ESTATE PLANNING

In the past, only the very wealthy needed “estate planning.” The average couple might do no more than make wills leaving everything to each other and ultimately to their children equally.

These days, however, ordinary homes can be worth nearly $1,000,000, so even middle class people can have quite sizeable estates. Marriages are less stable. After divorce in a family, the “usual” disposition of one’s estate may not be desired. Advances in medicine have extended lives, often with periods of diminished capacity. For these reasons and others, almost everyone should implement plans for distribution of his estate when he dies and for handling his affairs if he becomes incapacitated.

Estate Planning Goals

We have identified four major goals of estate planning. An estate plan should cause one’s assets to be distributed after death in the manner he wishes. It should provide for speedy and economical estate administration. It should eliminate or reduce taxes, both after death and during one’s life. Finally, it should provide a method for handling of one’s affairs, preserving his estate, and making personal decisions if he is unable to do so for himself because of mental or physical incapacity.

The primary methods available for attaining those goals are discussed below.

The Comprehensive Plan

Because of the wide variety of people’s circumstances and the complexity of living in the modern world, no single method of accomplishing the goals of estate planning is

appropriate for everyone or will work in every situation.

In rare cases, simply making an immediate gift of one’s assets to a child may be appropriate. In most others, much more is needed.

In the case of a couple with grown children who own a home, have a savings account and perhaps some investments, a comprehensive estate plan will probably include a living trust, a community property agreement, wills, durable general powers of attorney, and advance health care directives. The purpose of those documents is described below.

Wills

Wills are important parts of almost all estate plans. By a will, one specifies how his assets will be distributed after he dies. Wills may be changed at any time before death.

One’s will does not affect the distribution of some assets. At times the manner in which title is taken determines what will happen. In such cases, what the owner’s will says does not matter. For instance, if property is held by two people as joint tenants and one of them dies, the surviving joint tenant automatically becomes the sole owner of the property no matter what the deceased joint tenant’s will provides. Similarly, one’s will does not affect the disposition of assets held in a trust: the terms of the trust control.

A will’s provisions are usually carried out by the person named as executor supervised by a court in a probate proceeding.

Living Trusts

A living trust can serve as a will substitute since it can direct the disposition of one’s assets after death. However, by using a trust, there is usually no court supervision, i.e., no probate, which can be expensive and protracted.

A living trust may also provide a vehicle for the management of one’s affairs if he becomes incapacitated. Usually the person setting up the trust is the initial trustee of the trust, and therefore continues to manage his assets as before. However, he can specify in the trust who will take over if he becomes incompetent, and that person will then administer the trust, without the necessity of a conservatorship proceeding.

Trusts (as wills) can be used to reduce or eliminate estate taxes for persons with sufficiently large estates.

Asset Powers of Attorney

A power of attorney allows someone to sign legal documents on another’s behalf. It must be signed by the person who is giving the other person the power. Powers of attorney can be “durable,” which means that they can continue to be valid when the person giving the power is incompetent.

Such a power can be useful in the event of incapacity, as there will be someone with the ability and authority to handle ones finances without the necessity of a court proceeding. Even if one has a trust, there may be issues that the trustee has no authority to deal with, such as taxes, social security, insurance or retirement plans, so a power of attorney may be needed. It should be kept in mind,

however, that the agent under a power of attorney has no right to administer trust assets.

Advance Health Care Directives

Advance health care directives contain instructions concerning the type of care one desires if he is unable to express his desires at the time. Health care directives may also allow one person to give another the power to make decisions relating to medical care and treatment if he is unable to do so. Health care directives may direct that no heroic measures be taken to artificially prolong life if one is in a coma or has an incurable condition. They may also give someone the right to donate organs and dispose of one’s remains.

Community Property Agreements

There may be substantial income tax advantages for a married couple in holding property as community property, as opposed to separate property or in joint tenancy. An agreement that some or all of one’s assets are community property can gain those advantages.

Other Devices

There may be other methods of accomplishing one’s estate planning goals. As noted above, gifts might be appropriate, as may be holding property in joint tenancy. Bank accounts may be held “as trustee” for another, allowing the “beneficiary” to receive any money remaining in the account at one’s death. (Such accounts should not be confused with living trusts.) Life insurance is another obvious tool. Some estate plans may include irrevocable trusts, life insurance trusts, charitable trusts or family partnerships. It may be advisable to make a nomination of conservator.

The list of techniques and devices mentioned above are not exhaustive. Design and implementation of an estate plan in almost every case should be undertaken in conjunction with a qualified attorney. 

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