An up-to-date estate plan goes beyond just trying to minimize taxes and expenses. At its core, estate planning ensures that your assets transfer to whom you want and that the right person(s) has the power to make financial and medical decisions on your behalf. In addition, by removing uncertainty about your wishes in case of incapacity or death, a proper estate plan provides peace of mind for you and your loved ones.
What goes into an estate plan? Below, we’ve outlined essential estate planning documents and the purpose each serves.
Essential Estate Planning Documents
Will
A will is a testamentary document that designates where your assets should be distributed during probate, which is a court-supervised process to transfer assets. A will names an executor – the person who will administer your estate, handle paying any debt or taxes, and distribute assets to beneficiaries.
While it’s a key document, many assets will transfer outside of your will. Assets with beneficiary designations or that have certain title/ownership structures – assets in a trust, accounts that are owned jointly with rights of survivorship, or that have Transfer on Death (TOD) designations – will transfer outside of your will. Therefore, it’s important to coordinate account titling, beneficiary designations, and your other estate documents with your will to determine who receives what when you pass.
Beneficiary Designations
Beneficiary designations control the transfer outside of probate of certain types of accounts, such as IRA and employer retirement plans, annuities, and life insurance policies. You should name beneficiaries on these accounts and review them periodically.
Trust
A trust is an entity that holds property and assets for the benefit of beneficiaries. A trustee is the person responsible for managing assets held in the trust.
In California, the probate process is long and expensive. Revocable living trusts can direct the transfer of assets upon death without having to go through probate.
There are many different types of trusts with a variety of additional advantages, including:
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Managing assets as you age or during disability or illness
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Minimizing estate and income taxes
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Leaving assets to a minor child or other beneficiary when there is a need to maintain control or provide for asset protection
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Planning for a special needs child
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Leaving assets to charity
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Your estate attorney can advise if a trust is necessary given your circumstances.
Power of Attorney (General)
Power of Attorney appoints a person, known as your agent, to handle financial and legal issues on your behalf. A “springing” power of attorney only goes into effect when you become incapacitated. Your agent will likely need to obtain documentation to prove incapacity, which could delay his/her ability to act when needed.
Power of Attorney for Health Care (Medical Power of Attorney)
Power of Attorney for Health Care appoints a person to make health care decisions on your behalf if you are unable to do so. In California and some other states, Power of Attorney for Health Care and a Living Will (see below) are combined into a single document called an Advance Health Care Directive.
Living Will
A Living Will is a statement of your health care wishes. It can instruct types of care and medical treatment, end of life decision making, organ donation, funeral or burial wishes, etc. A Living Will can help guide your health care agent to make decisions that align with your personal wishes.
Guardianship
If you have minor children, you’ll want to appoint someone to care for your children if both parents cannot. This can either be done as part of your will or a standalone guardianship document. Without this, a court would decide who will take care of your children.
Updating your Estate Plan
Once you have an estate plan, your estate attorney should regularly review and update it. Tax and estate laws, financial and family circumstances, and even your own values or wishes may change.
Generally, your estate attorney estate should review your plan at least every three to five years. And you should visit your attorney sooner if there is a major change or life event – birth, death, marriage, divorce, illness, etc. You may not need to update every document. Your estate attorney will identify any needed amendments or restatements.
Here are other questions for you to consider:
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Did you name backup fiduciaries? You should have successor agents for your Powers of Attorney (General and Health Care), as well as successors for any executor, trustee, and guardian, in case your first choice is unwilling or unable to serve.
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Are the people named as potential fiduciaries still good choices? Consider the competency, health, and age of anyone you’ve named. If named fiduciaries have passed away, you’ll want to update the relevant documents.
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Have there been changes on whom you’d like to receive your assets? Do you have new family members? Or maybe your charitable intentions have changed? If a beneficiary has passed away, it would be good to revisit your plan.
Other Common Issues We See
As your advisors, we’re here to help you spot issues. Below are a few common issues we see:
Name contingent beneficiaries: In addition to primary beneficiaries, you should also name contingent beneficiaries. If your primary beneficiary predeceases you, assets will pass to your contingent beneficiaries. In lieu of contingent beneficiaries, you can elect a “per stirpes” distribution – if a primary beneficiary predeceases you, that beneficiary’s share will pass to his/her surviving children.
Make sure assets are appropriately titled in the name of your trust: If you have a trust, it is imperative that the trust is funded. You need to change the owner of assets (e.g. bank and investment accounts) from your individual (or joint) name to the name of the trust. Real estate should be assigned to a trust using a grant deed filed with the county recorder.
Add Power of Attorney on record with financial institutions: You should also consider putting your Power of Attorney (POA) on record with banks and custodians. This will greatly assist your agent if the POA needs to be invoked. Plus, by submitting now, you can identify ahead of time any issues your financial institution may have. Many institutions require POA forms meet specific rules before they will honor them. If you’d like to add your POA to Schwab accounts, please reach out to your advisor.
Communicating Your Estate Plan
It’s important to communicate with those you’ve named to fiduciary positions (i.e., executor, power of attorney, health care agent, trustee, guardian). They should know their role and understand its relevance. In addition, you may want to share your plan with your family and loved ones, so that they know what would happen in the event of your incapacity or death.
Storing Your Documents
You should keep the originals of your will, trust, Powers of Attorney (General and Health Care), Living Will, and guardianship in a safe and accessible place. You’ll also want to ensure that someone you trust will be able to find them. Do not keep the originals in a safe deposit box, as it may be difficult for your friends or family to access your safe deposit box without a court order.
Your attorney’s office will likely be able to store copies as well, and in some cases may even hold the original documents for you.
We encourage you to share copies of your estate planning documents with Burton Enright Welch to keep in our files. You should also consider giving copies to anyone that will play an important role in your estate plan, such as your executors, agents, and trustees.
What Should You Do Next?
If it’s been a while since you updated your estate plan or you aren’t quite sure what your estate plan says or how it will work, make an appointment with your estate attorney. Your attorney can explain your plan, and he/she may have recommendations to better reflect your current needs.
We encourage you to reach out to your Burton Enright Welch advisor if you have any questions or would like to discuss further. If you need a referral to an estate planning attorney, we’re happy to provide one.
Burton Enright Welch is an independent, fee-only financial planning and investment management firm based out of Walnut Creek, California.
