Legacy & Wealth Transfer: What Happens to Your Money After You're Gone

A complete personal estate plan typically includes five core documents. Yours may need more (especially if you own a business, have minor children, or have substantial assets), but these are the foundation:

1. Last Will and Testament

Directs who receives your probate assets after death and names guardians for minor children. A will alone does not avoid probate — it just tells the probate court what your wishes are. In California, where probate is notoriously expensive and slow, most people with substantial assets pair their will with a revocable living trust.

2. Revocable Living Trust

A legal entity you create during your lifetime to hold assets. Assets titled in the trust pass directly to beneficiaries upon death without going through probate. Revocable means you can change it, modify it, or revoke it entirely while you're alive. For most California households with real estate or investment accounts, a properly funded revocable trust is the single most important estate planning tool — and the most underused.

3. Durable Power of Attorney for Finances

Designates someone to manage your financial affairs if you become incapacitated. "Durable" means the document remains valid even if you lose mental capacity — which is precisely when it's needed. Without one, your family typically has to petition the court for a conservatorship, which is expensive, public, and slow.

4. Advance Healthcare Directive

Designates someone to make medical decisions for you if you can't, and (in most cases) documents your wishes about end-of-life care. California has its own statutory form. This is the document hospital staff will ask for.

5. Beneficiary Designations

Often overlooked but critically important: the beneficiary forms on your retirement accounts, life insurance, annuities, and "transfer-on-death" accounts override your will. We dedicate Section 7 to this because it is the single most common point of failure in otherwise good estate plans.

A California estate attorney drafts these documents — usually as a coordinated package — and walks you through funding the trust (titling assets correctly so the trust actually works as intended). This is not DIY territory. Online templates miss California-specific requirements, fail to account for community property rules, and routinely produce documents that don't function properly when needed.

No California Estate Tax

California voters eliminated the state estate tax in the 1980s, and California also imposes no inheritance tax on heirs. This is a meaningful advantage for California residents — many states do impose state estate or inheritance taxes with thresholds far below the federal level. (For example, Oregon's threshold is $1 million; Massachusetts is $2 million; New York's is approximately $7.35 million.)

Community Property and the Double Step-Up Basis

California is a community property state. Most assets acquired during marriage are owned 50/50 by the spouses, regardless of whose name is on the title. This has a significant tax implication at the death of the first spouse: the entire community property asset receives a step-up in basis (not just the deceased spouse's half), which can dramatically reduce capital gains tax for the surviving spouse.

For example: A couple bought a San Diego home in 1985 for $200,000; it's now worth $1.5 million. In a non-community-property state, only half of the home would receive a step-up at the first death, leaving $650,000 of unrealized gain on the surviving spouse's half. In California, the entire $1.5 million basis steps up at the first death — meaning the surviving spouse could sell the home immediately for $1.5 million with no taxable gain (any appreciation between the first death and a later sale would still be taxable).

California Probate Is Expensive

California probate is governed by Probate Code §10800-10810, which sets statutory fees based on the gross value of the probate estate (not net of debts or mortgages). Both the executor and the probate attorney are entitled to identical statutory fees, which scale roughly as:

• 4% on the first $100,000
• 3% on the next $100,000
• 2% on the next $800,000
• 1% on the next $9 million
• 0.5% on the next $15 million

A $1 million gross probate estate in California (typical for a paid-off home plus some accounts) generates statutory fees of approximately $23,000 for the executor and $23,000 for the attorney — $46,000 total, before any extraordinary fees or costs. A $2 million gross estate generates roughly $66,000 in combined statutory fees.

These statutory fees are why California has the highest revocable-living-trust adoption rate in the country. A funded revocable trust avoids probate entirely — the trust's assets pass directly to beneficiaries under the trust's terms, without court involvement.

California Is a "Spousal Property Petition" State

For surviving spouses, California offers a streamlined "Spousal Property Petition" process for transferring community property at death — which can avoid full probate even without a trust in some circumstances. An estate attorney can advise whether this applies.

This is the section every adult should read carefully:

The beneficiary forms on your retirement accounts, life insurance policies, annuities, and transfer-on-death (TOD) brokerage accounts override what your will or trust says.

If your will leaves "everything equally to my three children" but your 401(k) beneficiary form names only your oldest child (because you filled out the form 25 years ago and never updated it), the 401(k) goes entirely to that one child. Your will has nothing to do with it. The 401(k) does not pass through probate at all — it goes directly to the beneficiary on the form.

This causes more family disputes than almost any other estate planning failure.

Common scenarios where this goes wrong:

• Old beneficiary forms naming an ex-spouse. Surprisingly common — especially on retirement accounts from long-ago employers.
• Beneficiary forms left blank. When no beneficiary is named, the asset usually defaults to the estate, which means it does pass through probate — but typically with worse tax consequences than a properly named beneficiary would have produced.
• Naming "my estate" as beneficiary on a retirement account. This usually accelerates the income tax timeline for beneficiaries dramatically (often a 5-year drawdown rather than the favorable 10-year stretch for designated beneficiaries).
• Failing to name contingent beneficiaries. If your primary beneficiary predeceases you and you didn't name a contingent, the asset typically defaults to the estate.
• Naming minor children directly. Without a trust to receive the assets on the children's behalf, this typically forces the appointment of a court-supervised guardianship of the estate — a process most parents would not want.

What to do:

1. Pull every beneficiary form on every retirement account, life insurance policy, annuity, and TOD-titled account. Many can now be checked online; some still require a phone call.
2. Confirm the named beneficiaries (primary and contingent) match your current intent.
3. Update them if anything has changed — marriage, divorce, birth of children, death of a beneficiary, change in family relationships.
4. Re-check after every major life event — and at least every 5 years.

This exercise is one of the highest-leverage actions in estate planning. It costs nothing, takes a few hours, and can prevent significant family harm.

• irs.gov/businesses/small-businesses-self-employed/estate-tax — Federal estate tax rules
• irs.gov/forms-pubs/about-form-706 — Federal estate tax return (relevant for portability elections)
• leginfo.legislature.ca.gov — California Probate Code (search §10800-10810 for statutory fees)
• calbar.ca.gov — State Bar of California (find a qualified California estate attorney)
• courts.ca.gov/8865.htm — California Courts probate self-help

If anything you read here conflicts with a primary source, the primary source wins. Tell us — we'll fix it.