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What kind of Estate Planning do you need?

No one likes to think about dying, but there are many good reasons to prepare for death (or incapacity) by setting up a plan to assure that your estate is administered as you direct after your death – and, during your life, if there is a period that you may not be able to care for yourself.  A person's estate consists of all his or her property and possessions – your assets.  If a person or couple plans well, his, her or their estate can be passed on after death quickly, easily, and subject to fewer taxes. 

While someone can certainly make gifts during their lives to the people or entities they want their estate to pass to, most of us don’t have the luxury of making substantial gifts of our estate without impairing our own ability to meet our current and future unknown needs.  Because of this, several legal mechanisms such as wills, trusts and powers of attorney exist to ensure that your estate will be administered as you direct upon your death or incapacity.  


A revocable trust is the most common method of transferring assets without the fear that your estate will end up in court as it would if only a will (or no estate plan) exists.  A revocable trust is a legal document whose purpose is to fulfill your plans for your estate during your life and after.  In addition, you can revoke or change any terms of the trust at any time as long as you are still competent.  Upon your death, the terms of the trust become irrevocable.  

To create a revocable trust, the owner of property (“grantor”) transfers the property to a “trustee” who holds legal title to the property and manages it for the benefit of a third party (“beneficiary”).  The transfer of property into the trust is referred to as “funding”.  In a revocable trust, you (the grantor) usually name yourself as the trustee and also the primary beneficiary.  But, you may designate others if you wish. For instance, you will also designate who will be your successor trustee to manage your estate when you die or become incapacitated and you will designate who will be beneficiaries after your death.  A revocable trust will not require you to file a tax return for the trust.  Instead, you will continue to file your individual (or joint) return, just as you did before the trust.


The more traditional method of transferring your assets at death is by use of a will.  A will is a legal document used to specify how your estate will pass upon your death.  Unlike a trust, it will have no effect until your death.  The person who creates a will is called a “testator”.  Anyone designated to receive property under a will is called a “beneficiary”.  And, the person who you designate to administer the estate is an “executor”. 

A will can be simple or complex, depending upon the size of your estate and your wishes.  A will may also be used to name a guardian who will take care of minor children should there be no surviving parent to care for the children.  When a will is used as a back-up to an estate plan that utilizes a trust, it is known as a “pour-over” will – to make sure that any part of your estate not already funded in trust at your death, is placed in and administered in the trust.


Another way you can arrange to manage your assets during your life (and make provision for your care should you become incapacitated) is by use of a power of attorney.  A power of attorney is a legal document that allows you to direct another person to undertake decisions on your behlaf.  If the power of attorney expresses that it is effective beyond any future incapacity it is called a “durable” power of attorney.  In this type of legal document, you are referred to as the “principal” who directs another person (known as an “agent”) to make decisions for you.  If the instructions you give to another is for the purpose of taking care of your estate or to undertake a specific purpose regarding your estate, it is known as a power of attorney for property.  If the instructions you give are regarding your personal care and medical decisions, including end of life considerations, it is known as a power of attorney for health care or an advance health care directive.  A power of attorney expires when you die; which means the agent you designate cannot use the power of attorney to undertake acts on your behalf after you die.


A common estate plan will utilize all of these legal mechanisms.  With proper planning, they can be drafted to ensure that your personal and estate directives are carried out upon your incapacity or death.  As a cautionary note: If you get married, divorced or a spouse/partner dies after you have created an estate plan, you should seek the advice of a lawyer to review your plan to help you determine if any changes are needed. You should also review your estate plan with an attorney when there are any other major changes in your family (such as births and deaths) or when the value of your assets significantly increases or decreases.

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