There are five major decisions that go into each estate plan. Those decisions are
described below, along with examples and a description of people in your life that may be up to the task.
1) Beneficiaries – This is WHO will get your assets when you pass away. Generally, if you have children, we see to it that things go to your children in equal shares. However, there are also opportunities to leave things to charity (via a specific dollar amount after a death), or to other loved ones.
2) Method of Distribution – This is HOW your beneficiaries will get everything when
you pass away. Depending on the age and financial capabilities of your beneficiaries, you may wish to delay distributions to a beneficiary. For example, for young beneficiaries, we often see clients give it in stages (1/3 at 25, 1/3 at 30, and 1/3 at 35). Please keep in mind that those young beneficiaries will have immediate access to funds for health care, education, and support. If you have a beneficiary with special health needs, you can leave assets for them through a special needs trust.
3) Successor Trustee/Executor/Financial Power of Attorney – This is the person (or
people) who will make financial decisions for you in the event you cannot. The type of person who makes a good trustee is someone who is financially responsible, would handle finances similar to you, and is generally a good decision maker. If you don’t have a family member or friend who fits the bill, you can consider a professional trustee. Generally, there are 2-3 successors named (in order of preference).
4) Health Care Power of Attorney – This is the person (or people) who will make health care decisions for you in the event you cannot. The type of person you name here would need to be able to make decisions during a difficult, emotional time. You will have the ability to state your end of life and organ donation wishes in this document as well. Generally, there are 2-3 successors named (in order of preference).
5) Guardian (if necessary) – This is the person (or people) who will have legal custody of any minor children should you pass away. The guardian will work with the trustee to access funds for any minor children. We often see your parents, siblings, or dear friends named here. We also see other children you have that are over the age of 18 named here. Generally, there are 2-3 successors named (in order of preference).
WILL vs. TRUST
One of the most common questions we get is “What is the difference between a will and a trust?”
There are a few similarities, but a lot of differences also. In both cases, these
documents are a part of your estate plan – to have a complete estate plan, there are also powers of attorney for medical and financial purposes and other documents needed.
Which one should I do? In most cases, if you are trying to space out distributions for your beneficiary (think minor children), avoid probate, and want to exercise more control, you should consider a trust-based estate plan. If nearly all of your assets are passing by beneficiary designation, a will-based estate plan could be sufficient.
SIMILARTIES between a will-based plan and a trust-based plan:
Exercising Control: Both a will and a trust allow you to control who gets your assets at your death, how those people/entities get your assets, and who is in charge of making financial decisions at your death. The levels of control do vary with trusts enabling more control.
Amendments: Both wills and revocable trusts are “set in sand”, meaning you can change them provided you have the mental capacity. Both documents are “set in stone” upon your incapacity or your death.
DIFFERENCES between a will-based plan and a trust-based plan:
Probate Avoidance: A trust will avoid probate if funded properly. A will does NOT avoid probate – it merely tells a probate court where the assets go.
Public v. Private: In most states, probate is costly, time intensive, and most documents are public record. If done properly, trusts will be far easier to administer and can be done privately.
Control during your Lifetime: A trust allows you to control what happens now, if you become incapacitated, and what happens at your death. A will only controls what happens at your death.
Cost: One of the biggest knocks against trusts is that they are supposedly a lot more expensive to set up than wills. This is no longer the case if done correctly.
Why do I need a will if I already have a trust? When you have a trust-based estate plan, you also have a will. If you did not put all of your assets into your trust, the will would govern at your death. The beneficiary of your will is your trust – this is what is referred to as a “pour over will” because it pours all of your assets into your trust at your death. Additionally, in a number of states, the will is the primary place where you can name guardians for your minor children.
What if I have named beneficiaries? If you have named Beneficiaries on assets (life insurance or retirement accounts for example), the beneficiary designation controls! This is why it is important to make sure your beneficiary designations are in line with your estate plan!