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“How will estate planning protect my family or preserve my assets for my loved ones?”
An essential estate plan includes the following documents:
Revocable living trust
Durable power of attorney
Advance health care directive
REVOCABLE LIVING TRUST
At the core of most estate plans is a revocable living trust. People often think that a living trust is simply a document but actually, a trust is intangible. It is an entity, like a corporation, with rules on how to manage the property held by that entity.
Living trusts are very flexible as they can be amended as often as desired during your lifetime. This flexibility allows you to control the use and disposition of your property in a manner consistent with your goals and values. For example, many of Richard’s clients utilize his "education acceleration clause" in order to incentivize their child to promptly finish college. Many clients create special needs trusts so that loved ones living with life-long disabilities can maximize the use of the client’s assets without jeopardizing the loved one’s essential public benefits.
A living trust is not a simple fill-in-the-blank document. Richard has seen many “do-it-yourself” trusts that have resulted in needless litigation costing three to five times a basic estate plan, not to mention the stress and anxiety of having to deal with the legal system. Additionally, a poorly drafted trust can have serious estate, gift, income, or property tax consequences.
The pour-over will serves two purposes. First, it supplements your living trust as a backup document in case you forget to title assets in your trust. A common scenario is when a client creates their trust then, years later, purchases or refinances a home without ever titling the property as trust property. In this case, the house may need to go through the probate process but the pour-over will directs that the probate property be titled as a trust asset. Accordingly, the will "pours" your probate property "over" to your trust.
Secondly, the pour-over will can appoint a guardian to your minor children. Sadly, many pour-over wills often do not include a nomination of guardian.
DURABLE POWER OF ATTORNEY AND ADVANCE HEALTHCARE DIRECTIVE
Durable Powers of Attorney and Advance Health Care Directives are invaluable in the event of your incapacity by providing others the authorization and means to make the necessary day-to-day decisions of your life without having to resort to a costly and time-consuming conservatorship.
A Durable Power of Attorney (DPOA) allows you to appoint an agent to manage assets that are not titled in your trust in the event of you are unable and, unlike your pour-over will, is effective only during your life. A DPOA is invaluable for the management of your IRAs during your incapacity because IRAs cannot be titled as trust assets and thus, must be managed through the DPOA.
An Advance Health Care Directive (AHCD) gives someone the power to make health care decisions for you in the event you are unable to give informed consent. While this document does not deal with how your assets are managed, it is integral to estate planning as it empowers your agent to advocate for your views and decisions on prolonging your life, artificial nutrition, organ donation, and the disposition of your remains (burial, cremation, etc.)
OTHER DOCUMENTS AND SERVICES
In addition to the basic estate planning documents discussed above, other documents may be necessary depending on your situation.
Loved ones with disabilities
A special needs trust (SNT) is a trust designed to ensure that a person who depends on public benefits does not lose those benefits. Money can be left for the beneficiary in a segregated account that does not count as an asset of the beneficiary for purposes of determining their need for public benefits. There are specific rules for how that money can be spent. The SNT outlines those rules. The SNT Trustee must be careful not to inadvertently jeopardize a beneficiary's public benefits in administering the SNT.
If you have a large estate, tax planning tools such as Family Limited partnerships, LLC’s, Irrevocable Life Insurance Trusts (ILITs), Grantor Retained Trusts (GRATs and GRUTs) and Charitable Trusts (CLTs and CRTs) are crucial to minimizing any adverse tax implications.