Estate Planning Basics

The Process|What is a Living Trust?|What is a Durable Power of Attorney (for Financial Matters)?
What is an Advance Health Care Directive?

“In this world nothing can be said to be certain, except death and taxes.”

Benjamin Franklin (1789)
The Process

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.