The Process|What is a Living Trust?|What is a Durable Power of Attorney (for Financial Matters)?
What is an Advance Health Care Directive?
The Process“In this world nothing can be said to be certain, except death and taxes.”
When people ask me if I enjoy my job, they’re really asking how I
can stand coming face to face with death and grief on a daily basis.
My response, and my attitude, is that “estate planning” is about
life.
When a new client first meets with me, I ask him
about his family and the wealth he’s accumulated over his lifetime.
I watch the client beam with pride when he tells me about his and
his family’s accomplishments. I also discuss with my client any
particular concerns he may have about a family member who could be
either too young, disabled, or simply too immature to handle a large
inheritance.
Once I’ve gathered this information, I help
the client execute a complete estate plan, which may include a
living trust or will, to dispose of the client’s property at his
death. An estate plan typically includes an advance health care
directive and durable power of attorney, which allows another person
to take care of the client’s medical or emergency financial needs,
in case the client becomes incapacitated or unable to
communicate.
When a person engages in estate planning, he
has decided to put his family first. He has put documents in place
so that his heirs will inherit his remaining assets with a minimum
level of hassle, taxes, and conflict. He has nominated a trusted
relative or friend who will assist him in financial matters if he
ever becomes unable to manage his affairs, and has told his family
his feelings regarding life support to enable a loved-one to follow
through with his final wishes.
What is a Living Trust?
A living trust works similarly to a will – it disposes of a
person's assets at his death. However, unlike a will, a decedent’s
assets will be distributed without the need for an expensive and
time-consuming court-supervised probate.
A living trust is a written agreement between the
creator of the trust (the “Settlor”) and the person who is going to
manage the trust (the “Trustee”). The Settlor moves his assets into
the trust, with the understanding that the Trustee is going to
follow the rules set forth in the trust to take care of the
beneficiaries identified in the document. Usually, during the
Settlor’s lifetime, he is also the Trustee and the primary
Beneficiary.
The Settlor moves his assets into the trust
to make it easier to manage his finances and distribute assets to
his heirs at his death. If the Settlor is the acting Trustee, the
living trust uses the Settlor’s social security number on all
financial accounts and the Settlor remains responsible for paying
all income taxes associated with the income from the trust. If the
Settlor becomes incapacitated or otherwise unable to manage his
financial affairs, a successor Trustee, who is appointed by the
Settlor in the trust document, can step in and manage the Settlor's
assets on the Settlor's behalf, thereby avoiding a conservatorship
or guardianship procedure.
A living trust, by and of
itself, does not minimize
estate taxes. A living trust is used
to avoid probate.
What is a Durable Power of Attorney (for Financial
Matters)?
When a person executes a Durable Power of Attorney (“DPA”) he
appoints someone else to make financial decisions on his behalf.
If
a person becomes unavailable to handle his financial affairs, his
agent under the DPA has the authority to change withdrawals from
retirement plans, terminate extraneous expenses, refinance real
estate mortgages, arrange for long term care, or take any other
financial action needed by the ill person. Also, if the ill person
did not take steps to move his accounts into his living trust, the
agent under the DPA can complete the transfer paperwork into the
trust to avoid probate hassles at the ill person’s death.
Although
the agent is given a lot of power in the DPA, he is specifically
prohibited from changing an estate plan to unduly benefit himself or
his family. If an agent ever acted against the best interest of the
ill person, he could be sued and prosecuted for breach of fiduciary
duty or elder abuse.
What is an Advance Health Care Directive?
An Advance Health Care Directive has two primary purposes: it
(a) clearly states the client’s feelings regarding life support
(formerly known as a “living will”) and (b) nominates another person
to communicate the client’s wishes if he is ever unable to speak to
his physician. An agent under the AHD is also generally able to
monitor the ill person’s care and change hospitals or physicians if
he believes the ill person could receive better treatment somewhere
else. In an AHD, the client may note whether he is willing to make
donations of his organs and whether he is comfortable having his
agent make funeral arrangements.
Although the AHD does
not deal with financial matters, it is a complement to the rest of a
client’s estate planning documents and is the best way to avoid any
unnecessary conflicts concerning end-of-life issues.