Estate Planning for Everyone

Where there’s a Will, there’s a Plan (and if there isn’t a will, there’s still a plan, but it might not be what you want)

(Okay, the title is just being silly — as you’ll see below, it’s about a lot more than just a will.)

First a few myths that need to be busted:

1. You don’t need a will if you’re single or if you don’t have kids.

FALSE.  Whether you have a will or not, all your stuff is going somewhere.  If you don’t have a will, and you die, you die intestate.  That means, simply, dying without a will.  However, it also means that the state in which you live is going to determine where your stuff goes.  Intestacy laws vary quite a bit from state to state, but in general, there are some guidelines that the states mostly follow to one extent or another, such as if you die and your spouse and/or kids survive you, they’re going to get your stuff — which is probably pretty close to what you wanted.  But if you don’t have a spouse or kids — exactly the scenario where folks may think they don’t need a will — it’s a lot less obvious who will get your stuff, though it’s typically going to be some blood relatives if any can be found (i.e., parents, siblings, etc).

2. Your will is mainly important for deciding where your stuff goes.

FALSE.  Your will does generally control the subset of your stuff which goes through probate (a court procedure where the distribution of your stuff is overseen).  But you very likely have assets which will go to heirs and beneficiaries outside of probate and regardless of what your will says.  This includes things like IRAs and 401(k) accounts which have designated beneficiaries (more detail below).  Nevertheless, and specifically if you have kids, all your stuff is secondary.  No, if you have kids, the single most important thing your will does is specify who will take care of them.  All the rest is just stuff.

3. Your will is your most important estate-planning document.

NO.  Your will is just one of your essential estate-planning documents.  It controls stuff which goes through probate (which, in fact, you may want to minimize), and, as noted above, it’s generally where you designate a guardian for your kids.  But that’s only the start.  Every account or asset with a designated beneficiary is part of your estate plan whether you’ve thought about it that way or not.  Folks are accumulating much larger 401(k) and IRA accounts than ever before — and they all have designated beneficiaries (unless you went out of your way to not specify one).  Moreover, those are exactly the kinds of documents — beneficiary designations — that people forget to update when circumstances change (i.e., divorce).  However, there’s more — if you want to keep assets out of probate (for any of several reasons, including privacy and costs — probate is a public process, and can be expensive!) — you may want to have a living trust to hold title to those assets.  The most common thing in a living trust is probably real estate, especially one’s primary home.  So your two largest assets — your retirement accounts and your home — may well not controlled by your will.

Moreover, as we’ll note before, your will only comes into effect if you die.  There are several documents which are part of a good estate planning package that are extremely important in the even that you don’t die.  Especially for singles, some of these may be vastly more important than your will.

4. You’re young and healthy (or you don’t have any stuff!) – you don’t need any estate-planning.

FALSE.  This may be the most dangerous one of all.  Once folks are older, and have kids, and are constantly reminded of their responsibilities to those kids, they are much more likely to go and get estate planning work done — from wills and trusts to life insurance.  However, estate-planning is not just about what happens if you die.  And several of the documents we generally recommend are especially important for unmarried adults.  Top of that list are durable powers of attorney — both for financial issues and for medical decision-making.  There are a few others worth considering as well, such as a pre-signed HIPAA release of information (allowing medical professionals to talk to people about your situation) and living-will/health-care-directives.

Remember — if you don’t arrange these durable powers of attorney then it isn’t in any way automatic that the right person will be given any ability to manage your affairs for you if you become incapacitated.  If you are an adult, don’t assume your siblings or parents or (adult) kids will necessarily be able to easily help you.  Without durable powers of attorney such a person needs to go to court to get a guardianship, and that’s vastly more difficult.

5. Trusts are used for avoiding taxes.

Kind-of.  Trusts don’t actually avoid taxes so much as they may provide means to manage them.  For example, each individual gets a personal lifetime gift-and-estate tax exemption.  Until recently, if one spouse died and left his or her assets to his or her surviving spouse, then the spouse who died first may not have used up his or her exemption — thus the exemption could go to waste and lead to the surviving spouse’s estate ultimately paying a lot more in estate taxes than necessary.  This was typically “fixed” by having the first spouse to die leave some assets to a trust, and the rest of the assets to the surviving spouse.  And this is still a very good reason to consider using trusts in your estate plan, though recent legislation has been passed which allows one spouse to “transfer” his or her estate tax exemption to his or her surviving spouse — even without a trust.  (This is called “portability”).  Additionally, there are some ways to use irrevocable trusts in order to “gift” assets to an heir and maximize use of the annual gift-tax exemption.  But, generally, at this point, the use of trusts for this sort of thing is nowhere near as important (tax-wise) as it used to be, since the individual gift-and-estate-tax exemption is now over $5.4 million per person (as of 2015 — and indexed for inflation).  Not very long ago, the exemption was (a) very much smaller (as recently as 2001, it was only $675,000/person); and (b) not portable.

