The main drawback of this approach is that the survivor might fail to act wisely after the first spouse's death, or the survivor might be incapacitated and thus unable to "disclaim" property at the appropriate time.

Life insurance proceeds are only included in a deceased person's estate if that person had "incidents of ownership" over the policy during the last three years of life. (Only half of the insurance proceeds will be taxed if the policy is "community property.") The theory is that only property of the deceased person is subject to tax, so that if the deceased person did not own the policy or act in some manner that was equivalent to ownership, then it is unfair to charge an estate tax.

Logically, one solution is to simply have someone else buy the life insurance policy and pay the premiums. Unfortunately, if the beneficiaries are going to be the insured person's children, it is unlikely that they will independently go out and buy a life insurance policy, and often they lack adequate funds to pay for the policy.

Who Should Own the Life Insurance?One common solution, to remove life insurance proceeds from the estate of a deceased person, is for the other spouse to purchase the insurance. Thus, Mrs. Jones would buy a life insurance policy on Mr. Jones' life, and Mr. Jones would buy a policy on Mrs. Jones' life.

Alternatively, Mr. and Mrs. Jones could create an irrevocable "life insurance trust." They would name a friend or relative as trustee, and would give the trustee enough money to buy the policies and pay the first year's insurance premiums. Then, each year, Mr. and Mrs. Jones could make a gift to the trust adequate to fund the next year's insurance premiums.

"Incidents of Ownership" Unfortunately, estate planning to avoid taxes on life insurance is made more complex by broad IRS rules used to decide whether a deceased person had "incidents of ownership" over a policy.

The most obvious evidence of "ownership" is the name on the policy. If the policy says that it is owned by Mrs. Jones, and it insures the life of Mr. Jones, that should be enough. But it's not.

The IRS also looks to see who paid for the insurance premiums, and from what source. If the insurance premiums were paid by Mr. Jones, or if Mrs. Jones paid the premiums from a community checking account, the IRS will assert that Mr. Jones owned the policy because his money was used to pay the premiums.

A person also has "incidents of ownership" if they have the right to change a beneficiary, or the right to borrow against the policy's cash value, among other things.

In several published cases, many careful steps were taken to remove ownership of a policy from a particular person, but then some simple act (such as paying a premium or designating a new beneficiary) resulted in the insurance being included in the person's estate, causing a large increase in estate taxes.

Effect of Insurance Inclusion in Estate: The practical effect of having life insurance included in a person's taxable estate is to substantially increase the amount of estate taxes due, in direct proportion the amount of the insurance proceeds and the applicable marginal estate-tax bracket. Thus, if a person dies with a $500,000 estate plus a $500,000 life insurance policy, the tax difference would be $153,000. If a person died with a $3 million estate plus a $500,000 policy, the tax difference would be $275,000.

In such situations, it is possible to buy special life insurance (sometimes called "survivorship life" or "second-to-die insurance") which will pay only after both spouses die.

Assuming that the Jones family has adequate cash to buy such a policy, they must be extremely careful to avoid giving Mr. or Mrs. Jones any "incidents of ownership" over the policy. (If they buy a $5 million life insurance policy, and the policy proceeds were included in the estate, then the total estate would be $15 million and the tax would be more than $7.5 million, still leaving a cash shortfall.)

The obvious solution is for the Jones' children to buy the insurance on their parents' lives, or for Mr. and Mrs. Jones (or their children) to set up a special life insurance trust.

Although the gift and estate tax systems are "unified," there are important exceptions.

$10,000 Annual Exclusion Gifts: Some amazing estate-planning results can be achieved by making "small" gifts each year. The first $10,000 of gifts made by one person to another are free of any estate or gift taxes. There is no limit to the number of tax-free $10,000 gifts per year. Thus, a married couple with three children could give $60,000 per year to the children ($10,000 from each spouse to each child). Over a 10- or 20-year period, this can result in substantial estate-tax savings. The gifts need not be cash, and can include fractional interests in real property or shares in a corporation.

Tax Benefit of Lifetime Gifts vs. Bequests:If you make larger gifts totaling more than $600,000 during your lifetime, you will owe a gift tax now. However, the money you use to pay the gift tax comes out of your bank account now -- before you die. In contrast, estate taxes are imposed on the entire lump sum you leave, even though part of it will then be used to pay the tax itself.

This can result in tax savings of up to about 28 percent, but more typical are savings of 10 to 20 percent, for lifetime gifts compared to bequests.

