I Need an Estate Plan – Now What?
Volume 6 • Issue 4 • April 2016
The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues. This month's issue will answer the question, I need an estate plan - now what?. If you are interested in learning more about the ideas and processes discussed in this newsletter, please contact us for an initial consultation.
Traditionally, estate planning has focused on the transfer of assets at the owner’s death. This type of planning treats the creation of an estate plan as a transaction. Good estate planning, however, is not a transaction; it is a process and involves and should result in a long term relationship with your estate planning team. It allows you to care for your loved ones with resources, love and wisdom. Good estate planning is not just something done to plan for death – it is planning for life, and life involves changes and uncertainties. Good estate planning will recognize that planning is a lifetime process. It is not a box to be checked. If you have committed to getting your estate plan in place, you may be asking – now what?
The Value of an Estate Planning Team
The most important step is assembling your estate planning team. The team will consist of an attorney, accountant, financial advisor, life insurance advisor, and possibly others depending on your circumstances. Your estate planning team should consist of individuals who devote time and attention to learning the details of your family and estate and building a relationship with you. Your team should include individuals who are dedicated to the craft of estate planning. While many professionals offer estate planning as part of a broad spectrum of services, in this day and age it is impossible to be good at everything. Look for professionals who make this a major part of their services. Many think online or other do-it-yourself platforms are the answer, but those that choose that route are still flying blind in many ways. You can download a Will or living Trust, but do you really know what to do with it? Do you understand fully the implications of the decisions you are making? Do you know if there is another strategy that is more effective? The knowledge, wisdom, and experience of a seasoned estate planning professional truly provides value and protection.
What is Estate Planning?
Your estate consists of a wide variety of assets. Your estate, of course, includes money, land, business interests, investment accounts, life insurance, and personal belongings. But it also includes your family and your values. Estate Planning is a process where you:
control your property while you are alive and well;
take care of yourself and loved ones if you become disabled; and
give what you want to who you want, when you want, and the way you want.
Your estate plan should reflect your values, achieve your goals, and protect against your concerns.
Common Estate Plans
Some of the more common estate plans that people have are as follows:
Doing Nothing (80% of adult Americans)
Joint Ownership/Beneficiary Designations
Revocable Living Trust
Doing Nothing – The Government Plan
If you have done nothing to plan your estate, you have chosen the plan established by the State legislature where you reside and where your property is located. This is known as intestacy and each State has a plan for what happens with the assets of a person who dies intestate. The government’s plan is meant to cover everyone generally, so as is often the case, it really covers no one in particular. The government’s plan can be particularly problematic for blended families. The government’s plan will mean a possible guardianship and/or conservatorship during life and probate at death.
Joint Ownership/Beneficiary Designations
Use of joint ownership or beneficiary designations is also a very common estate planning technique. These are assets that pass outside of probate and are not governed by a Will or Trust. When planning, it is important to understand the concept that ownership is important and that beneficiary designations will always control. The proliferation of these types of non-probate assets have led many to the false conclusion that they do not need to invest in estate planning to avoid probate and meet their estate planning goals. Nothing could be further from the truth. Reliance on joint tenancy, for example, creates risks that are seldom considered. Adding a joint owner exposes the asset to the joint owner’s liabilities, increasing the owner’s risk of being named in a lawsuit or losing the asset to a creditor of the joint owner. There is also the risk that the joint owner will not be able to resist the temptation to take or use the property while its original owner is still living or will not be willing or able to follow the original owner’s wishes following death. Further, avoidance of probate is not guaranteed. If “my estate” is listed as the beneficiary, or if a valid beneficiary is not named, the affected assets will have to go through probate. If a minor is the beneficiary, the asset holder will probably insist on there being a court-appointed and supervised guardian to receive the assets and manage them for the minor.
Another common technique is lifetime gifting. While legitimate reasons exist to engage in lifetime gifting, it should be done carefully and as part of an overall plan. Moving forward otherwise may result in adverse tax consequences or ineligibility for government benefits such as Medicaid. As with jointly owned assets, you lose control of the asset and the asset becomes subject to the debts and liabilities of the new owner.
A Will – or a “Last Will and Testament” – is a legal document that tells the probate court how you want your property distributed after you die, and who has the power and responsibility to wrap up your affairs. It is purely a death instrument and is only effective when “probated.” Because the Will takes effect only after a court determines that it is a valid document, a judge must act before your executor can step in and manage your estate. Careful attention must be paid when planning with a Will to ensure it is coordinated with assets held jointly or subject to beneficiary designations.
Revocable Living Trust
A Trust is a legal arrangement where one person, the Trustee, owns property given by another person, the Grantor (also referred to as a Settlor, Trustor, or Trust Maker), for the benefit of a third person, the Beneficiary. The most common type of Trust is the “Revocable Living Trust.” Revocable Living Trusts are fully revocable and amendable at the request of the Grantor. You are the Grantor, Trustee and Beneficiary while you are alive and able. Assets transferred (or “funded”) into a Revocable Living Trust can be withdrawn at any time. Planning for disability with a living Trust is superior to relying solely on a durable power of attorney. Today, many financial institutions and other third parties will not accept a durable power of attorney unless it is recently signed and on their own form. But they must accept the instructions of a Trustee (or successor Trustee) named in a Revocable Living Trust concerning the Trust assets. This makes it less likely that a guardianship/conservatorship will be needed. Likewise, when you die there is no need for a probate because the successor Trustee now owns the property.
Many put off estate planning, forever putting it on their “to do” list sometime in the future, always meaning to get it done “sometime soon.” Remember, good estate planning is a process, not a transaction. Invest the effort into building a sound estate planning team. These individuals can help you through the various stages of life and planning. They will provide valuable insights and wisdom that can only come from experience. They will help you answer with clarity the questions – now what?
This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.