At its core, an estate plan is the organization of your material assets to provide for the financial security and stability of your family both during your lifetime and after your death. Estate planning is not just about taxes – it is about deciding what is best for your family and making sure that the parameters for your family’s continued success are in place BEFORE something happens to you.
The structure of your estate plan is built around the following questions: What would happen to your family if you didn’t wake up tomorrow? Who would manage your assets? Would your children and spouse be sufficiently provided for? Who would care for your children if you and your spouse could not? What would happen if your spouse got remarried?
I have come up with a mnemonic which should help you understand the benefits of estate planning:
Estate planning is about creating SPACE (Security, Predictability, Accountability, Control and Efficiency).
Predictability: an estate plan establishes the foundation for how your assets will be held and what the financial landscape will look like for your family.
Accountability: an estate plan nominates fiduciaries who will have obligations to both the settlor of the trust and the beneficiaries of the estate and trust.
Control: an estate plan gives you the ability to limit access to the funds in your trust to ensure longevity and protection for young, impressionable minds.
Efficiency: a properly drafted estate plan will keep as many of your assets as possible in the hands of those you love and out of the hands of the government.
The basic legal documents in an estate plan are a will, a revocable trust, a durable power of attorney and a health care proxy (with a living will).
Will
The will is where you nominate a personal representative of your estate who will be responsible for collecting your assets, filing documents with the probate court and filing any required income and estate tax returns. You will also nominate the individuals you wish to serve as the guardians and conservators of your minor children. The will is also where you dispose of your tangible personal property (i.e., property that you can pick up and hold in your hand, like silverware or artwork). Finally, the will typically directs that all of your remaining property (i.e., the “residue”) will “pour over” or be added to your revocable trust. Your will can be amended or revoked at any time prior to your death or incapacity.
Revocable Trust
Your revocable trust is the primary dispositive vehicle in your estate plan. It is a receptacle for most of your assets and can be funded during your lifetime or upon your death. During your lifetime, the trust operates as an “alter ego” for you – you can access the assets at any time and for any reason. Upon your death or incapacity, the named trustees (often the surviving spouse and at least one “independent” person or entity) hold the trust property for the benefit of you (if you are still living) or others.
After your death, your trust can be a great way to provide creditor protection for the trust beneficiaries, which includes divorcing spouses of your children as well as more traditional creditors from business or simple accidents.
Your trust can be amended or revoked at any time prior to your death or incapacity.
Durable Power of Attorney (“DPOA”)
The DPOA names an agent (or “attorney”) to make financial decisions for you in the event that you are unable to do so for yourself. It is typically immediately effective, even if you are still competent. The DPOA can be used for any asset that is not already held in a trust and it can be amended or revoked at any time prior to your death or incapacity.
Health Care Proxy with Living Will
The health care proxy (“HCP”) designates another individual to make health care decisions for you in the event that you are not able to make them for yourself. The living will component of the HCP is a non-binding directive regarding whether you would like to be sustained by artificial means and can be tailored to your particular desires. The HCP can be amended or revoked at any time prior to your death or incapacity.
