The simple answer is that if you don't provide an estate plan for your family, then the state of California provides one for you, and it's probably one that you don't want.
GUARDIANS
To begin with, you want to make sure that you have appointed a guardian or guardians if something should happen to you. If you do not specify who the guardian(s) of your children will be, then a local judge will make that decision for you. Obviously, you are in a better position to determine the guardians of your children than a judge who doesn't know your children or the potential guardians, and it is your responsibility to appoint the best people available to take care of your children (only you know who those people are).
GUARDIANSHIP OF THE ESTATE
In addition, California law (with minor exceptions) does not allow children to inherit property in excess of $5,000. Therefore, if all or part of your estate (in excess of $5,000) goes to your children, a guardianship of the estate will be set up. This process entails the court appointing a person to look after your children's property. Throughout the duration of the guardianship, which lasts until each child reaches 18, every significant decision concerning the property must be approved by the court, and accountings must be filed. This process is very time consuming, very costly, and usually requires the assistance of an attorney. This eats away at the children's assets.
Moreover, by law, a guardianship ends automatically when each child reaches 18. At that point, each child receives what is left of his or her assets. Unfortunately, many eighteen year old children might be inclined to squander their assets without much thought to their education or future.
Nevertheless, proper planning can avert a guardianship, as well as the distribution of assets to the children upon reaching 18.
WHAT SHOULD YOU DO?
At the very least, all new parents should have a will. This will alleviate some of the problems noted above. Often, a trust might be more appropriate (and will avoid probate), but this will depend on your specific circumstances. Other estate planning documents you should look into include durable powers of attorney for health care and for finances. These documents will provide for easier planning and management of health and financial issues in case you become incapacitated.
In any event, you should take control of your situation and find out what your options are and how to provide for your new family.
DISTRIBUTION OF ASSETS AT 18
Moreover, by law, a guardianship ends automatically when each child reaches 18. At that point, each child receives what is left of his or her assets. Unfortunately, many eighteen year old children might be inclined to squander their assets without much thought to their education or future.
Nevertheless, proper planning can avert a guardianship, as well as the distribution of assets to the children upon reaching 18.
DISTRIBUTION IF NO WILL OR TRUST
Under California law, if you die without a will or trust, the state determines who will receive your property. California law specifies that your children will receive two thirds of your separate property (if you have two or more children), or one half of your separate property (if you have only one child). Your community property (which may comprise a large share of your estate) and the balance of your separate property will all be left to your spouse or domestic partner. This may leave your children with much less or much more than you wish for them to receive. Conversely, it may leave your spouse or domestic partner with less or more than you wish for them to receive. It is obviously better if you decide what goes to your children and spouse, not the state.
SAVING COSTS AND ESTATE TAXES
Another problem with not planning your estate properly is that you may end up paying exorbitant costs, either to attorneys, executors, probate referees, or the government. Probate fees alone, which can easily be avoided, would amount to $36,000 for an estate which consists of $750,000 (including outstanding loans). That means that if you own a home worth $750,000, even if it has an outstanding mortgage of $500,000, you will be required to pay at least $36,000 if the home is probated.
WHAT SHOULD YOU DO?
At the very least, all new parents should have a will. This will alleviate some of the problems noted above. Often, a trust might be more appropriate (and will avoid probate), but this will depend on your specific circumstances. Other estate planning documents you should look into include durable powers of attorney for health care and for finances. These documents will provide for easier planning and management of health and financial issues in case you become incapacitated.
In any event, you should take control of your situation and find out what your options are and how to provide for your new family.
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