Robbins: Essential components of an estate plan

Last week, I wrote about the purple mess Prince left when he died without a will. I railed about why estate plans are essential, especially when you have a spouse, and even more so when there are kids. What I did not discuss, however, is the essential components of an estate plan, what documents you need, what they are, and the purpose that each serves. Thus, this second foray in the non-musical legacy wrought by “O(+>”, the late, great High Priest of Pop.

A will

A will is first. In essence, a will spells out who will get your stuff, in what proportions they will get it, and in some instances at least, upon what conditions. Although a will can be simple and straightforward, there are many things to think about.

Say, for instance, you have three grown kids and you want your will to provide that if you die, your spouse will get your stuff but if she or he predeceases you, everything should go in equal shares to your three grown kids.

What, though, if one of the children God forbid, predeceases you? What happens to his or her share? Does it go to his or her surviving siblings or, if s/he is married with kids of his or her own, does his or her share go to his/her spouse or kids? If the kids are minors, should a trust be set up to manage their respective shares and provide for them until they are adults? Would you want a newly minted adult — an 18-year-old — to get his or her share the day she or he turns 18?

Or would you rather set up some conditions, for example that his or her inheritance should be doled out over time — say 25% at age 25, 25% at 30 and the last share at age 35? If so, you need to provide for these things in via trust provisions either inside of your will or by the establishment of a separate trust agreement.

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Regarding trusts, they come in many flavors. Unfortunately, this column is too short to delve into them or to do more than barely touch on them. Suffice it to say that in this state, for most folks, free-standing trusts are not commonly needed. However, they are often desirable for a whole host of reasons. Irrevocable trusts, for one example, remove assets from one’s personal estate to be owned by the trust itself which, at law, is a separate legal being.

As such, if the trustor one day finds him or herself sued, those assets in the trust may not be executed upon. Just as there are many, many other questions that should be addressed in one’s will, there are many, many kinds of trusts that may serve one’s particular needs and purposes.

Memorandum of disposition

Also essential to an estate plan is a memorandum of disposition of personal property. The best way to understand this is what personal property would you want treated differently than provided for under your will. Say, for example, your will states 50-50 to your two kids, but you have a favorite nephew who has always coveted your classic car. By providing that your nephew gets the car, you take it out of the general provisions of the Will.

A general durable power of attorney gives someone that you designate the right to act on your behalf in business and financial matters should you become incapacitated. Often, but not always, this is a spouse. It is good practice, too, to name a backup just in case the person named will not or cannot serve.

Similarly to a general power of attorney, one should have a medical power of attorney which gives the holder that you name the right to act on your behalf of make medical decisions if you cannot make them for yourself. Again, this can be — but does not have to be — a spouse and, as with the general power, having a backup is good practice.

A living will

A declaration as to medical or surgical treatment, what most folks call a living will, is also a good idea. A living will provides an expression of your wishes in the event that your are medically deemed to have an injury, disease, or illness which is not curable or reversible which, in the judgment of your medical providers, is a terminal condition. It will generally further provide what steps should be taken if, after a period of days that you determined when you are of sound mind, you have been unconscious, comatose, or otherwise incompetent so as to be unable to make or communicate responsible decisions.

Letter of last instruction

Another essential document, although not technically part of an estate plan, is a letter of last instruction which is, in essence, a “where’s my stuff” direction. Such an instrument should detail who to contact in the event of your demise: friends, family, lawyer, accountant, investment advisor and the like and how and where to contact them.

It should also provide information as to what you own (stocks, bonds, life insurance policies, retirement accounts, realty, and more), the account numbers and where they made be found. What should also be included is the place and number of any safe deposited boxes, collections (coins, stamps, etc.) and, critically, the key passwords to access the myriad things that we modernly retrieve online.

It goes without saying that the letter should be kept in a secure place where an intruder cannot find it but there should be some direction in some easily accessed place where, once you are gone, your heirs can easily find it (for example, an index card in your center desk drawer that says something like “A Letter of Last Instruction, identifying all I own and who to contact in the event of my death is in my safe deposit box, #xxxx at XXXXXBank in ______, Colorado”).

The foregoing is just the tipiest tip of the iceberg of estate planning.

Although not the most pleasant subject with which to deal, doing so well before the need arises is prudent and may one day be a source of comfort to your loved ones who will have their hands and hearts full at your loss.

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