Estate Planning 101
With the huge changes in policy that are sadly bound to start happening this month, I have been asked by friends and family how these changes might affect their estate plan. People are worried that their spouses may be barred from making decisions for them if that is needed, and that they will kept away from each other during times of need. I want to let everyone know that, no matter what happens, we are able to name whomever we want as our agents and representatives, whether they are a spouse, a partner, a friend. And while no one has a crystal ball, I don’t see that changing. So what does this mean? It means that now, more than ever, it is important to make sure our estate plans are in place!
With that in mind, I have decided to repost several articles from last year discussing the various parts of an estate plan and what to be aware of when creating, or updating, one. For some, this will be new material; for others, a review. In either situation, I think it’s worthwhile information to have.
Estate Planning: it is something most Americans avoid and more often than not, never get around to. The excuses range from “Estate planning is too confusing” to “I don’t have anything to leave behind” to “I will get around to it next year.” By having an estate plan, however, one offers one’s family members peace of mind during a difficult period.
The four main documents in an estate plan are: Will, Trust, Durable Power of Attorney for Finances, and Health Care Directive.
A Will is the legal instrument that permits a person, the Testator, to make decisions on how his or her estate will be managed and distributed after death. If there is no Will, the person has died intestate and State laws will dictate how the estate is distributed. It is important to note that a Will does not avoid probate (the legal process in which a decedent’s assets are distributed under court supervision); however, it will ensure your assets are distributed to the people and in the manner you desire.
One of the simplest ways to avoid probate, a Trust is a legal arrangement in which a Trustee holds legal title to property for a beneficiary. There are three main “players” in a Trust: Settlor, Trustee, and Beneficiary. The Settlor is typically the only person who can make changes to the Trust document. In a conventional living (or intervivos) Trust, the Settlor, Beneficiary, and Trustee are initially the same person. It is only when the Settlor becomes unable to handle his or her own financial affairs that a successor Trustee (chosen by the Settlor) takes over the management of the Trust. The Trust assets are to be used first and foremost for the benefit of the Settlor, with the remainder beneficiaries receiving an interest in the Trust only after the Settlor’s death (the same way that a person’s estate passes to his or her beneficiaries under a Will).
The Durable Power of Attorney for Finances (DPA) names the person responsible for managing your finances in the event you are unable to manage them yourself. Even in a Trust-centered estate plan, the DPA plays an important role, governing the assets held outside the Trust. In the event of your incapacity, your successor Trustee will take over and manage your Trust assets while your agent under the DPA will manage all non-trust assets.
A Health Care Directive combines a power of attorney for health care and a living will, or directive to physicians, into one document. It allows you to name an agent to speak with the doctors and make health care decisions for you if you are unable to make them on your own.
When properly drafted, an estate plan is a powerful tool not only in the event of person’s death, but also during the person’s life. When deciding on a professional to assist you in drawing up your estate plan, be sure to choose someone who specializes in this area of law. This will help ensure your plan works effectively not only after your death, but during your life as well.
If you have an estate plan already in place and want to be certain it meets your needs, I am happy to review it with you. An estate planning attorney in California for almost 15 years, I am uniquely qualified to review your current plan with you and ensure everything is as it should be.