A power of attorney (POA) is a legal document that lets you appoint a person (attorney-in-fact or POA agent) or even an organization to manage your property and financial affairs as well as your medical directives on your behalf. The POA agent must have a sound mind and be eighteen years of age or older.

There are a variety of POAs that allot different levels of control: General, Special, Durable and Healthcare POAs. You may grant a POA without a lawyer, however it is best to consult with an attorney to determine the powers being granted. It must be noted that you may revoke a POA at any time.

A trust that allows provisions to be altered or canceled based on your wishes is a revocable trust. In such a trust, income earned on assets is given to you. This trust protects your assets during your lifetime as well as after your death. Upon your death the property transfers to the beneficiaries you assigned under the trust. Since a revocable trust lists one or more beneficiaries, the trust avoids probate. Another benefit of this trust is that you may make amendments, remove/add assets or terminate the trust during your lifetime.

A revocable trust provides income and flexibility; you may adjust the provisions of the trust and earn income while having the peace of mind knowing that your estate will be distributed according to your wishes and instructions upon death. This type of trust becomes irrevocable upon the grantor’s death.

In comparison to a revocable trust, an irrevocable trust cannot be changed or terminated without the permission of the trust’s beneficiaries. So assets in such a trust cannot be removed without the beneficiaries’ consent since the grantor has effectively transferred their ownership of assets into the trust. By establishing this trust the grantor has legally removed all of their rights of ownership to the assets and the trust. An irrevocable trust can be “broken” (revoked) only by a judicial proceeding.

This trust is often suggested for clients that are vulnerable to lawsuits, such as doctors or attorneys because an irrevocable trust will not be a party to any lawsuit. It is also helpful because it removes the grantor’s tax liability on the income the assets generate. The assets can include — but are not limited to, a business — investment assets, cash, and life insurance policies.

One of biggest misconceptions is that succession planning and estate planning are one in the same. Succession planning (aka replacement planning) directly relates to the actual business itself. Whereas, estate planning relates to your ownership interest in the business. Succession planning is the process of identifying new leaders to replace the old ones. It involves strategizing who will lead the business after a company’s most important people move on to other opportunities, retire, or pass away. Succession planning often involves training the new leaders so that they develop the necessary skills and gain a global understanding of the company for when it is their time to replace the older leaders.

If you have a small business interest, such as a sole proprietorship, partnership, closely-held corporation, or  LLC, you may be able to include your business in your estate plan. Assuming there are no transfer restrictions, you can designate certain beneficiaries in your estate plan to become involved in the business upon your death or disability. Note the subtle, yet important difference from succession planning (discussed above). Also, note that including your business into your estate plan involves a review of the articles of incorporation/organization or any partnership agreements in order to identify any transfer restrictions imposed by law or the agreements governing the business in addition to buy-out provisions. 

Again, assuming there are no transfer restrictions imposed by law or agreements governing the business, you can strategize the disposition of your business interest to certain beneficiaries. In addition, there are certain tax issues which need to be considered when planning for the disposition of your business interest. Oftentimes the most successful planning occurs with the collaboration between your financial advisor and attorney.

If you intend to leave all of your assets to your spouse, estate taxes aren’t an issue: You can leave an unlimited amount of money to your spouse tax-free. Otherwise, your estate will owe taxes only if its value – including real estate, life insurance proceeds, retirement accounts and investments – exceeds a certain threshold, known as the estate tax exemption.

SB 378 levies a California estate tax on estates ranging from $3.5 million ($7 million for married couples) up to the current federal exemption level of $11.4 million ($22.8 million for married couples). If your estate is large enough to trigger the estate tax, only the amount that exceeds the exemption will be taxed. You would need to consult your financial advisor to determine whether your estate is large enough to trigger taxes.