Nearly every legal adult should have a comprehensive estate plan. At a minimum, this should usually consist of a Will; Power of Attorney; and Advance Health Care Directive. For many more people, including those who own at least one piece of real property (e.g. a home) and/or those who have minors, children that are young adults, or dependent loved ones, establishing a Revocable Living Trust is also extremely beneficial.
A modest investment in a customized estate plan can save you and your loved ones considerable time, money and inconvenience. A more elaborate or highly customized plan may be necessary, or at least very helpful, in any number of situations. For example, this applies to those who: want to create very substantial control and/or asset protection for loved ones; have blended families; want to provide for someone who is receiving or likely to receive public benefits for a disability (“special needs”); are married and one or both spouses is not a U.S. citizen; who are extremely affluent and thus, may benefit from “advanced planning” – typically in the form of various federal estate tax mitigation strategies; or would like to explore the benefits of various charitable giving strategies.
Extremely effective as a “Will substitute” (in most respects), a Revocable Living Trust, allows you to direct the distribution of your assets when you’re gone; designate an agent (trustee) to manage the bulk of your financial affairs if you should become unwilling or unable to manage them yourself; enable your loved ones to avoid the cumbersome and expensive Probate court estate administration process; and control assets in the manner you wish for your loved ones, if necessary or appropriate, after your death.
If a Revocable Living Trust is not necessary or advisable, a Will is essential to direct the distribution of your assets to those you care about (so the State of California “default” rules do not apply). If a Revocable Living Trust is necessary or advisable, the use of a “pour over” Will serves as an important “safety net” for any assets that may not be titled in your Trust when at the time of your death. This kind of Will directs that these non-trust assets be poured over into the Trust and distributed according to its terms. For those who have minor children, the Will is also the appropriate document for designating a guardian.
Durable Power of Attorney
A Durable Power of Attorney is a document in which you appoint a trusted person as your agent (called your “attorney-in-fact”) to handle your financial affairs and sign documents on your behalf. This can supplement the powers held by the trustee of your Revocable Living Trust (often the “attorney-in-fact” and successor trustee of your living trust is the same person), as your agent has legal authority to transact business for you as to non-trust assets. You can choose to make these powers effective immediately or make the powers “springing” – springing into effect only if and when you become temporarily or permanently incapacitated.
Advance Health Care Directive
An Advance Health Care Directive is a document in which you appoint a person as your agent to make health care decisions on your behalf if and when you are unable to make these decisions for yourself. Additionally, this document provides a valuable opportunity for you to make your wishes known about matters such as when life support systems should be used or discontinued, and whether organ donations are authorized.
Special Needs Trusts
If you have a loved one who collects or is entitled to collect public benefits for a disability, it is extremely important to explore the benefits of a Special Needs Trust. Generally, such trusts enable an agent (trustee) to distribute funds from the trust to the special needs beneficiary that supplement, but do not substitute for, these public benefits. Often, it’s appropriate and helpful to include a Special Needs Trust for such disabled loved ones within your Revocable Living Trust – thereby preserving rather than potentially jeopardizing the disabled loved one’s public benefits when he or she receives the inherited funds.
Irrevocable Trusts & Advanced Estate Planning
Various kinds of Irrevocable Trusts [such as an Irrevocable Life Insurance Trust (ILIT), Qualified Personal Residence Trust (QPRT), Defective Grantor Trust (IDGT), Grantor Retained Annuity Trust (GRAT), “Crummey Trust”, and various types of Charitable Trusts] are available as “advanced estate planning” tools. Generally speaking, these strategies are used by wealthier families to help mitigate, in accordance with applicable laws and tax regulations, Federal Estate Tax and Federal Gift Tax liability. Accordingly, when properly designed, drafted and implemented, these strategies can enable more assets to be inherited by the loved ones of these families and the charitable organizations they support. While these strategies can be enormously helpful, they are complicated, require extraordinary care, and should only be considered and used after careful consideration and consultation with your professional advisors (including, but not limited to, your financial advisor and your C.P.A.)
Estate Planning Primer