Start-Planning-EarlyThere are four elements to a basic estate plan. It is a good idea to put all four in place as soon as possible. If your attorney didn’t give you all four, you should ask why. If you have more than these four, there had better be justification for the added complexity.

Whether you are doing personal planning yourself or your attorney is doing it for you, you will need to have each of the following:

  1. Testamentary Will
  2. Living Trust
  3. Durable Power of Attorney
  4. Living Will

Testamentary Will

A testamentary will is required even if you have a living trust. In cases where there really isn’t any property to pass to the heirs of the estate, a standard testamentary will is sufficient. Each state has laws which establish limits on value that dictate whether an estate will have to be probated or not (usually between $50,000 and $100,000). If the estate won’t have to be probated, then a standard testamentary will is sufficient. It is also useful to help designate who should get what we call the “dollies and doilies,” or those items that do not have a large monetary value but are very important sentimentally to your beneficiaries.

If there are a number of assets and probate will be required, then a special type of testamentary will needs to be used as a companion document with a living trust. This is a different type of testamentary will than you envision in the movies where the family sits around wondering what they will inherit as the lawyer reads the will. The companion will to a living trust is called a “pour over will,” because it “pours” everything over into the living trust, and the trust makes the actual distribution of the property to the heirs or “beneficiaries.”

Personal Planning Using a Living Revocable Trust

The living trust is a required part of most estate plans, but not all. Living trusts help a family avoid probate, eliminate estate taxes (both state and federal), control property during life and after death, avoid family fights, and achieve many other things that simply cannot be achieved using a testamentary will alone.

In the 30 years I have been designing living trusts for clients, I have never had a client’s family go through probate, unless they chose to use probate as a tool. There are reasons for probating an estate, but most families should just avoid the whole mess. It is a time when a family is very vulnerable to abuse in the legal system. The trust avoids probate – IF you know how to use your trust correctly.

Most trusts fail their owners. The vast majority of living trusts DO NOT avoid probate. This is not because the trust is bad, but because the attorney and the website never taught the owners how to “use a trust.”

Durable Power of Attorney

Dealing with property on behalf of an incompetent person is often harder than dealing with the property of a dead person. The durable power of attorney allows someone to immediately stand in and take charge of the dealings of a person who can no longer take care of their own affairs, either personal or business. It is not the same document as a general power of attorney that you may have used to sell your dad’s car while he was out of town.

A durable power of attorney should be a comprehensive document that allows the “agent” to do whatever they have to on behalf of the “principal.” The durable power of attorney should also have a Health Insurance Portability and Accountability Act of 1996 (HIPAA) waiver and a medical directive.

Note that any power of attorney, durable or not, ends immediately if and when you die. At that point, your living revocable trust becomes irrevocable and your successor trustee and the personal representative in your will take over.

Living Will

A living will is the directive to the medical profession. Plug me in and keep me alive or unplug me and let me die. This is the die with dignity issue that Karen Ann Quinlan brought to light in the early 1980’s. It will have language in it that will overlap with your durable power of attorney.

The easiest place to get a living will is your local hospital. They will give you one for free, and it is the one they want to see when you come to the hospital after your stroke or auto accident.

If you’re just starting out, please see our book Protecting Your Financial Future.