Estate Planning Overview
Estate planning (going beyond probate avoidance). Estate planning takes a broader view than simply seeking to avoid probate. The process seeks to maximize the individual's enjoyment of the estate during their lifetime, and to maximize the beneficiaries' enjoyment of the estate after the individual's death. It is the process of organizing one's estate, identifying one's wishes regarding that estate, providing a vehicle for making those wishes known at the proper time, and utilizing the proper tools to effectively and efficiently execute a plan for managing the estate and passing it to beneficiaries.
Techniques are used which focus on minimizing delay, taxes, fees, and costs. The estate planning process encourages the individual to express their wishes regarding how to distribute their assets at death, and then documents those wishes. It may also involve gifting programs for distributing some assets during one's lifetime. The process involves understanding one's assets and the various forms of ownership or title of those assets. Various legal documents may need to be drafted to change title or forms of title, as well other documents to fund the trust in a trust-based estate plan.
Estate planning tools can help make arrangements for the care of minor children should the parents die or become incapacitated. Parents can nominate a person of their choosing to care for the children. This avoids the decision being left to the probate court without the parents having an opportunity to express their wishes. In providing for guardianship, let's say the parents know of someone that is great with the kids and loves them dearly, but the potential guardian simply is not very good at managing money. In their estate plan the parents could identify a guardian of the person to care for the physical and emotional well being of the children, oversee their education, and influence their ethical and/or religious development. Another person could be named as a guardian of the estate to provide for the children's financial care by managing their inherited assets until they are grown.
Estate planning should also address planning for one's own personal care and health care in the event of incapacity or debilitating illness. Within estate planning, one typically identifies who they want to be involved with managing the financial aspects of the estate on their behalf in the case of their incapacity, or who will be responsible for administering the estate after they have passed away.
The Process
While the end product of estate planning may consist of drafted documents, the overall process is much more comprehensive. I view estate planning within a framework of five stages:
Educate: Estate planning is a very broad subject, full of nuances and constantly changing. A person performing estate planning must be knowledgeable on the concepts and the law, as well as the application of the various tools involved. Your attorney for the planning should provide a level of education on the subject tailored to the needs and desires of the specific client. Consider contacting an attorney whose practice focuses on this aspect of the law.
Understand: One must understand the estate for which they are planning. What assets are involved? How are they titled? How much are they worth? Initiating the estate planning process may be one of the first times that the individual or couple has stopped to view their entire estate and potential beneficiaries in one summary. It may be the first time they have articulated how they want their estate distributed after their passing. It may be the first time they have fully considered what care they may want in case of illness or incapacity, or who they would trust to make decisions on their behalf.
Decide: The next stage will be to decide what goals are to be accomplished, and how to structure the estate plan to achieve those goals. What is the plan? What actions must be taken? Which documents must be created? The people having a role in the estate plan need to be identified, (such as executor, trustee, agent, etc.,) and should be consulted and asked if they are willing to accept the role and to follow one's wishes.
Execute the Plan: Now we are finally at the stage of putting pencil to paper. While an initial view of estate planning may have been in terms of the documents or outcomes, (e.g., "I need a simple will." or "I want to avoid probate.") it is really only at this fourth stage that one is ready to begin drafting the documents. Once drafted, documents need to be notarized or witnessed. Some documents may need to be recorded or registered. Documents must be stored for safekeeping, and yet readily available when needed.
Maintenance: People, desires, and situations may change over time. Once the plan is in place, it must be maintained so that it does not fall out of date. It may be a good practice to look over the documents once a year. This does not imply that they must be reviewed by an attorney, but does the plan still represent one's wishes? Have assets been acquired that should be in the trust? Have there been changes regarding the beneficiaries or people with roles in the plan? Has the law changed such that the plan should be modified?
Wills
A will is a legal document which can be used to name individuals and/or charitable organizations to receive assets after the person that created the will (the testator) has passed away.
These assets can pass to the new owner by outright gift or in trust. The will also allows you to nominate an executor, and to nominate guardians if you are the parent of minor children.
A type of will, called a pour-over will, normally accompanies a trust for use as a "safety net" should assets inadvertently be left out of the trust.
Trusts
A trust involves transfer of legal title from the owner of property to a trustee, who then manages the property for the benefit of the beneficiaries.
There are many types of trusts drafted for specific purposes, but the trust most commonly used in basic estate planning is a revocable living trust. In this trust the owner is typically the initial trustee, and they maintain control over the assets, and the authority to revoke the trust.
The trust allows for transition to a successor trustee after the passing of the person that created the trust, called the settlor, and this allows for future management and administration of the trust. The trust also specifies how assets are to be distributed to beneficiaries.
Powers of Attorney
A power of attorney for financial matters is a written document in which one person appoints another person to act on their behalf. This appointed person is called an agent or attorney-in-fact. Their level of authority is determined by you within the document, but generally they have the authority to manage your finances while you are away or unable to manage them yourself.
A durable power of attorney must use specific words to state that it is not affected by your subsequent incapacity, or that it becomes effective upon some event such as incapacity. A nondurable power of attorney terminates at your incapacity or at some event such as on a given date.
The powers and authority granted within the document terminate if you revoke the durable power of attorney, or at your death.
