Estate Planning Essentials

            Let us review the following estate planning tools:  The Trust, the Will, the Power of Attorney, the Advance Health Care Directive, Joint Tenancy, and Death Beneficiary forms. 

            1.        The Trust.

            The revocable living trust allows individuals and couples to control their trust assets for their benefit and the benefit of their loved ones.  As settlor(s), individuals or couples can transfer assets to themselves as trustees.  Assets are managed by the trustee according to trust terms.  

            While the settlors are alive, the beneficiaries are the settlors and their dependents.  Upon a settlor’s incapacity, a successor trustee (named in the trust) takes over.  A trust can help to avoid an otherwise unnecessary conservatorship of the incapacitated settlor’s estate. 

            At the settlor’s death, the trust estate avoids probate.  Assets are either transferred outright or held in further trust for the beneficiaries.   If any beneficiaries have special needs or circumstances, then their inheritance can be held in further trust for their benefit.  For example, a special needs trust may be established in the living trust for the care of a beneficiary who receives SSI and/or Medi-Cal benefits.

            2.        The Will.

            A stand alone will, and not a trust, is often used when a person’s estate that would become subject to probate is “small”, i.e., a gross value of under one-hundred and fifty thousand dollars ($150,000).  This does not necessarily mean that the person’s net worth is “small”.  A person may own valuable financial assets which avoid probate and pass to designated death beneficiaries or surviving joint tenants.

            If a probate is commenced, it is administered by the executor/administrator who pays creditors and ultimately distributes the estate under court supervision.  If the estate is small, however, distribution may occur without the expense, delay and formalities of a court supervised probate.  

            All trusts are accompanied by a so-called “pour over will” that directs the transfer of any assets outside the trust to the successor trustee.  These assets are then administered as part of the trust.

            3.        Power of Attorney – Finances & Property.

            A power of attorney (PoA) for financial affairs and property management allows an agent to manage non trust assets and finances on behalf of the principal according to the terms of the power of attorney.  It takes effect either upon signing or upon the principal’s incapacity. 

            Depending on the scope of the power of attorney, the agent’s authority might include paying the principal’s bills, making gifts for the benefit of the children or spouse, paying mortgages, paying taxes, filing tax returns, apply for government benefits, and managing retirement accounts and other investments outside of the trust.   The agent might also be authorized to conduct legal actions on the principals’ behalf (e.g., purchasing real property). 

            As so much may depend on the power of attorney, the scope and drafting of the PoA should be carefully considered.  There are potential benefits and risks, including the possible abuse by the agent.

            4.  Advance Health Care Directive (AHCD), Health Insurance Portability & Accountability Act (HIPPA) release, & Physicians Order Regarding Life Sustaining Treatment (POLST).

            The AHCD allows you to name an agent for health care decisions.  This includes medical treatment, visitation, and end of life decisions.  Also a HIPPA release (perhaps included in the AHCD) is needed to release of confidential information to the agent.  Furthermore, recently the POLST, which supplements and does not replace the AHCD, contains one’s wishes regarding life sustaining treatment, such as whether or not to resuscitate.

             5.  Joint Tenancy Accounts

            Joint tenancy accounts transfer automatically to the surviving joint tenant(s) at death.  A small joint tenancy account, say around five thousand dollars, can be helpful to allow the successor trustee or executor immediate access to money, including paying funeral expenses and initial attorney fees. 

            6.  Designated Death Beneficiary Accounts.

            Life insurance, annuities, retirement plans (e.g., IRA’s and 401(k)’s) and “pay (or transfer) on death” accounts all involve designated death beneficiary forms.  These must be properly completed by the participant(s)/owner(s) and will require the consent of the nonparticipant/non owner spouse if community property is involved.  Alternative beneficiaries may be named if the primary beneficiaries do not survive.  Company forms vary and each requires a close reading.

            7.        Conclusion

            Getting your affairs in order will give you peace of mind and protect you and your loved ones.  Procrastination is the primary reason people neglect estate planning.  Planning in times of ease is better than leaving important matters to chance.