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What You Need To Know About Estate Planning

Posted by Lauren Moone on October 31, 2019

When meeting with new clients, we often learn that they do not have a basic estate plan. While we are not estate planning attorneys, we feel strongly that having the key components in place is vital to our clients’ financial plan and family’s well-being.

Estate planning is the process of designating who will receive your assets and handle your responsibilities if you are no longer able to, and to make sure it happens in the most efficient and cost-effective way possible. 

Here's a high level overview of the components of an estate plan and why they are important.

Advance Healthcare Directive

An AHD empowers someone to make medical decisions for you if you become unable. It can specify your wishes regarding treatment during terminal condition, organ donation, home health care vs. nursing, and a number of other matters.

Durable Power of Attorney

By granting someone Power of Attorney, you're essentially saying that they are trusted with making decisions for you if you were to become incapacitated. Under such circumstances, the document would be invoked, granting decision making power and control over your assets to the designated party.

Durable Power of Attorney gives the signatory near universal rights to act on your behalf excluding healthcare. If that makes you uncomfortable, Limited POA is also an option. LPOA dictates what exactly the designated party is allowed to do on your behalf, for example access to your checking account to pay your bills but not to your investment account.

Will or Pour-Over Will

A Last Will and Testament is an instrument used by millions of Americans to distribute property when they pass away. It may dictate who will be the guardian of your children and how they are provided for, or the allocation of your jewelry.

If you establish a Living Trust, you will fund it with the assets in your possession at the time it is drawn-up. However, assets acquired at a later date that are not immediately or shortly thereafter put into an entity that is in the name of  the Trust, will remain your Personal Assets. Those wishing for any Personal Assets "outside" the Trust to make their way into the Living Trust, will establish a Pour-Over Will. This special-use tool allows the assets in the Will to "pour-over" into the Trust - bringing them under the authority of the Trustee and the rules governing the Trust.

Living Trust

Establishing a Living Trust is almost always a recommendation we make to our clients. A Trust will supersede a Will. You might be wondering then, how are they different? Why would I need a Trust if I have a Will?

A Will is a document used to regulate the distribution of your assets. Wills are subject to probate which is a lengthy and expensive process. We hear more about Wills than Trusts because they are easier to create — more people have them. There are a few unique attributes of a Will that make it necessary even if you establish a Living Trust. For example, to name a guardian of your children, you will need a Will.

A Trust is also a document used to distribute assets at the time of your passing. The most important attribute of a Living Trust is that it bypasses probate. More on that below. A Trust is administered by a Trustee, who controls and distributes the property of a Trust. While Trusts are more complicated than Wills, they can be established in relative short order — usually in one or two meetings with an estate attorney.

If you have young children, own a house or have complicated family dynamics you should have a Living Trust.

What is Probate?

Probate is the legal process administered by a court when someone passes away. It is intended to finalize the distribution of an individual's property.

Probate is known for consuming the resources of an estate, particularly over a long period of time. Probate is also a public process, meaning when it begins, your Will becomes visible to ANY person who visits the clerk's office.

The word is detested in legal circles and is known to protract the already stressful settlement process among beneficiaries of estates. It is strongly recommended that, if you can afford to do so, you avoid probate.

I Don’t Know What My Parents Have Done

When talking to clients about their estate plan, the most common concern we hear is that they are unaware of their parents’ plan.

According to AARP, 60% of Americans lack a Will or Living Trust. Lack of advance planning can cause enormous emotional and financial strain.

The most expensive part of caring for aging parents is usually healthcare. It is important that you understand their needs, and ensure they're well prepared to confront their health, should it fail. Don't wait until they are ill to have this conversation.

How Do I Talk to Them About It?

Although it's important to have this conversation as soon as possible, understand that it will be an ongoing conversation and likely involve multiple family members — so don't rush it.

Stress the importance of your needing to know, but be patient.

Have the conversation when they are healthy and there is time to plan (and save) for their care. A 2016 study found that 93% of kids and 95% of parents reported having greater peace of mind after having these conversations.

Common Sources of Disputes

Unfortunately, the distribution of an estate often generates disputes involving family members and legal teams. The best defense in these situations is a good offense. Apprise yourself of the common issues. Talk to friends or your estate attorney. In their experience, what could have been avoided?

Here are a few of the issues we see.

  • Titling an account "Joint WROS" with a child (or anyone else) to help pay bills – they will get this outside of the estate plan upon death.
  • Leaving property to more than one beneficiary (two kids jointly own a house and one wants to live in it).
  • Failing to fund a Living Trust (failing to re-title assets in the name of the Trust) and having to go through probate.

Additional Resources

We recommend working with an attorney to put together your estate planning documents to ensure the appropriate items are considered and put into place correctly. We have several local attorney referrals to provide upon request.

If you are in need of a Notary Public, we have one in our office who is available to our clients at no charge to help complete your paperwork.

We also recommend this book by Catherine Hodder: Estate Planning for the Sandwich Generation: How to Help Your Parents and Protect Your Kids 

Ladies, to receive an invitation to my next Wine & Wisdom event, please email or call 925-621-1007. I host these events in Pleasanton bi-monthly and welcome you to join the group; we'd love to have you!

Topics: Estate Planning, Personal Finance

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