The estate plan is the cherry on top of your life plan sundae! You and only you can decide how and to whom to give power and access to your wellbeing and a lifetime of building an estate.
Some people would rather watch paint dry than talk about estate planning. We agree that it can be uncomfortable (no offense to our estate planning friends!); however, it might be helpful to think about it this way.
We spend most of our working life saving for future events like college, weddings, vacations, and retirement. Along the way we buy insurance to protect our homes, our cars, our health, and other assets. Yet… when it comes to protecting ourselves and our estates in the event we become disabled or die, 68% of American adults have not executed a will or trust. Hmmm. Why is that?
The big culprit is…drum roll…. procrastination. Estate planning involves making critical decisions such as:
Whether one is hesitant to make decisions like guardians for the kids, appoint a health-care power-of-attorney, or are reluctant to pay legal fees, the bottom line is that no decision IS a decision. Without a will you are choosing to allow the state in which you reside to determine the above decisions for you.
Most likely this is not the choice any of us would intentionally make. Let’s explore the considerations of an estate plan.
Who do I name in my estate plan?
Assigning roles and responsibilities is often the cause for procrastination when we consider our estate plan. If this is the case for you, assembling a good team (attorney, CPA, financial advisor or other fiduciary) can help whomever you choose to execute their responsibilities. Some roles can be filled with more than one person. Have an honest conversation with your attorney and share your values, concerns, and thoughts.
There are several key roles in a complete estate plan. They include:
These roles come with potentially complicated responsibilities, which is another reason we have a difficult time making selections and completing the paperwork. Consideration of the role, the time required and the ability of the “named person(s)”, as well as the potential for conflicts of interest, need to be taken into account.
Roles & Responsibilities
The Executor makes sure all debts and taxes are paid and all assets are accounted for. They are then responsible for distributing the remaining assets to the beneficiaries in accordance with the law and the Will. If legal action is brought against the estate, the Executor is in charge of defending the estate documents. More specific lists can be found on Justia or Elderlaw.
When selecting an executor, you must take into consideration:
Health Care Power-of-Attorney is a legal document (an advanced directive) in which you appoint someone to be your representative (or proxy) if you become unable to make or communicate decisions about all aspects of your health care. It should be someone you trust. In extreme cases they are deciding when and if to implement life support.
Durable Power-of-Attorney is also a legal document that confers to a named person the power to make decisions over your financial affairs and assets. Often, they are used to sign documents if the owner is out-of-town or unable to participate. However, if one is incapacitated the power allows the appointee to make financial decisions on behalf of the appointer.
These documents become invalid after death. It is very important to double-check the language of a power-of-attorney, especially if there are changes of residency or assets. What works in one state may not work in another.
It is also very important to understand what the criteria is to allow your designated durable power-of-attorney to sign on your behalf. Depending on the circumstances, you may want the language to allow for more flexibility or you may want stricter criteria for the designated power-of-attorney to act on your behalf.
The role of Guardian for minor children has full legal and physical custody of the child/children and can make all the decisions about the physical care of the child/children that a parent would make. A guardian can be a relative, friends of the family, or others who you may deem suitable to act as your child/children’s legal guardian. If you die without appointing a guardian, the state will make that decision.
Planning for a special-needs child is very important. There are attorneys who specialize in this type of planning, and it is worth going to an expert.
Trusts & Trustees
Before we discuss trustees let’s review trusts and their purpose.
The IRS defines a trust as a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another. A trust is formed under state law.
The most common types of trusts include revocable, irrevocable, life insurance trusts, and credit shelter trusts. Generally, setting up a trust requires naming a trustee and a successor trustee who are required/allowed to fulfill the terms of the trust.
Revocable trusts are the most common trusts used for estate planning. They give control to the grantor during their lifetime. They can be changed at any time by the grantor during their lifetime (hence, revocable). If the grantor becomes incapacitated the successor trustee is allowed to step in. If the grantor dies the trust becomes irrevocable and the terms of the trust are unchangeable.
Trusts serve important purposes. When properly executed AND assets are retitled into the name of the trust, opening a probate estate can be avoided. This means your privacy stays intact (the world will not know the size or makeup of your estate), and your heirs can avoid opening and paying for a probate estate.
It is also possible for trusts to protect assets from creditors, divorcing spouses, and other nefarious parties. It is best to seek the advice of an estate-planning attorney to determine what planning is required to meet your objectives.
The role of a Trustee is to act as a custodian for the assets held within a trust. He or she is responsible for managing and administering the finances of a Trust per the instructions given. The person who creates the Revocable Trust is the Trustee until they can no longer fill the role due to their incapacitation or death.
The Successor Trustee is also named in the trust document. They typically step in when the trustee is unable to act.
Where does legacy planning come in?
Legacy planning is often incorporated into estate planning. Legacy planning is the vision one has regarding the disposition of their assets, after their death. This may entail care of the surviving spouse, children or pets (yes, for some of us the pets are right up there with relatives!). Much can be accomplished with careful consideration of your values and incorporating them into the appropriate documents.
For instance, legacy planning can mean leaving assets to a favorite charity or creating a family-giving program. It can be the distribution of specific assets to loved ones. It can also be a trust created for the benefit of someone (a child), protecting them from creditors or even a messy divorce, depending on the stipulations and terms of the trust. If you have a spendthrift child or one with an addiction issue, it can be a way to provide care without enabling their issues by giving them access to large sums of money.
How often do I need to update my estate plan?
It is good to review your estate plan at least every three to five years or when you experience a life event. When circumstances change the plan can be amended, depending on your wishes. Some common life events include:
Should I tell my family about my estate plan?
Yes! At the very least it is important to let them know
If you are so inclined, it is also helpful to share more specific information with the people named in your estate documents to eliminate surprises if they are appointed and need to act on your behalf. Sharing your end-of-life care and burial/cremation wishes is helpful to your beneficiaries and allows them to forego making painful decisions during a stressful time.
Talking about the specifics of a plan is not necessary, but it can be helpful in preparing loved ones and setting their expectations. Family meetings are one way everyone receives the information at the same time and can ask questions. Deciding in advance who gets Nana’s pearls is also helpful and can avoid future conflict!
Whatever you decide, we are here to help you think through your planning. In the words of Voltaire, “don’t let perfect be the enemy of good”!