Note that gifts made less than three years before death are included in the decedent's estate anyway. For this reason, it is rarely advisable to delay gifts, especially if the donor is elderly or in poor health.

Pitfall: Growth Assets, Gift vs. Bequest: Another theoretical benefit -- but also a potential disadvantage -- of making lifetime gifts comes from the likely growth in the value of property. A $15 million estate today may be worth $30 million a decade from now. If you gave away $10 million today, you would pay a $5 million gift tax, but the recipient could be worth $20 million a decade from now. In contrast, if you left a bequest of $30 million, estate taxes would take more than half, leaving less than $15 million.

However, any growth in the assets after you transfer them would result in a capital gains tax, which might be as large as the estate taxes saved, or even larger (for modest estates). For this reason, lifetime gifts of more than $600,000 are rarely used as an estate-planning vehicle. Comparing the effects of taxes on gift planning is largely a math exercise, as well as a guessing game about what tax rates will apply in the future.

Don't Forget Charitable Gifts: During the estate-planning process, it is important to consider whether it is appropriate to make charitable gifts or bequests. This can include gifts of any amount to non-profit groups that have provided help to you in the past, educational institutions that you or your family members attended, and to other groups that share your values and goals.

In many cases, the uncertain needs of a surviving spouse and young children may preclude any substantial charitable gifts. This is a decision you must make for yourself.

A gift to a qualified non-profit organization will be completely exempt from income and estate taxes.

Each individual has a $1 million GST exemption, so you can leave up to $1 million to grandchildren and others who would otherwise be subject to GST taxes. Unfortunately, the rules pertaining to GST taxes are extremely complex and convoluted, so that many trusts could be subjected to GST taxes unnecessarily, if the trust was not prepared or administered with the GST tax in mind.

Unlike the estate tax, which is graduated, the GST tax is a flat 55% tax, imposed on the balance remaining after any estate tax is paid. In addition, the GST tax applies at each generation, so that a transfer to a great-grandchild could be taxed three times (an estate tax plus two GST taxes).

Because no income taxes have been paid on the money in these retirement accounts, the person who receives the account at death will have to pay the income tax as money is withdrawn -- and withdrawal cannot be deferred indefinitely. If the retirement account was "overfunded," an additional 15% tax will be owed.

An estate tax may also be owed on the same account, if the deceased person's total estate was worth more than $600,000.

A surviving spouse can "roll over" such accounts into another tax-deferred IRA, but no other beneficiary can do this. Thus, children who inherit an IRA or other retirement account will usually need to withdraw the money (either in any manner within 5 years, or in equal installments over their lifetime). Special rules apply if the deceased person was already taking distributions from the account.

I usually recommend that my clients name their surviving spouse as the primary beneficiary of their retirement accounts, since the spouse can "roll over" the proceeds into another IRA. If tax-deferred accounts will pass to others, you must carefully consider the beneficiaries' tax situations, since it may be possible to reduce income taxes (and thus increase the amount ultimately passing to the beneficiaries) by allocating tax-deferred accounts to low-income people, and other assets to higher-income beneficiaries. It is usually preferable to name specific individuals as beneficiaries, rather than a trust or your estate, since individuals have more deferred-withdrawal options.

Tax-deferred retirement accounts are ideal for bequests to charity: such gifts are tax-exempt.

Estate planning for tax-deferred accounts can be extremely complex, because these accounts pass according to the beneficiary designation, and are not controlled by a will or "living trust."

However, property which is given away before death does not receive an "adjusted basis," so the gift and estate tax benefits of limited partnerships usually result in much larger capital-gains income tax bills if the partnership assets are later sold. (This is acceptable if the capital gains tax is less than the estate tax saved.) Some techniques may involve painful side effects (e.g., taxes on "phantom income"), and all create substantial accounting burdens.

The new "limited liability company," starting in 1995, will provide a new business entity which offers some of the estate-planning benefits of a limited partnership but somewhat broader liability protection for owners who are active in the business.

The use of "business trusts" or even more unusual "offshore" trusts or other offshore legal entities is sometimes appropriate for a very limited group of individuals. The high cost and likelihood of legal challenges make this technique unsuitable for most people.

If you believe that advanced estate-planning techniques are appropriate for your situation, make sure that you consult with attorneys who are familiar with both the estate-planning and business aspects of such techniques.

