The following summarizes some of the basic estate planning documents that are appropriate for couples. Many of the concepts described below are equally applicable to single individuals.

Wills. A couple’s Wills will establish who is to receive each spouse’s assets upon death, other than those assets which pass by beneficiary designation (such as life insurance or IRAs), property held in a revocable trust (discussed below) or property passing by right of survivorship (such as joint tenancy property). The Wills will also appoint the Executors of each spouse’s estate and will nominate guardians for any minor children.

Revocable Living Trust. If the gross value of the assets that would pass under each spouse’s Will exceeds $100,000, or if almost any real property interests pass under the Will, a Probate proceeding must be initiated and certain very specific, court-supervised procedures must be followed before the deceased spouse’s assets can be distributed to the intended beneficiaries, including the surviving spouse. These procedures include filing with the Court an inventory of the deceased spouse’s assets, a copy of the deceased spouse’s Will, and the names and addresses of the deceased spouse’s heirs. All of this information is available to the public.

To avoid Probate and the resulting inconvenience and invasion of family privacy, most couples with estates exceeding $200,000 ($100,000 each) create Revocable Living Trusts to which they transfer all of their assets during life and which governs the disposition of those assets upon the death of either or both spouses. A Revocable Living Trust can also provide a means for the management of trust assets in the event that one spouse should become incompetent.

When a couple’s joint estate exceeds the applicable exclusion amount (presently $2,000,000, including life insurance, joint tenancy property and retirement plan assets, and increasing to $3,500,000 in 2009), or where each spouse wants to provide for the other but leave the remainder after the survivor’s death to children or other beneficiaries, it may be appropriate to create an “A-B” or “A-B-C” trust. These trusts divide the joint estate into separate revocable and irrevocable trusts at the first death designed to save taxes and preserve the deceased spouse’s estate plan.

Durable General Powers of Attorney. Durable General Powers of Attorney generally grant to each spouse the power and authority to make decisions and to sign documents (such as deeds and tax returns) on the other’s behalf if one spouse becomes incompetent or is otherwise unavailable to handle his or her own financial affairs. The Durable General Power of Attorney can either become effective immediately, enabling each spouse to act for the other as soon as it is signed, or it can become effective only if and when one of the spouses becomes incompetent. The benefit of an immediate power is that the competent spouse will not be required to prove the incapacity of the incompetent spouse in order to act under the power. It also enables one spouse to act for the other in the event that spouse is traveling or otherwise occupied at a time that documents must be signed by both spouses. The primary disadvantage of immediate effectiveness is that one spouse can proceed to engage in financial activities immediately that will fully bind the other as though both spouses had both participated in that activity, and third parties will not have any duty to inquire into the authority of the agent to engage in the activity.

Health Care Advance Directives. While a substantial motivation for most individuals in executing a Health Care Advance Directive (“Directive”) is to provide a clear statement of wishes concerning life sustaining heath care, the Directive is much more than a “Living Will.” The Directive allows each spouse, in a single document, to state his or her health care preferences, to name agents and successor agents to make health care decisions for that spouse in the event of incapacity and to nominate the appointed agents as conservators should court involvement be required. The Directive also permits the identification of a primary physician to participate in health care decision making. Further, unless the signer (the “principal”) otherwise limits his or her health care agent’s authority under the Directive, the appointed health care agent will have the right to:

1. Consent or refuse consent to any care, treatment, service, or procedure to maintain, diagnose, or otherwise affect a physical or mental condition.
2. Select or discharge health care providers and institutions.
3. Approve or disapprove diagnostic tests, surgical procedures, and programs of medication.
4. Authorize the disclosure of otherwise private medical information in order to establish proof the principal’s incapacity for financial and business matters.
5. Direct the provision, withholding, or withdrawal of artificial nutrition and hydration and all other forms of health care, including cardiopulmonary resuscitation.
6. After the death of the principal, make anatomical gifts, authorize an autopsy, and direct the disposition of remains.

Marital Property Agreement. Many couples choose to enter into a Marital Property Agreement, the purpose of which is to establish the characterization of their property as separate or community property in a manner that may differ from California law. This is particularly useful if a couple entered the marriage with their own property, if during the marriage, one or both spouses have received property by gift or inheritance from parents or other family members, where couples have acquired property while married and residing in another state, if one or both spouses have children of a prior marriage, or if the beneficiaries of each spouse’s estate are different. In such circumstances, a Marital Property Agreement can clarify, among other things, what property is subject to disposition under the Will of each spouse.

A Marital Property Agreement may simply provide that all of a couple’s property is their community property, regardless of how or when that property was acquired. Alternatively, it might specify that most of the couple’s property is their community property with the exception of designated assets that are listed on attached schedules as the separate property of either spouse. In its most sophisticated form, a Marital Property Agreement will be in the nature of a Prenuptial or Postnuptial Agreement which spells out in detail the rights and interests of the spouses in their income and property, during marriage, upon death, or in the event of divorce.

Irrevocable Life Insurance Trusts. Under current tax law, the proceeds of life insurance are generally received by the beneficiary free of income tax. However, if the insured person held any “incidents of ownership” over the policy before death (such as the power to change beneficiaries or to withdraw or borrow against the cash value of the policy), then the policy proceeds will be subject to estate tax in the insured’s estate. As a result, if you, or you and your spouse together, have an estate that exceeds your applicable exclusion amount (presently $2,000,000 per spouse), you may want to hold life insurance policies that insure your life or your joint lives in one or more irrevocable life insurance trusts. The purpose of an irrevocable life insurance trust is to protect the policy proceeds from estate taxation in the insured’s estate by having a person other than the insured serve as Trustee. Because the Trustee will hold all of the rights of ownership over the policy, the policy proceeds should be received both income and estate tax free. (If, however, an existing policy is transferred to the trust, the insured must survive for at least three years after the transfer to obtain the benefits of an irrevocable life insurance trust. This three year rule does not apply to new policies acquired in the name of the trust.) The trust beneficiaries could be the surviving spouse, descendants or other persons that you intend to benefit from the policy.

Circular 230 Notice: In accordance with IRS Treasury Regulations, we are required to notify you that any tax advice given herein (including attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding any penalties that may be imposed by any governmental taxing authority or agency or (2) promoting, marketing or recommending to another person any tax related matter.