Estate planning is the process of planning for the management and distribution of your assets in the event of your death or incapacity. This process often involves consulting with an attorney to design an estate plan that conforms to your wishes, and then formalizing your estate plan in a series of documents based on your choices and values.
No. A will is only one small part of an estate plan. Different assets pass in different ways, and not all of them are affected by a will. Also, a thorough estate plan includes planning for your incapacity, as well as your death.
Lastly, the true value in estate planning comes from the thought and attention we give to your plan before any documents are drafted or signed. We are here to help you evaluate all of the relevant issues—such as family dynamics, protection for beneficiaries, the types of assets you own, and taxes—and bring these elements together in a creative, harmonious, and functional manner.
Virtually every estate plan consists of a will, a general power of attorney, and a healthcare power of attorney. Many plans also incorporate a revocable trust. Some include irrevocable trusts, agreements of various kinds, deeds, and other documents.
There are many legal mechanisms to help those who die or become incapacitated without having planned ahead. However, many of these mechanisms are so inflexible and time-consuming that they inspire people to plan around them.
For example, a person who dies without a will is considered to have died intestate. This means that his or her property will be distributed according to the state’s laws of intestacy.
Generally, the state creates a “pecking order” of beneficiaries—spouse, children, parents, siblings, aunts and uncles, and so on. The resulting distribution plan might be okay to some people; it might be completely objectionable to others. The point is, if you die intestate, there is no choice in the matter.
Also, if a person becomes incapacitated, and has done nothing to enable his or her financial affairs to be handled by a trusted friend or family member, a court-supervised guardianship might be the only solution. Guardianships cost money to set up, they can last a long time, and they require court filings for as long as they last. While it is helpful that guardianships exist to help people in this situation, it is usually best to plan ahead so that a guardianship won’t be necessary.
These are two primary examples; there are many other reasons to plan ahead. Even a simple plan can save a great deal of trouble later on.
There is no “right” time, so long as you implement a plan while you are still living and of sound mind. Generally, we find that people become motivated to plan their estates when major life events occur, such as:
Many of us put off this exercise as long as possible. This is a natural human instinct—few of us enjoy exercises that remind us of our own mortality.
If your present thinking is something like “Why would I bother doing this? It would just depress me, and I bet it would be a waste of money, because I’ll probably be around for a long time and have to re-do the plan later anyhow,” then this might not be the right time for you.
However, if your present thinking is “This is a project that would enrich me, by focusing my thoughts on how to honor the people and the values that are meaningful to me. And, regardless of how much longer I live, addressing these matters now would bring me some peace of mind,” then we should meet.
This is common. We all know we will die at some point—but not many of us enjoy thinking about the topic. So, there is an inherent hesitation built in when it comes time to learn about estate planning and make choices related to this. As a starting point, it is helpful to know, or at least think about, the following things before meeting with an estate planner:
Estate administration is the process of handling the affairs of a person who has died. Depending on the estate, this can involve many different types of tasks. Typical estate administration duties include paying debts, filing tax returns, filing court documents, re-titling accounts, selling assets, and distributing assets to beneficiaries.
Probate is a process in which a local court supervises the administration of a person’s estate, to make sure that assets are handled and distributed according to the state’s laws. Estates are typically probated in the jurisdiction where the person lived, or owned property.
Although this can vary greatly depending on the nature of the estate, the probate process generally contains the following elements:
Probate generally has the reputation as something to be avoided, if possible. This reputation has come about for several reasons:
The requirements of the probate process often provide important procedural safeguards for the beneficiaries of estates. However, these requirements can sometimes seem to interfere with what would otherwise be a smooth estate administration.
Yes. By structuring your assets in certain ways, probate can be avoided. Probate is generally only required for assets held in a person’s own name. If you establish a living trust, and place your assets in that trust, those assets will not be subject to probate.
Also, assets held in a person’s own name, but which have a beneficiary designation such as a “payable on death” (POD) provision, will not be subject to probate. (Assets held jointly with another person will not be subject to probate either, but this option has many other ramifications that should be balanced against the desire to avoid probate.)
Many critics exaggerate the “horrors” of probate, and encourage people to avoid probate at all costs. We believe that structuring an estate plan to avoid probate can be helpful for many clients, but should not be an all-consuming goal. This goal should be balanced against others.
A will is a document that spells out, among other things, how a person’s property should be distributed upon his or her death, and who should be in charge of making these distributions. A guardian for minor children can also be appointed in a will.
A trust is a tool used to hold, manage, and distribute property on behalf of a beneficiary, according to terms and rules set out in the trust. There are generally three roles in a trust:
There are many different kinds of trusts, and many reasons that people establish trusts in conjunction with their estate planning, such as:
A revocable trust is perhaps the most commonly used trust in estate planning. In many ways, the language used in a revocable trust is similar to the language used in a will. The person establishing the trust—called the grantor—directs particular assets to pass to particular beneficiaries, and appoints people to manage and distribute the assets.
If properly set up, a revocable trust serves two main purposes.
Many people think that a revocable trust is uniformly “better” than a will. The truth is, revocable trusts are not one-size-fits-all. Revocable trusts are excellent vehicles for certain people, and virtually useless for others.
Yes. A revocable trust is usually accompanied by a “pour-over” will, which is a simple will that essentially says “I give everything to my revocable trust.” This can be useful when someone creates a revocable trust but does not place every asset into the trust. The will takes anything left over and “pours” it into the trust, making sure that all assets are distributed according to the terms of the trust.
No. Perhaps one of the most common myths about revocable trusts is that, on their own, they can help people avoid estate taxes. There are trusts that help people avoid estate taxes, and revocable trusts are often used in conjunction with these trusts, but a revocable trust cannot save taxes all by itself.
A power of attorney is a document in which a person can appoint another person (called an “agent”) to act on his or her behalf. The person who creates the power of attorney is called the “principal.”
A general power of attorney gives the agent general authority to handle all of the principal’s personal and financial affairs.
No. Another option is a limited power of attorney, which gives the agent only specific powers.
Generally, your agent’s authority to act under a power of attorney will last until your death, or until you revoke the power of attorney. However, you can also specify that the power of attorney will only be effective within a certain time frame.
A healthcare power of attorney gives the agent authority to make healthcare decisions on behalf of the principal.
This depends on the language of the document, as chosen by the principal. Some powers of attorney are “springing,” meaning that the agent will have the authority to act only when the principal is incapacitated. Others are “presently exercisable,” meaning that the agent can act immediately, regardless of whether the principal is incapacitated.
The estate planning process usually goes like this in our office:
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