You should never rely on a non-attorney (or on an attorney who does not personally meet with you and discuss your circumstances), for your estate-planning needs. This is especially true for "advanced" estate planning techniques, which often bring very close scrutiny from the IRS, other agencies, and courts.

I urge all my clients to execute a Durable Power of Attorney for Health Care, naming an agent to make health care decisions and providing some guidance and limits for the agent.

When you complete these forms, you should indicate your specific desires regarding treatment, or any circumstances in which you might want life-sustaining treatment withheld. In addition, you may want to specify who may (or may not) visit you in the hospital, and who will be responsible for funeral or burial arrangements.

A Declaration Pursuant to Natural Death Act (California's form for a "living will") may also be appropriate for some clients, but I often find that clients are uncomfortable with the broad scope of this form after they re-read it several times.

In addition to the powers normally specified in a durable power of attorney, you might consider writing in authority for your "agent" to transfer your assets into a living trust (to avoid probate at your death), and to make small gifts (up to $10,000 per recipient per year) on your behalf to your relatives or others.

In addition to the legal forms described above, you should carefully review your financial situation and consider purchasing insurance to protect your family in the event that you are disabled.

California's state disability insurance (SDI) provides minimal benefits for only one year. In addition, you should make plans so that your health insurance won't lapse when you most need it.

Nursing Home Costs and Long-Term Care Insurance: Finally, you should consider long-term care insurance, to cover the expenses of nursing-home coverage.

The California Department of Aging produces an excellent booklet on this subject, called "Taking Care of Tomorrow: A Consumer's Guide to Long-Term Care." You can obtain a copy of the booklet from any insurance agent who sells long-term care insurance, or by calling the California Department of Insurance at 800-927-4357.

In 1994, California enacted a new form of long-term care insurance, called "Partnership" policies, which can shield assets from Medi-Cal liens. This insurance is described in the booklet mentioned above.

I found no will or other document to guide me in dividing my father's property, or in making funeral and burial arrangements.

My father also left some minor problems. Although he lived alone, his checking account still included the name of a former girlfriend; fortunately, she agreed to release any interest in the money. One of Dad's IRA beneficiary designation forms treated my brother and me differently, without explanation. And it took months to locate documents for my father's divorce, delaying certain benefits.

If my father had consulted in advance with a Tennessee attorney, he might have saved me some time and trouble. However, none of the problems I experienced would have been solved simply by preparing a will or creating a "living trust." They could have been avoided by broader "estate planning."

I provide each of my clients with a three-ring binder, containing many different sections. Some sections contain the documents I've prepared (wills, trusts, nomination of guardian, nomination of conservator, health care powers and instructions, beneficiary designations, deeds, and correspondence). Other sections contain documents I obtained from the client (financial statements, lists of property, insurance and pension information, and prior deeds).

But some sections of the binder are empty when I deliver it to the client and mark my file "completed." My clients must regularly review their estate-planning binder, adding information and making new decisions over time. My goal is to help clients document their decisions, and to provide a reminder of the decisions not yet made.

Estate planning is not simply a matter of preparing a will or a trust. Estate planning requires a careful review of all of your property and your family's situation, and it is a lifelong process that utilizes a variety of different tools. As an attorney, I can help with your estate planning work, but you are the "estate planner."

You must decide what to tell your family now, and what information to provide in written documents (or not at all). You must review your situation regularly and update your estate plan, recognizing that you, not your attorney, have the best understanding of your circumstances.

I make recommendations; I let my clients decide which recommendations to pursue; and then I draft appropriate legal documents.

In many situations, I work closely with other professionals whom my clients have retained, including accountants, financial planners, and insurance agents, in order to efficiently meet our clients' needs.

My Fees: For most estate planning projects, I charge a "fixed fee" for the work I do. I believe that this encourages clients to consult more closely with me and to ask more questions, and therefore improves both my relationship with my clients and the quality of my work. (My fixed fee is based on my estimate of the time I will spend on the complete estate planning project, and is different for each client.)

Generally, a married couple with identical estate-planning objectives can hire the same attorney, paying only a single fee (which is often only $100 or so more than the cost to prepare one person's estate plan).

I am often asked to quote a price for a "simple will"; I can't do so because there is no such thing. Every estate plan is unique, and I would not fulfill my duty as an attorney if I simply drafted a basic will without discussing other aspects of estate planning. (There is a statutory form will, which I recommend to young people who cannot afford an attorney.)

However, I understand my clients' concerns about fees, especially for estate-planning work that could possibly be deferred to another day.

