WHAT EXACTLY IS ESTATE PLANNING? (PART II – WILLS AND TRUSTS)

WILLS

A Will is a document that sets forth how you want your property distributed upon your death.  It can be extremely specific (e.g., “I hereby give, devise and bequeath my personal residence and all personal property to my son Jerome, with the exceptions that all of my fine china shall go to my niece Jenny, and my yellow couch to my best friend Fifi.”), or very general (“I hereby give all of my right, title and interest in any property, known or unknown, to my husband.”).  A Will should also nominate the following people:

Executor (executrix being the antiquated name for a female executor) – the person who you want to administer your estate upon your death.  In California, the nominated executor must be, and usually is, confirmed by the Probate Court;

Conservator – the person you want to step into your shoes for personal care and/or financial decision making purposes, depending on the type of conservatorship, when you are unable to do so for yourself; and

Guardian – the person or people you would like to take over care of your minor or disabled children upon your death.

A Will only comes into play when you die, and only affects property in your name, and held in a certain way – it does not affect property that is held in joint tenancy, in trust, or that is subject to a beneficiary designation.  A Will only controls the disbursement of your assets, not the management thereof.  Property passing by Will necessarily goes through probate here in California.

A Will should also be accompanied by a Power of Attorney, to designate the person or persons who are authorized to make legal and other decisions for you if you are mentally incapacitated or otherwise unable to do so, as well as a Health Care Power of Attorney (sometimes called a Health Care Directive) to designate who will make health care decisions for you, should you be unable to do so.

TRUSTS

Revocable living trusts are legal entities in and of themselves.  They come into effect immediately, although they may be of minor significance until the incapacity of a trustmaker or the death of the first spouse (if there is a spouse).  Trusts can direct the investment, management and distribution of all of your assets, though it should be noted that your Trust cannot “own” certain assets such as life insurance and retirement benefits as these are contractual in nature; however, you can name your Trust as beneficiary of these assets (whether or not to do so is another matter), and your Trust can specifically and separately delineate how the trustee should handle these assets.  Trust property is not subject to probate.

A trust has four main features: a trustmaker (also known as the “grantor” or “trustor”), the trust property (or “corpus” or “res”), a trustee (the person who administers the trust), and a beneficiary (the person who ultimately receives the trust property).  In a revocable trust scenario, the trustmaker(s) is usually also the initial trustee and beneficiary.  The trustee acts in a fiduciary capacity for the benefit of the beneficiary(ies), meaning he or she is obligated to carry out the trust’s terms and act in utmost good faith for the beneficiary’s best interest.

Trusts can continue past the death of the trustmaker(s) in (relative) perpetuity, and can provide asset protection for surviving spouses and later beneficiaries.  A trust will also provide estate management and distribution guidance for the benefit of the trustmaker when s/he loses mental capacity to handle their own affairs.  Trusts can also help minimize applicable estate or inheritance taxes, as well as income taxes related to gains on trust assets.

As with a will, a Trust should also be accompanied by a Power of Attorney, to designate the person or persons who are authorized to make legal and other decisions for you regarding your non-trust assets when and if you become unable to do so, as well as a Health Care Power of Attorney (sometimes called Health Care Directive) to designate the person or people who can make health care decisions for you, should you be unable to do so.


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