An estate, in legal terms, means all the assets you own, whether it’s a lot or a little. Estate planning, then, means a planning for what will happen with your things, property, and money when you’re gone. It should also encompass planning for who will handle your affairs if something happens where you lose your mental abilities but are still alive. It’s important because without it, your family is left with a costly mess right when they should have the space to grieve. Done right, an estate plan can preserve the harmony in an extended family unit, which is priceless. The goal of this blog is to cover the basics everyone should know.
This blog doesn’t cover legacy planning, which means giving thought to the people and causes that are most important to you, and what you want your impact to be on them. Look for that in a future post!
1. What is Estate Planning?
The plan we generate with our clients starts with their family, values, and their current estate. We then narrow it down to specific goals for after they pass away or become incapacitated. The documents in an estate plan are the various ways we achieve those goals. The main documents are wills, trusts, powers of attorney, and healthcare directives, although a comprehensive estate plan can contain a dozen other documents in it, which all work together to achieve that family’s goals.
2. Importance of Estate Planning
With an estate plan, following your wishes after your death or during your incapacity is a straightforward path for your loved ones. Your taxes, legal fees, and administration costs are minimized, while the flexibility in providing for the people and causes you love are maximized. And with proper planning that considers your unique family dynamics, you minimize the chances that your family is embroiled in costly and heartbreaking disputes.
3. Wills: The Foundation of an Estate Plan
If estate planning is new to you, it’s likely that a will is the document you’re most familiar with. From Plato’s The Laws to Taylor Swift’s “Anti-Hero,” wills are ubiquitous in our culture and history, and for good reason. A will is an important part of the orderly distribution of an estate. But did you know that a will alone doesn’t keep you out of probate court? That’s right, a will just tells the probate court how to distribute your property. Probate court in California is public, expensive, and lengthy. So avoiding it is a top estate planning goal for most clients.
4. Trusts: A Powerful Estate Planning Tool
The gold standard way to avoid this probate to own your estate through a revocable living trust. Some people try to avoid it through other means, but those come with pitfalls that could leave your family with unexpected taxes and liabilities. There are also other kinds of trusts for specific situations. It’s important to discuss your family and assets with your estate attorney for personalized recommendations.
A revocable living trust is an entity outside yourself, which you control, that passes into the hands of the people you designate when the time comes. Assets owned in a trust can be managed by a trustee who you choose in advance, in the event that you lose mental capacity and when you die.
Aside from avoiding probate, another benefit of a revocable living trust is the flexibility to add conditions to distributions and stretch them out over time. This can be particularly useful for minors and beneficiaries with special needs.
Finally, trusts can be administered privately, and generally take much less time than the probate process (unless it’s intentionally designed to be stretched out over time). This results in less stress for your loved ones.
5. Power of Attorney and Healthcare Directives
A power of attorney gives your agent the ability to handle financial decisions for you during your lifetime. It can be effective immediately when signed, or it can be written to activate only if you become incapacitated. Even with a trust holding most of your assets, a power of attorney can play an important role in your overall planning, as you’ll need an agent to handle things outside the trust for you from time to time. In our experience, banks tend to treat these documents as “stale” after several years, so it’s a good idea to get new ones done if it’s been a while.
Healthcare directives let your medical team know your wishes in case you’re unable to understand what’s happening or communicate a preference. They also name an agent to make choices on your behalf for any decisions you didn’t spell out beforehand. Even though many attorneys gloss over this step or even leave blanks for clients to fill in later, it’s important to discuss your end-of-life wishes with a trusted advisor who can help you give your agent more specific guidance. Many of our clients hadn’t thought through the questions we asked, and were grateful for the opportunity to clarify their instructions.
6. Updating Your Estate Plan
While a good estate plan is designed to last, it’s also important to evaluate it regularly and ensure that it is aligned with your wishes. If you’re getting married or separated, or had a child or had a significant change in assets, it’s a good time to review your plan. Otherwise, every three years is a good rule of thumb. Simple changes can have profound effects.
7. Common Mistakes to Avoid
It’s probably not surprising that we’d say the most common mistake is not having a plan. But we’ve seen other huge mistakes too.
- Failing to include all property, leading to some property going how you wouldn’t want
- For married couples, trusts from the early 2000s with administrative burdens not needed under current law, resulting in more work and less protection for the surviving spouse
- Not saving copies of a trust, resulting in the need for a new plan
- Not making changes properly, resulting in litigation
- Not putting any assets into the trust, so that it can’t properly function
- No list of assets, leaving the trustee searching for clues after you’re gone
- No instructions for a funeral or memorial service, how they want their remains handled, or what specific medical choices they would want made on their behalf
- Not having a plan for non-traditional assets like a monetized social media account, cryptocurrency, or intellectual property
- Not itemizing a list of most sentimental personal property and who gets what—this is what most families fight over, not the money!
- Not having a section in the trust that expressly states an intention to put all possible property (with a few exceptions) into the trust
- Forgetting to take title in the name of the trust when buying a new home
8. Getting Professional Help
With the rise of DIY services offering a cheap estate plan in 30 minutes, why would you want professional help? Those companies are able to offer quick and cheap plans because they are based on a one-size-fits-all form. But, in our experience, plans are like snowflakes. They may have the same basic structure, but there are subtle differences that make each one unique. What works for one family might not work for another. And that’s why it’s important to consult with an experienced attorney who focuses on estate planning. Because no one will know what’s missing in that quickie plan until it’s too late. Professional advice helps to ensure that your plan is sound.
If you are looking into estate planning for the first time, or revisiting it after important changes, you’re in the right place. A well-made plan includes a will, often a trust, a power of attorney, a healthcare directive, and many other documents that tie it all together. But it’s not just about the documents. It’s about deciding what you want and taking the steps to make sure it happens.
If you’re ready to take the next step, click or tap here to schedule a no-cost consultation. We’ll discuss your specific situation and get you on the path to what you want to accomplish with your life and legacy.