The Power of Estate Planning - Remember the Basics


Volume 2 • Issue 11 • November 2012

The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business planning and charitable planning issues.  This month's issue will discuss getting back to the basics.  If you are interested in learning more about the ideas discussed in this newsletter please contact us for a free initial consultation. 

With the election now over, the so called “fiscal cliff” looms large in the press. While none of us knows exactly how the next 45 days will play out in this high stakes showdown, perspective is an important thing. While it is easy to get lost in the alphabet soup of complex estate planning techniques meant to provide incredible tax savings at this time, don’t lose focus on the real power of estate planning that can come through some of the most basic planning techniques.

When I speak about estate planning, one of the first questions I ask the audience is: “Who has an estate plan?” Invariably only a few will raise their hands. The answer, of course, is we all have an estate plan. The real question is did we determine the terms of our plan or did the government? Every state has some form of a probate code that provides default answers to estate planning questions. Whether it is where our assets go, who serves as our personal representative (executor) or who takes care of our minor children, the intestacy laws found in the probate code provide the answers when we fail to express our own wishes. This is called dying intestate. Unfortunately, as with most statutes of general applicability, the answers found in intestacy statutes apply to no one in particular and can at times produce unintended or tragic results. For example, if more than one person has “priority” under the code for a particular responsibility, such as guardian of your minor child, the potential now exists for protracted litigation.

While some will require more complex strategies, the goals of most families can be met with the basic documents in the modern estate plan. These documents are as follows:

  • 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. Perhaps 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 and you, generally, 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. "Living" refers to the fact that it is established while you are alive and remains under your control until your death or incapacity. Revocable Living Trusts can be used to avoid a guardianship/conservatorship proceeding (sometimes referred to as a “living probate”) in the event you become incompetent. Properly funded, a Revocable Living Trust will also allow your heirs to avoid probate with its attendant costs. A minor child inheriting through a Trust will not require a conservatorship. Finally, Revocable Living Trusts can be drafted to ensure that neither spouse’s estate tax exemption is lost.

  • Pour-Over Will – 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 wind up your affairs. A Will is purely a death instrument and is only effective when "probated." Because the Will takes effect only after a court determined that it is a valid document, a judge must act before your personal representative or executor can step in and manage your estate. In a Trust based plan the Will acts as a “pour-over” to ensure that any assets not properly titled in the name of Trust will ultimately pass according to the terms of the Trust. The Will is also the appropriate place to identify the guardians for your minor or disabled child.

  • Financial Durable Power of Attorney – A carefully written durable power of attorney will allow you to name someone you trust to make decisions for you if you become disabled to the point of no longer being able to make those decisions yourself. The Financial Durable Power of Attorney allows you to appoint an individual to act on your behalf for financial matters not covered by your Trust.

  • Health Care Power of Attorney and Living Will or Advance Health Care Directive - Known by different names depending on your state. These documents allow your trusted friend or family member to make medical treatment decisions for you, including end of life decisions, if you are unable to communicate your wishes to doctors. Without these documents in place, you must have a guardian or conservator appointed by the court before decisions can be made on your behalf.

  • HIPAA Authorization – With strong laws in place to protect your private health care information, the HIPAA Authorization allows you to identify who can access your confidential medical records. Extending the powers granted in this document beyond your death can allow loved ones to access these records without the need of court involvement.

Often I hear "I am too young to plan" or "my estate is not large enough to require planning."  Such thinking, however, is not well founded.  If you fit into any of the following categories, you could benefit from some form of estate planning:

  • You are 18 years of age or older

  • You have a retirement plan

  • You have life insurance

  • You are married

  • You have minor and/or disabled children

  • You are in a blended family

  • You are a widow or widower

  • You own a business

  • You want to leave assets to charity

We live in a time of great uncertainty when it comes to federal tax law.  But, regardless of the current tax climate or the size of your estate, incredible benefits always exist in the basics.

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.