Do You Need an “Estate Plan”

The quick answer is “Yes”.  Everyone should have some form of an estate plan in place.  An estate plan generally consists of a trust, a power of attorney for financial matters, a power of attorney for health care decision making (Advance Health Care Directive), and a Will.

How sophisticated that plan has to be depends on the size and type of your “estate” (the things you own). 

Let’s take a few examples. 

If you own no real property then, most likely, you may not need to have a “living trust“.  Nearly every day you see or read about the importance of having a trust in order to avoid probate.  This is true, unless you don’t own any assets whose title must be transferred after your death.  There are certain tax reasons that will cause people with large estates to benefit significantly by having a trust.  But for most people, a trust is useful because it provides a mechanism to transfer title to, for example, real property without the need to ask a judge to do so through a probate proceeding.

If you rent your home and your estate consists of some bank accounts, a life insurance policy and personal belongings (car, furniture, jewelry), then you probably don’t need a trust (assuming that your loved ones are amicable and no animosity exists).  A simple Will can give your instructions and allow for your personal property to be distributed without court involvement.  You will name an executor in your Will and that person’s task is to gather all of your named beneficiaries, deliver to each of them the specific personal property items that you desire them to have, and then obtain a signed statement from each that they have received the items. 

If your Will simply states that all of your personal property is to be divided equally then, again, your executor should gather together all beneficiaries and they can mutually select items that they wish to receive – and do so as equally as possible.  If family squabbles do arise, then the disgruntled heir can file a probate case; although, the time and cost involved would most likely be unfeasible.

Bank accounts can include a “POD” (Pay on Death) or “TOD” (Transfer on Death) beneficiary statement.  Similar to a life insurance policy, you simply complete the bank’s POD form and name the person(s) whom you wish to receive the account’s balance when you pass away.  That person goes to the bank with proper ID, presents a certified death certificate, and the bank will write him or her a check and close the account.  Simple.

For people who own real property, a trust is an important part of one’s estate plan.  When the trust is created, title to the home will be transferred to the trust (See: “Transferring Title of Your Home“).  Your trust will have named a “successor trustee” (the person with authority to manage your trust and carry out your instructions when you pass away) who has full authority to transfer title to the person(s) that your trust instructs.  Because your successor trustee has this authority, there is no need for court intervention.  Additionally, your estate will have saved thousands of dollars on attorney fees and court costs, and saved your loved ones a year or more of headaches.

Whether you have a large or small estate, own real property or not, there are two documents that every person should have as a part of their estate plan:  Power of Attorney for Financial Matters and an Advance Health Care Directive.

A financial power of attorney gives your “agent” the authority to transact any type of financial transaction that you specify.  It can include all possible transactions, only one specific type, or anything in between.  It can be granted immediately or only if you become incapacitated. 

Caveat:  Financial powers of attorney, although useful, are very powerful documents.  Placed into the wrong hands, they can become a license to steal.  Be very careful when selecting the person to be named as your agent because s/he will be receiving authority to assist you or devastate your finances.

An Advance Health Care Directive (so named in California) is a power of attorney for health care decision making.  In this document, you name the agent who will be responsible for making such decisions in the event you are incapacitated.  Remember:  Copies of this document should be given to your agent and all medical providers.

While not every person needs a trust, these two powers of attorney should be a part of everone’s “estate plan”.