Basic Estate Planning

Are you considering creating or updating your estate plan?  Here is some helpful information to help you understand the basics about estate plans.

What is an Estate Plan?

An estate plan is a set of documents that provide instructions regarding your care and management of your assets if you become incapacitated and what happens to your property when you die.  A good estate plan will reflect your wishes, provide both financial and personal benefits, and will protect your loved ones.  Estate planning is important at every age.

What is a Comprehensive Will Plan?

A comprehensive will plan includes a Will, advance directive, durable general power of attorney, and letter of instruction.  This plan allows you to decide who should make decisions regarding your health care and finances if you become incapacitated, who you want to administer your estate when you die, and who you want to give your property to.  This plan requires a court proceeding, but there are other provisions you can include in your Will to minimize administration expenses.

What is a Revocable Living Trust Plan?

A revocable living trust plan includes a trust, trust certification, pourover Will, advance directive, durable general power of attorney, assignment of property to trust, deed, administrative procedures, and letter of instruction.  A trust allows to you plan for both incapacity and death, but the trust only controls assets that have been transferred to the trust.  An advance directive is still necessary to express your wishes regarding health care.  The pourover will and power of attorney take care of assets that may not have been transferred to the trust.  This plan allows for creative tax planning and likely avoids a court proceeding, which expedites the estate administration and keeps costs down.

What Happens Without an Estate Plan?

If you die without a Will, there are laws that determine who administers your estate and who receives your estate assets (what you own).  This may require a court proceeding depending on your situation.

If you do not have an estate plan and you become incapacitated, then a guardianship and conservatorship would be necessary to handle your personal and financial affairs.  The court proceedings to appoint a guardian and conservator are complicated and expensive.

When Should an Estate Plan be Updated?

You should update your estate plan when any significant life event happens, such as:

  • When you have children
  • When you retire
  • When your marital status changes
  • When your financial situation changes
  • When your wishes change about who will receive your property

Beneficiary Designations: 

Naming a beneficiary of your life insurance, retirement benefits, or financial accounts allows these assets to pass to the beneficiary without a court proceeding.  You designate your beneficiaries with the respective financial organizations that are handling these assets.   Please note that the beneficiary designation will override any designation in your Will or trust, so it is important that the beneficiary designation accurately reflects your wishes.

Charitable Giving:

Giving to charity is rewarding during your lifetime and establishes a legacy of good will at your death.  Gifts to charities during your lifetime may reduce your taxable estate, and a charity can be the beneficiary of a Will or trust.

What to Bring to your Appointment:

  1. Current estate planning documents, if any
  2. Names and contact information for who you would like to appoint as personal representative, trustee, agent under power of attorney, health care representative, and guardian of minor children
  3. Names and birthdates of your immediate family
  4. Information about your finances
  5. An idea about who you wish to give your assets to
  6. A list of charities you would like to give to

Glossary:

Advance Directive: A legal instrument that appoints someone to make medical decisions if you are unable to do so and expresses your wishes regarding life support and tube feeding.

Beneficiary:  The person named in a Will or trust to receive your property.

Conservatorship: A court proceeding appointing a conservator to manage your financial affairs and property if you become incapacitated and if there are no alternatives.

Decedent: A person who has died.

Guardianship: A court proceeding appointing a guardian to manage your personal affairs if you become incapacitated and if there are no alternatives.

Heir: A person entitled to receive your probate property if you die without a Will.

Intestate/ Intestacy: The default laws that determine how to administer your estate if there is no Will or trust in effect.

Letter of Instruction:  A written memorandum stating your wishes as to who should receive your property upon your death.  This document allows you to change a beneficiary without having to redo your Will or trust.

Non-Probate Property: Property that is not subject to a probate proceeding.  Examples of non-probate property include: jointly owned property, trusts, annuities, retirement benefits, and life insurance.

Personal Representative:  The person appointed by the court to administer your probate estate upon your death.

Pourover Will: A Will used with a revocable living trust that transfers any property that was not transferred to the trust during your lifetime to the trust.

Power of Attorney: A legal instrument that appoints an agent to manage your financial affairs.  This document should be durable, meaning it remains in effect if you become incapacitated.

Probate: A court-supervised process to administer your estate if you died without a Will or if you have property that must be distributed with a Will.

Revocable Living Trust:  A trust established by an individual or married couple that becomes effective immediately.  It avoids probate, facilitates tax planning, provides for management during periods of incapacity without need for guardianship or conservatorship, and provides for ultimate distribution of the estate.

Settlor: A person who establishes a trust (also known as a grantor or trustor).

Testamentary Trust:  A trust that is established in a Will and does not come into effect until after the probate administration of the decedent’s estate.

Trust:  A relationship where one person (the trustee) holds title to property and has a fiduciary duty to manage and distribute the trust property for the benefit of the trust beneficiaries in accordance with the terms of the trust.

Trustee:  The person who holds legal title to trust assets and has a fiduciary duty to manage and administer those assets in accordance with the terms of the trust.

Will:  The legal instrument that states your wishes on how to distribute your property after death through a probate proceeding.