Estate Planning

Estate Planning

Leaving a Legacy of Love 


What is Estate Planning?

A lot of times when people hear the word "estate," they envision sprawling English manors with gated entries. An "estate," though, is a legal term that just means all the stuff you have acquired over your lifetime. Those of us who do not own sprawling English manors need to make a plan for all of this stuff just as much, if not more, than those with the maids quarters. For the majority of us our estates, though hard-earned, are not always all that sprawling. For those with a little less there is less room for mistake, which means that estate planning is all the more necessary.  

How do I create an Estate Plan?

Believe it or not the State of California already has a plan for you. This plan is called Probate. Probate is a court process that returns property back to the land of the living. However, most don't like the plan that the state has to offer because the process is difficult and time consuming (Learn more about the Probate Process)

Estate Planning

Since most do not like the plan that the State of California has laid out for them, they opt instead to write their own plan. Many think that a will accomplishes this task, but a Last Will and Testament is merely a letter to the Probate Judge that tells the court how the planner wants their property distributed when they pass. 

You can create your own plan by creating a Trust, a special kind of trust called a Revocable Trust, sometimes called a Living Trust, and sometimes even called a Revocable Living Trust. While there are various types of trusts that are used to plan for taxes, the Revocable Trust is used to plan for taxes and to plan for all of the unthinkable events that are bound to happen at some point. One of the great benefits of creating a Trust is that you are no longer bound to the rules that the State of California has created for you. Creating your own plan becomes more important as life becomes more complex: as families become more complex, society becomes more litigious, employment becomes more irregular, etc. 

What is a Trust?

A Trust, a Revocable Trust like we are discussing, is a bucket. This Trust Bucket can hold your property and you control the property in this trust bucket by holding the bucket handle (as Trustee, the legal name for the Boss). Further, you can control this bucket even when you are no longer able to make your own decisions because you can appoint others (Successor Trustees) to take over when you can no longer attend to your own finances. You can also leave instructions for the person appointed to be your Successor Trustee and they have a duty to follow those instructions. The problem with owning property in your name only is that the property held in your name only may have to pass through Probate (here's the link to the probate page again). If you read up on that process you would know that probate is a PAIN so anything you can do to avoid that process would be good. A trust has many other benefits too. 

What are the benefits of a Revocable Trust?

Some of the benefits of setting up a Revocable Trust include:

  • probate avoidance

  • asset protection,

  • remarriage protection,

  • lifetime planning,

  • tax planning,

  • special needs planning,

  • protecting minor children,

  • protecting adult dependents,

  • protection from beneficiaries' drug habits, gambling addiction, and spendthrift habits,

  • planning for your pets,

  • planning for your business,

  • planning for peace for a blended family,

  • really the list goes on and on. 

I created a Trust Document. Done! Right?

Not so fast. You created a Trust, but a Trust is only as good as the assets inside of it. A Trust is a bucket, but if you created a Trust bucket and did not fill it what do you have? That's right, an empty bucket. You can hold the handle as Trustee and control all the property inside the Trust bucket, but you are not controlling anything because nothing is in the bucket. 

Title Trumps Trust

The problem is that Title trumps Trust. This means that if the Title of the property says one thing and the Trust says another thing, Title wins. For example, if the deed on your home says that you and your spouse hold that home as "Joint Tenants with Right of Survivorship" that trumps anything that your trust says. If you want the terms of the trust to control the way that the property acts you have to change the deed to reflect this. You have to transfer the property from "Me and My Spouse, as Joint Tenants with Right of Survivorship" to "Me and My Spouse, as Trustees of Our Trust."

This rule does not only apply to real property. It is true of bank accounts, investment accounts, life insurance policies, and everything else (even personal property). You have to transfer all of your assets into the trust so that the terms of the Trust can affect the property. The process of transferring property into the name of your Trust is often called "Funding." The good news is that once this funding process is over, making changes to your overall plan is a lot easier than it is now. 

To illustrate this, let's say that you had a child that since reaching adulthood has gone down the wrong path in life. Let's say that you are afraid that if you passed you would drop a pile of money in that child's lap and only do that child more harm than good with that pile of money. What would you have to do to make sure your child was protected from him or herself? Your plan may be to cut that child out from receiving any inheritance (with a Trust there are better options than this, but we will ignore those for the time being). You would have to change your Will, or create a Will, if you did not already have one. In that Will you would have to disinherit that child. Then you would have to go to every asset that you hold and change the beneficiary designation or transfer on death designation to disinherit that child.

