The Recipe for a Satisfying Estate Plan
Jan. 21, 2021
Misconceptions about who needs an estate plan abound. Most people believe that estate planning is only for extremely wealthy business moguls or celebrities. But that could not be further from the truth. Estate planning is the process of making decisions about what happens to you, your money, and your property when you pass away or can no longer make decisions for yourself. Thus, estate planning should be standard practice for every adult age eighteen or older.
One way to think about estate planning is to compare it to a classic recipe you should have in your cooking repertoire by your twenties. Like that satisfying meal, your estate plan should have the right ingredients—or in this case, people.
Do You Have the Right Ingredients?
Creating an estate plan often involves more people than you may initially realize. The recipe for an effective estate plan must include the right roles (i.e., the ingredients). Without the right people in the right roles, your estate plan may fall short and be ineffective. The following people involved in the estate planning process have different but essential functions and are critical to identify as part of your plan:
Personal representative of a last will and testament. A personal representative is a person responsible for settling your affairs, including collecting and securing your property and accounts, paying your creditors, filing and paying any necessary taxes, and distributing any inheritance to your beneficiaries as set forth in the instructions memorialized in your will. This critical role is sometimes described as an executor and may be a special administrator if the person dies without a will. When selecting a person for this role, it is important to choose someone you trust who can take on this time-consuming process and see it through until the administration of your estate and probate of your will is complete. If you do not have a will, the court will appoint an administrator for your estate according to the court’s procedure, and your property and accounts will be given to whomever state law determines to be the recipient.
Trustee of a revocable living trust. Another essential part of the estate planning recipe—specifically related to creating a trust—is the trustee. The trustee is the person or company responsible for managing the money and property in your trust. When you create a revocable living trust, you will often serve as the first trustee but will appoint another individual or company to serve as a backup (also known as a successor trustee). You should also identify at least one other alternate trustee. The alternate trustees act as second or third choices if the original successor trustee does not want to or cannot serve as the trustee after you. Generally speaking, the trustee carries out your wishes and instructions as outlined in the trust agreement, so this document determines the scope of the trustee’s responsibilities. Typical responsibilities include managing and investing trust property and accounts, paying bills, filing taxes, and distributing your possessions to whomever you have listed in your trust. It is vital to choose someone who can handle the responsibility. Suppose you own property or accounts that might be considered complicated, such as investments and intellectual property. In that case, it is essential to choose either a sophisticated trustee or someone who is comfortable seeking the advice of a professional in that area. This is especially important because the trustee has a significant legal responsibility and a higher standard of conduct, called a fiduciary duty.
Heirs or beneficiaries. Many people think heirs and beneficiaries are the same thing. This is not the case, even though they play similar roles. Your heirs are family members who are entitled to receive a portion of your money or property after you die. In some cases, wives may not be considered heirs because they are joined to their spouses by marriage. On the other hand, a beneficiary is a person or organization that you have identified in a will, trust, or other legal document to receive part of your property and money. Beneficiaries and heirs do not have any responsibility to you. The critical thing to keep in mind when it comes to heirs and beneficiaries is finding them and adequately identifying them in the relevant legal document so that everyone receives what was promised.
Agent (financial and medical power of attorney). An agent is someone to whom you give authority to act on your behalf. The most important agents in estate planning are your financial agent and your medical agent, sometimes referred to as proxies or representatives depending on the state. The financial power of attorney gives your agent the authority to manage your financial affairs when you are still living but unable or unwilling to act, including paying your bills, filing your taxes, and managing your property. The medical power of attorney authorizes your healthcare agent to make decisions on your behalf only when you are unable to make decisions yourself, for example, when you are unconscious or under anesthesia. Both the healthcare and financial agents can only act with the powers and within the scope that you have specified in the powers of attorney. When selecting an agent for these roles, note that they do not have to be the same person. Next, make sure the appointed individuals will do what you want and not what they want. Finally, it is important to make sure you communicate your wishes to your designated agents to ensure that they do things the way you want them done.
Guardian for minor or dependent children. Another critical ingredient in your estate plan is naming someone to care for your children or other dependents if you are unable to, either due to incapacity or death. Depending on where you live, a guardian for your children can either be named in your will or in a separate document called a nomination of guardian. When choosing a guardian for your children or dependents, consider someone you trust whose values are similar to yours. Selecting a guardian can be a very difficult task, but failing to nominate someone yourself takes the decision out of your hands and leaves it up to the court.
We Can Help You
My firm has a history of creating satisfying estate plans that bring peace of mind and help my clients avoid some of the challenges associated with transferring property and money at the time of their death. I am available for virtual consultations either on Zoom or by phone, click here to schedule.