You’ve probably heard that you need to do “estate planning,” but what does that actually mean, and how does it benefit you?
In general, estate planning is the process of legally documenting your wishes and leaving instructions for how you want your estate to be managed if something happens to you leaving you unable to manage your own affairs. Most people are familiar with the concept of leaving a will, so that’s a good start. But a will is only one document of many that you should execute in order to be fully covered.
An Estate Plan is Essentially a Stack of Legal Declarations, but there’s more to it.
Any decent attorney will tell you that a good estate plan should contain, at minimum, the following documents:
- Living Trust, the big document that provides instructions for the management of your trust assets in the event of incapacity and death;
- Pour-Over Will, the back-up document to the will that says everything you have at death should go into your trust;
- Durable Powers of Attorney, which gives your agent the power to deal with your affairs outside of trust;
- Advance Health Care Directive, whereby you name a Health Care Agent who will have medical power of attorney and document your wishes about your medical care and end of life;
- HIPAA Authorizations, which allows certain individuals to obtain medical information and comes in handy if you need to be declared incapacitated under the terms of your estate planning documents
- Guardianship Nominations, in order to tell a future court who you want to raise your children in the event a guardian is needed.
You’ll execute all of these documents, and probably a few more, but comprehensive estate planning doesn’t stop there. You should also make sure your financials align with your plan by
- making sure your bank and brokerage accounts are properly titled, usually in the name of your trust with you as trustee;
- updating or completing any beneficiary designation forms for an account not titled in the name of your trust, like retirement accounts;
- making sure your real estate is properly transferred to your trust by deed, however that is usually handled in your jurisdiction (your estate attorney will probably include this as part of your representation, but you’ll want to make sure); and
- leaving thorough documentation and making lists for your successor trustee/agent regarding your estate, accounts, digitial assets, ongoing bills, etc. so that they can seemlessly take over if it comes to it.
Put the Right People in Charge
Executing these estate planning documents is literally the only way for you to get a say in who manages your affairs if you are incapacitated or die. This is true even if you are married. Granted, sometimes it works out– If you jointly own an asset such as a bank account with your spouse, for example, sure, your spouse will still have the same access to that account that they had before and can likely keep managing things, but they cannot technically act for you on your behalf. If you have an account in your own name alone, pay a utility bill with only your name on it, or if they need to sell the house but your name is on the deed and you don’t have the capacity–they are going to have a problem.
What happens if you haven’t named anyone to be in charge, officially? The short answer is that the court is going to appoint someone. That someone may or may not be not be the person you imagined. Even if it is, that someone has to petition the court and go through the legal process of conservatorship or probate in order to BE appointed. And if anyone tries to fight that appointment or if you have family members fighting over it? Yikes. That’s no fun for anyone.
Avoid the Cost, Delay and Stress of Probate Court
Probate is the court process that occurs when someone dies with assets in their name with a value over a certain threshold. More specifically, probate is the process by which the court validates the authenticity of a will (if there is one), appoints a personal representative for the estate, and supervises the settlement of an estate. Bottom line: If you have assets in your individual name with a value of some threshold amount, with no joint owners and no pay on death beneficiaries, those assets have to go through probate before they can be distributed to your beneficiaries or heirs.
Especially in a state like California, you want to avoid probate because it can include high fees and costs, significant time delays and stress, and public dissemination of private information.
A properly prepared estate plan can ensure that your loved ones avoid having to go through probate court. This is generally accomplished by having all of your substantial assets held by your trust and making sure nothing you own will be left to your “estate.”
Use Trusts to Set Your Kids Up for Generational Wealth
First of all, without an estate plan, state law gets to dictate who your beneficiaries are and how your assets are ultimately distributed when you die. You don’t get a say. While generally your spouse and kids would still benefit, there are a bunch of good reasons to make a proper plan and be fully informed as to how, exactly, and when, they will get any part of your estate.
You also want to think long and hard about whether you would want your minor children to receive their entire inheritance as soon as they turn 18. If you don’t, a general needs trust should be set up for a certain number of years or even for their lifetime with a third party trustee holding the purse strings. Your kids can have access to their money for what they need or whatever you envision for them but can’t go blow it all on a lambo. There are also ways to structure the trust to better protect the assets from your child’s creditors or a potential divorce, if that’s a concern.
This is where a good estate planning attorney is worth their weight in gold.
Beyond all this, the greatest benefit to setting up your estate plan is the peace of mind that comes from having a legally documented plan in place. Do it for your loved ones, but also for you.