That all said, there are still may important reasons to consider using trusts, both revocable and irrevocable, and whether they make sense for you depends on the complexity of your assets and estate, your beneficiaries, and your wishes.  There is no substitute for working with a qualified estate-planning attorney (and, potentially, your financial advisor and accountant, too), to assess whether there’s a need for these.

Additionally, there are special-needs trusts (or “supplemental needs trusts”) which may be especially important for folks who are leaving assets to care for a person with physical or mental disabilities or chronic illnesses.  These may be structured in order to minimize the impact of those assets on the beneficiary being able to qualify for certain governmental benefits.

Essential Estate Planning Documents — for Everyone

1. Will.  This is a legal document specifying, generally, who should get your stuff if you die.  It does not necessarily control all of your assets.  Many assets, in the event of your death, go to named beneficiaries directly (life insurance proceeds, IRAs, 401(k)s, any accounts with designated beneficiaries, assets held as joint-with-right-of-survivorship, etc.).  This is also where you usually designate guardians for your kids (typically, a surviving spouse automatically gets them, though, so it’s important to coordinate this, and, generally, all estate-planning decisions, with your spouse!)

[ Here’s a link to Nolo Press’s page about the California “statutory” fill-in-the-blank will.  Note that we are strongly recommending that you see an attorney and draft a will as part of a complete estate plan.  But this may be better than nothing:   https://www.nolo.com/legal-encyclopedia/the-california-statutory-will.html  ]

2. Revocable Living Trust.  [An aside – there are also irrevocable trusts – those may be used in some more complex estate planning, but there’s a world of difference between revocable and irrevocable.]  A revocable living trust  is an entity used to hold title to (“own”) your assets.  Normally, you take on all three trust roles here – you are the grantor (the person who gives stuff to the trust), you are the trustee (the person who oversees the assets in the trust) and you are also the beneficiary (the person on whose behalf those assets are managed).  While you’re alive, it makes very little difference — you still own the assets, you still make all the decisions and can generally just use those assets just like you did before you retitled them into the trust.  Moreover, you still pay taxes on all those assets just same as if the trust didn’t exist.  But a living trust like this has an important power — if you die, the trust continues to exist and the trust may designate both a successor trustee and a successor beneficiary (or more than one of each).  This is extremely important — because it means that if you die, the assets in this trust do not go through probate — the successor trustee simply continues to manage them and distribute them in accordance with your instructions.  This can be especially important for unmarried folks who may have family members who might contest a will (i.e., a potentially huge issue for unmarried couples/partners), and it’s also very important if you want to maintain privacy, since probate is a public process.  Moreover, it can avoid certain probate expenses which can be quite high in certain states.  Finally, if you have real estate in multiple states, such a trust may help avoid having to go through probate in multiple states, which would likely be a nightmare for whoever is kind enough to take on the responsibilities of being executor of your estate.

3. Durable Powers of Attorney.  There are two common types – one is for financial decisions, and the other is for medical decisions.  These may be the most important documents for adult unmarried people.  If you don’t set these documents up and you become somehow incapacitated, then whoever it is who loves you enough to look after you might have to go through lengthy and complex court proceedings to be giving limited powers to manages these things on your behalf.  It’s extremely cumbersome (and intentionally – they don’t want just anyone declaring themselves a guardian over anyone else!).  Parents — before you send your kids off to college, this may be something worth considering having done for the kids.  For married folks, the spouse can often manage most of this relatively easily (though even that can be contested).  So everyone should have these done.  Married or unmarried, all adults should think long and hard about who they would trust with this.  And while it may be possible to have both of these as a single combined document, usually these are two separate documents (even if the same person is the designated individual being granted these powers of attorney).

4. Letter of Intent.  This is simply a letter or document left by you to your executor or to your beneficiaries.  This document may not have any direct power of law behind it, but it will allow your executor to have more guidance regarding your wishes, and in more detail than would be customary to put into a will.  It may also be where you discuss your preferred funeral arrangements, etc.  And it may help a probate judge understand your intentions in the case of any conflict regarding the will, and/or if the will is, for some reason, declared invalid.

5. Updated Beneficiary Designations.  As noted above, the will only controls assets which go through probate.  And the trust only controls assets held by the trust.  Other things are controlled by beneficiary designations – life insurance, IRAs, 401(k)s, etc.  These should be reviewed on a regular basis (we recommend annually) to make sure that they still do what you want them to do, because there are often many of them, and these beneficiary designations override anything you may have written in your will or letter of intent.

