Congrats on the move and welcome to California!
Assuredly you have a long checklist of things to do to get settled. However, make sure that reviewing your estate plan is high on that list. You did not take the time, energy, and money to create an estate plan to only have it fail when you and your family will need it most. Remember, having a bad plan is like having no plan at all.
The good news is that generally speaking, the documents in your estate plan – trusts, wills, powers of attorney, health care directives – should remain valid even if they were signed in a different state. However, the devil is always in the details. Certain provisions might conflict with the laws of California. If so, your wishes might not be be carried out as you planned. The net effect being that your plan is now be obsolete.
Make the time today to consider how your move impacted these important areas of your estate plan:
(1) Will
California recognizes a will created in another state provided it was done in accordance with the laws of your previous state of residence. However, the terms might need to be updated.
For example, if your executor (the person responsible for managing your affairs after you die) lives in the state from which you just moved, he or she may have special requirements to satisfy in order to serve.
In addition, it might be more practical to select a new executors. Since the executor is the individual responsible for collecting all of your property, and paying your bills and taxes, it might make more sense (and be less of a burden) if he or she lived in the state where all of your affairs were conducted
You may have moved from a state with a more informal probate process where only having a will may have worked to achieve the result your family needed. As a warning, California probate laws are antiquated and can be costly to your estate and family if not avoided with proper planning. Especially if you just purchased a new home in California, it is very important to discuss the virtues of at least a revocable living trust with a California estate planning attorney.
(2) Revocable Living Trust
If you already have a revocable living trust, the good news is that it maintains its validity no matter the state in which it was created and signed. Whether it will still operate and function to meet your goals and your family’s needs is another question.
You most likely will want to update the “situs” of the trust. Think of situs as being the trusts’ home state. It is the state generally where the trust property exists and will be administered.
Since most of the property you likely hold in trust is likely going to be in the same state as you (ex. your home, personal property), your trust’s situs should be changed to California. However, your situation might be different – especially if your trust holds real property or business interests in another state. There are other practical and tax consequences that must be considered.
(3) Powers of Attorney and Health Care Directives
California will recognize a power of attorney executed in another state if it was done so in compliance with the laws of that state or at least in substantial compliance with the laws of California.
But as a practical matter, your family is likelier to have an easier time getting the document accepted if it’s updated to reflect California laws and language that is familiar to local medical providers and banking institutions. Moreover, you will want the assurance that your power of attorney and healthcare directive meets California’s legal requirements and that there are not any legal conflicts or questions of whether it is in “substantial compliance.”
(4) Beneficiary Designations
If you’ve named a payable-on-death beneficiary for an insurance policy, bank account, retirement plan account, or other asset, it should be valid no matter where you live. Your agreement is with the institution that controls the asset—the bank, insurance company, or retirement account custodian. Just make sure that the institution has up-to-date contact information for both you and the beneficiary you named.
This exercise of reviewing your beneficiary designations also has the added benefit of making sure they are still set up how you wish. It is easy to forget who is named or if we made the change we intended to. Plus, the relationship with or the life situation for that beneficiary may have changed. Or the manner in which you are using a beneficiary designation to distribute assets to a beneficiary might not be the most efficient or protected way to do so. For example, is it really a good idea for your life insurance proceeds to go directly to your children in an outright check? What if they are minors, are disabled, embroiled in a divorce or a lawsuit, or are horrible money managers or have a history of substance abuse or making poor life choices? A thoughtful review of your beneficiary designations with the help of an estate planning attorney may reveal better options.
(5) Guardians for Minor Children
If you have children under the age of eighteen, you may have already named guardians to take care of them should something happen to you or your spouse. Now that you have moved to California, those guardians may no longer be an optimal choice given their distance. Just like with reviewing your beneficiary designations, the exercise of reviewing your guardian nominations may lead you to reexamine the reasons you why you chose certain people and the impetus you needed to make the important adjustments.
Also, take note if the guardians for you minor children are named only in a will. If so, these guardians will only be able to legally protect your kids if you die. But what if something tragic happens to you but you don’t die? Who will be legally able to care of your kids then? Does your estate plan account for that or will the state decide? Discuss your guardians choices with a California estate planning attorney and ask about a family protection plan to ensure your children will be raised by whom you want and how you want, no matter what.
(6) Property Ownership
There might be a big difference in how your property is owned between you and your spouse depending on whether you previously lived in a community property or separate property state. California (like Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) is a community property state. That means that assets or debts acquired during a marriage, are “community property” and thus belong 50-50 to each spouse unless there is an express agreement otherwise. This is not the case in a separate property state. If you are moving from a non-community property state, you should review your assets with an estate planning attorney to ensure your personal interests in that property is are being preserved how you intend and you do not inadvertently deviate from that.
Also, check to see that the new home you may have purchased here in California is held and title in a manner which avoids probate. Certainly, if you already have a revocable living trust, make sure that your home is held by the trust. Too many people moving to California who already have trusts purchase their new California homes in their personal names or hold it jointly either as joint tenants or community property with a right of survivorship. If you already have a revocable living trust, your home should be titled in the name of the trust in order to avoid a California probate and be administered through your revocable living trust you worked hard to design.
(7) Estate Taxes
An estate or inheritance tax is when the state and/or federal government takes a chunk out of your assets in your estate before they are distributed among your beneficiaries. While most people don’t have to worry about the federal estate tax, because it only applies to those with an estate valued over $5.49 million, it may be a different story for those in some states.
Twelve states and Washington, D.C. have a separate estate tax, which go into effect if an estate is valued anywhere from $1 million up to the federal estate tax exemption amount. If you are coming from any of these areas (Connecticut, Delaware, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, or Washington), you most likely have specific controls and restrictions built into your estate plan to minimize the impact of these state level estate taxes.
The good news is that California does not have any state estate tax. That means the restrictions you may have in place for tax planning reasons might not be needed. Of course, you will want to speak with an estate planning attorney about the specific options as they relate to your estate. However, generally speaking, you now have the opportunity to revise your plan to provide more efficient, flexible, and creative options in how your estate is to be administered. For example, you would be able to focus more on planning for the needs of the individual family member (such as a surviving spouse) and around family dynamics without being hindered by restrictive estate tax planning.
There can be a lot to consider about your estate plan when moving to California from another state. That is why it is an absolutely great time to sit down with a California estate planning attorney and review whether your estate plan needs any adjustments.
