The most basic form of estate planning is the Power of Attorney. A power of attorney is an authorization for a person or organization to “Do Something Specific” for the person executing it. A Power of Attorney is only valid and operative so long as the person that authorized it is living. Once they are deceased, the Power of Attorney is no longer operative. Thus it is of little use as an estate planning device and some would say is not an estate planning device at all.
A “Will” is the most common form of a true estate planning device. It is also the easiest to understand, to modify as things change, and generally the least expensive to initially construct.
A will is basically a set of instructions as to how a person, once deceased, wants their property distributed and to whom. Notice that there are two operative concepts at work here, the first is that the person must be “Deceased”, and secondly that they can only give “Their” property away – not anyone else’s.
A will is only operative when the person that constructed it (The Testator) actually dies. A person is usually free to make modifications or changes to the will at any time prior to their death. The “Bequests” (Think of a bequest as a fancy word for “Gift”) in a will are not limited to “Family” either. A testator can give away any of his or her property to anyone in a will – friends, family, strangers, organizations, even to their animals in certain situations (It is quite common to leave behind money to care for a beloved pet).
Secondly the testator can only give away or bequest property in his or her will that he or she actually owns at the time of death. If the testator bequests an item in his or her will, but prior to dying uses the item up, gives it away or sells it, the bequest is moot or worthless. No, the person that was to receive the item doesn’t get something of equal or lessor value – they are just out of luck.
Most wills are formal and type-written. However in California a hand written will is quite valid and is indeed still common. Whichever format is used, the document still has to conform to some basic rules of construction. Incidentally you don’t legally have Heir’s until you are dead.
Probate is the process in which the court monitors and insures that the wishes of the deceased are carried out (And quite frankly that all of the deceased’s taxes are paid – make no mistake). Estates that are modest usually don’t have to be probated but still have to have some basic formalities followed. The “Executor” is a person chosen by the testator to oversee the process and make sure that the deceased’s wishes are carried out. Accepting the position as the executor of an estate is a serious job and is not to be taken lightly. The executor’s are commonly sued and have to account for every penny of money that flows through the estate to the beneficiaries.
A Trust is a very different document. When a “Trustor” creates a trust, they are creating a fictitious third party. The trustor then “Funds the trust” by taking their property out of their own name and putting it in the name of the trust. The trust document includes a set of instructions that directs how the property that the trust owns is to be used and distributed - both prior to the death of the trustor and after. Most lay persons create what is called a “Revocable Living Trust”. The way this form of trust is written the trustor retains the use and benefit of the property during their lifetime. In fact, the way that most revocable living trusts are worded, they can even sell, mortgage, or give away the property if they choose.
In an over simplification, when a person creates a trust, they literally “Give” their property away (All but to the trust) “Prior” to death. This is why property that is held in a trust avoids having to be probated upon the death of the trustor – it has already been given away, thus there is nothing to probate. Trusts usually work in conjunction with a simple will called a “Pour Over Will”.
Trusts are typically long and complex. They are expensive to make changes to once they are written and put in place, however substantial sums of money in the form of costs, fees and sometimes taxes can be avoided by utilizing a trust rather than a will in the appropriate instance.
Other common estate planning documents include the “Power of Attorney for Health Care”, the “Living Will”, and or the “Health Care Directive”. The first, is a document that assigns a person to make health care decisions for you should you become incapacitated and cannot make the decisions yourself. A Living Will on the other hand assigns a person to handle ones business affairs under the same sort of circumstances (Usually finances, pet care, bill payment, etc). Finally a Health Care Directive is generally a document that tells the doctors if you want to be “Resuscitated” should the need arise, or simply made comfortable through the use of medication – usually in the emergency room. This document could be very important for persons that have certain religious convictions that prevent them from accepting certain treatment(s).
Most estate plans also include a Property Declaration. This is a document that lists all of the persons property and more importantly it’s location. A good example would be where to find the life insurance paperwork, the car titles, the bank account information, or the “Mattress Money” hidden in the house.
Which form of estate planning device is best for a particular individual depends on their situation. Some people create trusts even when they have very modest estates as they don’t want their relatives to have to go through the complexity and cost of a probate. Others have very substantial estates but chose to use a will due to it’s simplicity and initial low cost. When asked, they will generally tell you that they don’t care about probate, fees and taxes, that will be the problem of their heirs not them.
Both wills and trusts, no matter how well constructed can be contested in court. This type of litigation is usually long and protracted and involves lots of hurt feelings and bitterness as you are usually dealing with family.
If you are considering doing an estate plan, please feel free to contact our office for a free consultation. We will be happy to discuss with you your options and what is best for your particular situation.