6. HIPAA Release.  HIPAA refers to the 1996 Health Insurance Portability and Accountability Act.  HIPAA prohibits health care providers from releasing your information unless you have provided them a release form.  Without such a signed release form, your health care providers may not discuss any aspect of your medical information with anyone who is not directly involved in your care.   This should be separate from the durable power of attorney for healthcare noted above, since the durable power of attorney doesn’t spring into effect unless you are already incapacitated — and it may be difficult to prove that that’s the case without having access to medical information.

7. “Living Will” or Advanced Health Care Directive.  These documents communicate your healthcare preferences in the event you cannot communicate your wishes.  This is not quite as general as the healthcare power of attorney, and it may be very specific regarding life-sustaining procedures (i.e., resuscitation, feeding tubes, etc) and may cover issues such as diagnostic testing, and organ donation as well.  State laws dictate what these documents must or may include.  The Office of the Attorney General of California has a very helpful page about these:  <http://oag.ca.gov/consumers/general/adv_hc_dir> and they also provide a fill-in-the-blank-and-check-off-the-boxes form for your convenience.  This may be adequate, though it, too, is something worth reviewing, and possibly customizing, with your estate-planning attorney (and possibly even with input from your physician.)  The California fill-in-the-blank form may be found here:  <http://oag.ca.gov/sites/all/files/agweb/pdfs/consumers/ProbateCodeAdvancedHealthCareDirectiveForm-fillable.pdf>

8. “Get Your [Stuff] Together”.  This is a bit of a catch-all, but it’s become more and more important.  You should have a document, file, folder, — something — which organizes all of these documents.  Nowadays, it’s even messier because you may have accounts and assets for which you don’t get anything in the mail, and which, therefore, your survivor and/or executor may not receive any documentation about without them, say, checking your e-mail.  Now, this may be tricky, because you don’t want to go leaving a paper list of your userID and password information anywhere, but you do need to leave some means for someone to (a) know about all these things; and (b) access them — in the event of your death or incapacity.   But give this a lot of thought, and make sure to at least have the list of all accounts you own somewhere – including all retirement accounts (current and former employers), all brokerage, IRA, checking, savings, etc. with account numbers (and, if you have all this in a spreadsheet, you can add columns for things like named beneficiaries, address of record if it’s not your home address, etc).  You should also have a copy of your birth certificate somewhere, your passport information, information about all your insurance policies (life, disability, etc), and all the key contacts in your life — your family, of course, but also your attorney, your accountant, your financial advisor, clergy-person, etc.  This may also be a good place to put that letter with all those things you’ve meant to tell your loved ones but never were able to.  There’s a great website which includes a wonderful checklist and some other templates which are very helpful, and we highly recommend it.  It was put together by someone who’d lived through the death of a loved one and who was shocked by how much stuff one needs to track down and deal with.  <http://getyourshittogether.org> [Update – this is now a subscription service.]

One modern bit of convenience which can make it easier, safe, and more efficient to keep all of this critical information together — securely – is an encrypted secure “thumb drive”.  Such a “USB Stick” can be encrypted (password protected) to make sure that nobody but the people intended to find it can access the information — and it makes it very easy to keep outside of the home (i.e., make two copies – one for your spouse — and one for, say, your sibling across the country).

The Bottom Line

Simple as this — everyone needs estate planning.  Whether you plan it yourself or not, your estate will be managed one way or another — and if you become incapacitated, your care will be managed (or mismanaged) one way or another.  But if you have people you care about — and people who care about you — it’s vastly better to take the initiative and make sure that the plans are what you want them to be.

If you’ve got kids, we can’t say it enough — the single most important thing your will does is allow you to designate a guardian for them.  We like to tell such folks not to cross a street before getting that guardianship designation done.

And whether you have kids or not, if you die, you’re dead.  But if you don’t die — and this is essential — make sure that your wishes are honored and that whoever loves you enough to take care of you can do so as easily as possible.  Don’t make someone who loves you enough to take care of you go through unnecessary court proceedings and ongoing court supervision.  Make it as easy for them as you can, since that’ll make things as easy for you as you can.

We cannot stress strongly enough that nearly everyone should consult with an attorney who specializes in estate-planning.  Do not go to an attorney who “dabbles” in it — this is a complex and frequently-changing area of law, and mistakes are not likely to be discovered until many years later — way too late to fix.  Get this done now, and get it done right.

Disclaimer — Meyers Wealth Management is a Registered Investment Advisor, registered in the state of California.  We do not prepare any of these legal documents, nor do we provide legal advice.  This article is intended purely for educational purposes, and we strongly recommend consulting with a qualified attorney in your state.