Now, what happens when that child cleans up their act and you want that child to receive the inheritance that you had denied them a few years before? You have to create a new Will or codicil to that will and go back to every single asset to change the beneficiary designations and Transfer On Death agreements again. 

Had you created a Trust and funded all of your assets into that Trust, it would have operated as a roadmap for all of your assets. You would simply make an Amendment to your Trust and your child would no longer be disinherited from your estate. What if, after you pass away, your child returns back to his or her wayward past? A Trust can plan for that too, but that goes back to the asset protection discussion that we mentioned earlier. 

So, now that you have funded your Revocable Trust, you are done now, right?

What documents do I need for a complete Estate Plan?

No, a Trust alone is not enough to plan for all of the issues that life may present to you. A comprehensive Estate Plan should include at least the following documents, as a foundation: A Pour-Over Will, a Power of Attorney, a Health Care Directive, and a HIPAA Authorization.

Pour-Over Will

A Pour-over Will is like any other will because it is letter to the Probate Judge, but the purpose of this Will is different. The hope is that this Will will never be used. It is a plan B in case not every detail of your plan goes as planned. Earlier we discussed how important funding is. A Pour-Over Will is insurance in case not everything is funded into your trust when you pass away. If your trust is a bucket, your Pour-Over Will is a legal pooper scooper. 

Power of Attorney

When you create a Revocable Trust, you create a fictional wall between Trust Property and Non-Trust Property. Your Trustee is able to manage your Trust Property while your agent on a Power of Attorney will manage your Non-Trust Property. No matter how well you fund your Trust, there will be some assets that must be held outside of the trust while you are living. The Power of Attorney allows a person of your choosing to manage that property when you can no longer do it yourself.

Health Care Directive

A Health Care Directive is the document that appoints someone to take care of health care decisions on your behalf if you are unable to make the decisions for yourself. I get asked about Do Not "Resuscitate" documents a lot. I personally do not like them that much. This is the problem with those types of documents: you cannot predict all of the many turns that your healthcare will take. Creating a rigid document then has one of tow problems. Either, the health care organization will follow the document to a T and the results may not be exactly what you would have wanted or the health care organization will completely ignore the document and your wishes definitely will not be carried out. I find that creating a document that allows the person of your choosing to have the power to be your advocate and having a really good detailed conversation is much more reliably beneficial to your health care desires.

HIPAA Waiver

Estate Plan HIPAA

When was the last time that you went to the pharmacy? Do you remember seeing the red line on the ground that warned, "Stand Behind This Line for Patient Privacy?" That was the HIPAA Laws in action. Congress passed these laws to protect our medical information from being disclosed to people we would not want in our medical business. It was a worthy cause, but the lawmakers did too good of a job and now pharmacies and health care professionals are afraid they will get sued for giving anyone medical information. A HIPAA Waiver allows the loved ones to talk to your doctors and other health care professionals. 

These are the tools used to create a great comprehensive Estate Plan, but having these tools alone is not enough. These tools must be used in a way that is tailored to your family and financial situation and in a way that communicates your values and goals correctly. 

What is the purpose of an Estate Plan?

Simply having the right documents is not enough. A complete Estate Plan must be comprehensive, meaning that each document or tool must be created together as parts of a complete plan. If your Estate Planning is not done in this manner, then it can actually be counter productive. Estate Litigation is one of the fastest growing areas of legal practice. This is due many trends that are all happening at the same time:

(1) The world is getting more litigious, so more plans are being tested in the court-- this includes Trusts (2) Families are often more complex, making simple plans are of less value (3) There are more cheap online and offline resources that people are turning to (i.e. LegalZoom and Legal Document Preparers) and (4) Attorneys that dabble (meaning they do not focus on just a few areas of law).You have to ask yourself, "What is the purpose of Estate Planning?" An Estate Plan is a final love letter to your loved ones. It is the last thing that your loved ones will remember of you. You have the opportunity to say to your family, whether that family is your children, your spouse, nieces, nephews, I love you. The purpose is to create peace, to Leave a Legacy of Love. There is no quick or easy way to do this, but after you do it, it will have been worth it.