Vail Law: A lesson on estate-planning essentials, from wills to trusts and more (column)
In estate planning, you have to have the right tools. A full quiver is essential if you are to defend yourself from some nasty adversity and to provide at least some peace of mind for your family. Let’s first define our terms.
Estate planning may be described as the collection of preparation tasks that serve to manage a person’s assets in the event of their incapacity or death. This includes providing for one’s heirs, detailing funeral arrangements and anatomical gifts, settling outstanding debt, identifying beneficiaries under life insurance policies, IRAs and 401(k)s, anticipating taxes, and taking other useful steps dealt with better by good planning than in the helter-skelter of a tragedy.
Any good estate plan starts with a will, a legal document by which a person (the “testator”), expresses his wishes as to how his property is to be distributed at death, and names one or more persons, the “executor,” to manage the estate until its final distribution. If one passes with a will, one is said to die “testate.” One passing without a will is an “intestate.” Wills say, “this is who gets what among my stuff.”
In most instances, a will is sufficient, but in appropriate circumstances, a will may be paired with a “trust.” A trust is a legal device (technically, a legal entity) created by a party (the “trustor”) through which a second party (the “trustee”) holds the right to manage the trustor’s assets or property for the benefit of a third party (the “beneficiary”).
There are four main trusts:
• Living: created by the trustor while he is alive;
• Testamentary: established through a will and which comes into effect (is created) only when the trustor dies;
• Revocable: can be modified or terminated by the trustor after its creation;
• Irrevocable: cannot be modified or terminated by the trustor after its creation.
What each has in common is that it places certain of the trustor’s assets in the hands of the trustee in order to accomplish certain of the trustor’s purposes. Such goals may include lowering estate taxes, establishing certain protections for one’s family, and deferring outright disposition of certain assets to one or more of one’s heirs.
Trusts provide for some rather plain vanilla goals, such as providing that minor children do not receive an inheritance until an age when they are mature enough to responsibly manage it. While one is legally an adult at 18, many trusts provide that a testator’s minor children will not receive the bulk of their inheritance until the age of 25, 30, or even later.
Other estate essentials include a general durable power of attorney (effective on disability), a medical durable power of attorney, a declaration as to medical or surgical treatment (a “living will”), and a memorandum of disposition of personal property. Some quasi-estate planning instruments may include a statement of joint tenancy and a letter of last instruction.
When planning an estate, it is also a good time to review the beneficiary statements under IRAs, 401(k)s and policies of life insurance and to review how title is held to any real estate which may be owned. If the testator is a party to a closely held business, various foundational documents of the business should be reviewed to see what provisions may apply in the event of a “partners” incapacity or death.
A general power of attorney invests a party’s designee with the power to act in his behalf in the event the designee becomes incapacitated and cannot act for himself. In essence, the designee’s agent is granted the authority to make business and financial decisions on the designee’s behalf.
A medical power of attorney grants one’s agent the authority to act in the designee’s behalf regarding medical care in the event the designee cannot act for herself.
With both kinds of “powers,” the agent’s responsibilities are “trust-like,” in that the agent is the designee’s fiduciary and must put the designee’s interests ahead of his or her own. A living will expresses a party’s desires as to the terms and conditions one wishes to be kept alive in the event that she is irredeemably ill. Does one wish to be provided extraordinary care or simply let go absent heroic effort?
A memorandum of disposition of personal property takes certain items “out” of one’s will. “Here’s what I want to happen to my stuff when I am gone. But as to this particular item, I want it treated differently.” Often, for example, a testator will provide that her estate will go in full to her kids but, “Mom’s wedding ring, goes to my sister instead.”
A letter of last instruction — while not technically an estate instrument — says, “Here’s where you can find my stuff.” It is a pointing device detailing such matters as where safe deposit boxes are located, who various advisors are (legal, accounting, insurance, financial, etc.), what life insurance policies are held and the account numbers, where one does one’s banking, what investments are held, and what are one’s key passwords.
Although this planning can seem like a bit of a hassle, taking time and care to develop a sensible estate plan may help bring at least a modicum of peace to those you care for and lessen their burden during difficult times.
Rohn K. Robbins is an attorney licensed before the bars of Colorado and California who practices in the Vail Valley with the law firm of Stevens, Littman, Biddison, Tharp & Weinberg LLC. His practice areas include business and commercial transactions, real estate and development, family law, custody and divorce and civil litigation. Robbins may be reached at 970-926-4461 or at his email address, firstname.lastname@example.org.