When someone asks about a "simple will," I assume that in addition to preparing a basic will, I will also assist my clients with durable powers of attorney for health care and general financial durable powers of attorney, and I will also discuss titling for property and beneficiaries for retirement accounts and insurance. For such services, my "fixed fee" is typically in the range from $900 to $1,500.

If my clients' estate plan will also include a revocable living trust, typical fees range from $1,500 to $2,000. Again, my fee is based on my estimate of the time I will spend serving my clients.

For probate work (representing the executor or administrator of a deceased person's estate), I usually charge my regular hourly rate (currently $190 per hour), with the statutory probate fee serving as the maximum fee. For guardianships, I usually charge my hourly rate, but I can set an agreed maximum fee if the case is not contested.

A recent loan application and tax returns often provide a good starting point to identify your assets, but these won't include some important property.

Will your family know the following?

• Location of vital documents (birth, death, marriage, divorce,adoption)
• Location of employment records (and military records, if applicable)
• List of real estate owned (including partnerships/joint ownership)
• Location of deeds, loan documents
• Payment information for mortgages, taxes, insurance
• Name(s) of person(s) most knowledgeable about property
• List of valuable personal property. Make sure your family knows if any of your furniture, artwork, or other personal property items have a special value (emotional or financial); consider the possibility that the family members who already know about these things may not outlive you
• Information regarding employee disability and survivor benefits
• Information regarding Pension/Retirement Benefits: IRA SEP Keough 401(k) Social Security other
• List of bank and investment/security accounts
• Childrens' savings accounts (including trust and custodianship accounts)
• Investment accounts (broker, mutual funds)
• Business
• Location of corporate records, documents, share certificates
• Information re: management, employees, etc.
• Information relevant to valuation of business
• Names of advisors (accountant, attorney, insurance agent) continued
• Securities/Investments not held in financial institution
• Partnerships (including limited partnerships, investment pools, "tax shelters")
• Mutual funds
• Shares of stock in publicly-traded companies
• Bonds (including corporate bonds, municipal bonds, savings bonds)
• Shares of stock in closely-held companies (together with info re: transfer restrictions or repurchase obligations)
• Intangible property: copyrights, patents, trademarks, other
• Burial/Funeral plans, prearrangements
• Motor vehicles (Description; location of vehicle; location of title; loan and insurance information)
• Stock options: terms; deadline(s) for exercise; location of documents
• Safe deposit box; storage lockers; safe; lock box (Location; Who has key & access rights? Detailed list of contents)
• Insurance Information (Location of policies & related documents; Life Insurance company, policy number, amount; Disability Insurance; Health Insurance (including Medicare/Medi-Cal); Long-Term Care Insurance; What are the "premium due" dates and amounts for each policy?
• Loans, Promissory Notes (Debts you owe; Debts others owe to you; Payment terms, amounts, due dates; location of documents; State your agreement or intent re: forgiveness of debts, or plan to offset from future inheritance)

Other Helpful Sources of Information

Employee Benefits: If you work for a large company or government agency, check with the personnel office for assistance and information about benefits and retirement options.

Books: Check out your local library for many helpful books on estate planning. If you prefer to buy a book, I recommend Harvey Platt's Making a Will and Creating Estate Plans (Longmeadow Press, 1991, $4.95), which is only available through Waldenbooks.

Credit Reporting: To learn how to obtain a copy of your credit report, call TRW (800-392-1122), Equifax (800-685-1111), and/or TransUnion (800-851-2674).

Long-Term Care: The California Department of Aging produces an excellent booklet on long-term care, called "Taking Care of Tomorrow: A Consumer's Guide to Long-Term Care." You can obtain a free copy from any insurance agent who is licensed to sell long-term care insurance, or from the Department of Insurance (800-927-4357).

Choosing an Attorney: If I am unable to represent you in a matter, I can refer you to other qualified attorneys in the area. Or call the Lawyer's Referral Service (LRS) of your local county bar association (see the "Attorney Referral" section of the Yellow Pages):
Alameda County Bar Association LRS: (510) 893-8683
Contra Costa County Bar Association LRS: (925) 825-5700

If You Can't Afford an Attorney: The Alameda County Bar Association's Community Services Committee has produced an excellent 34-page "Legal Services Directory" identifying many free and low-cost legal programs in the county. You can reach the ACBA's Volunteer Legal Services Corporation at (510) 893-1031.