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Estate Planning Basics

Estate Planning Basics

By Katie Martens

Abstract: This article explains several estate planning tools. Whether you have millions of assets or just a couple thousand, it is very important that you have a plan that dictates what happens to these assets once you pass away. This article provides that basic information you will need to start your estate planning.

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I once told an acquaintance, who was a teacher, that I offer to do estate plans for teachers at a discounted rate as a way to show my appreciation for all the work teachers do. Instead of interest or gratitude, the teacher looked at me, laughed, and said, “Oh, what would I ever need one of those for?! I’m a teacher, not some big landowner or rancher!”

If you think her answer sounds nonsensical, I agree with you. Instead of correcting her, or inquiring further what she meant, I just smiled and nodded.

This article is meant to help you avoid being that teacher. It’ll discuss what “estate planning” is, and what the basics generally entail.

What is Estate Planning

Estate planning is a term used to describe what you plan to do with your assets and debts once you’re gone. Deceased. Departed. Dead. It can range from some notes you made on a napkin (some states do accept that kind of planning) to a comprehensive plan that involves trusts and many lawyers. Often, when you’re looking for an attorney to help you with a will, you will find that attorneys often describe themselves as estate planning attorneys, which is just another way of saying they can help you figure out what tools are right for you to have in your estate plan.

Tools of the Estate Plan Toolbox

There are some basic documents everyone should probably have as part of their estate plan. Each one serves its own purpose, just as a nail shouldn’t be substituted for a screw’s job. Let’s examine some of the nuts and bolts of estate planning:

Powers of Attorney - these are important little documents that assist you when you’re incapable of making your own decisions. Not when you’re deceased/departed/dead, only when you’re incapable of making your own decisions. Many people confuse the use of powers of attorney, but they are only meant to be used while you are still alive, if not a little unresponsive. These two documents can become real life savers for the times when you have a medical scare, and need other people you trust to keep your life going on all of the other fronts while you deal with your health problem. There are two general types of powers of attorney that everyone should have:
1. Healthcare power of attorney with a living will - these are your instructions for how you want to make healthcare decisions when you’re incapable of making them yourself. Usually, there’s a living will section of the healthcare power of attorney that answers the question: “Do or do not pull the plug if you’re in a persistent vegetative state?” Medical providers and your loved ones want to know how long to keep you alive if you’re in a coma, or in an otherwise non-reactive state that doesn’t allow you to communicate with those around you.
2. Durable or business power of attorney - this is a document meant to cover everything else except healthcare decisions. Need someone to feed your cat while you’re in a coma? Put it in the durable power of attorney. Need someone to pay the utilities while you’re in the hospital so you can come home to a house with the lights still on? Put it in the durable power of attorney.
Wills - these are the documents that can create such great drama for movies like Knives Out, or TV shows like Succession. From the mundane to the Hollywood drama, wills are meant to be documents that designate who is to receive what, and in some cases, who is to take care of who, if you leave behind children under the age of 18. If you use an attorney, the attorney will work hard to account for every future possibility, which is, in my opinion, why going to get your will done can seem like such a drag. OK, if everyone I’ve ever loved is truly gone by the time I kick the bucket, who cares where my bank accounts go? Your lawyer cares, that’s who. By executing a will, you are giving a lot of peace of mind to your loved ones on how you intended to transfer any assets you might have had.
1. Holographic wills - this is a will handwritten and signed by the testator (the person dictating the terms of the will). Some states accept holographic wills and some do not. If your state does accept holographic wills, go ahead and write your will on that napkin. However you write your will, be sure to date the document and be as clear as possible about what you’re doing - who is to receive what item of property, where the property is, and maybe even its value. Often, holographic wills are created by someone on their death bed, and is often the source of a lot of litigation because no one agrees on what the testator “actually meant” by his own handwriting, or they argue the testator was under the influence of someone who wanted to take all of the testator’s property.
2. Pour over wills - this refers to a type of will that “pours” everything into a previously established trust. It usually means that the testator put in the work up front, by establishing a trust during their life, transferred assets to that trust, and are simply using the will as a catch-all to make sure they didn’t miss anything. Everything the testator owns is meant to go into that trust. Why? Often, the testator has minor children, and the testator wants the assets managed for the benefit of the children, which are better served by being held in a trust.
Trusts - I consider trusts to be the final level for estate planning. If your attorney advises you to establish a trust as part of your estate plan, at the most basic level, you’re looking at 2 different ways to establish a trust:
1. Revocable trusts - typically created within the life of the person creating the trust (grantor), and capable of making changes to the trust during the grantor’s life. These trusts usually become irrevocable upon the death of the grantor. There are many kinds of trusts depending on your level of tax planning and gifting plans, but generally revocable trusts are used for 2nd marriages to keep assets separate and given to each spouse’s children from an earlier relationship, for minor children, or people with high net assets.

Irrevocable trusts - these are trusts that when signed and executed by the grantor, cannot be changed. Depending on the state you’re in, there can be quite a hurdle to overcome in asking probate courts to change the terms of an irrevocable trust because the courts want to give as much deference as they can to the wishes of the grantor, the person creating and establishing the trust. Generally, irrevocable trusts that are set up during the life of the grantor are for a very specific purpose, like providing for a special needs child in order to avoid jeopardizing the child’s public benefits like Social Security disability income. Of course, trusts usually become irrevocable upon the grantor’s death, so in some ways, all trusts meet their finality at some point.: This article explains several estate planning tools. Whether you have millions of assets or just a couple thousand, it is very important that you have a plan that dictates what happens to these assets once you pass away. This article provides that basic information you will need to start your estate planning.

If you think her answer sounds nonsensical, I agree with you. Instead of correcting her, or inquiring further what she meant, I just smiled and nodded.

This article is meant to help you avoid being that teacher. It’ll discuss what “estate planning” is, and what the basics generally entail.

What is Estate Planning

Tools of the Estate Plan Toolbox

Powers of Attorney - these are important little documents that assist you when you’re incapable of making your own decisions. Not when you’re deceased/departed/dead, only when you’re incapable of making your own decisions. Many people confuse the use of powers of attorney, but they are only meant to be used while you are still alive, if not a little unresponsive. These two documents can become real life savers for the times when you have a medical scare, and need other people you trust to keep your life going on all of the other fronts while you deal with your health problem. There are two general types of powers of attorney that everyone should have:
1. Healthcare power of attorney with a living will - these are your instructions for how you want to make healthcare decisions when you’re incapable of making them yourself. Usually, there’s a living will section of the healthcare power of attorney that answers the question: “Do or do not pull the plug if you’re in a persistent vegetative state?” Medical providers and your loved ones want to know how long to keep you alive if you’re in a coma, or in an otherwise non-reactive state that doesn’t allow you to communicate with those around you.
2. Durable or business power of attorney - this is a document meant to cover everything else except healthcare decisions. Need someone to feed your cat while you’re in a coma? Put it in the durable power of attorney. Need someone to pay the utilities while you’re in the hospital so you can come home to a house with the lights still on? Put it in the durable power of attorney.
Wills - these are the documents that can create such great drama for movies like Knives Out, or TV shows like Succession. From the mundane to the Hollywood drama, wills are meant to be documents that designate who is to receive what, and in some cases, who is to take care of who, if you leave behind children under the age of 18. If you use an attorney, the attorney will work hard to account for every future possibility, which is, in my opinion, why going to get your will done can seem like such a drag. OK, if everyone I’ve ever loved is truly gone by the time I kick the bucket, who cares where my bank accounts go? Your lawyer cares, that’s who. By executing a will, you are giving a lot of peace of mind to your loved ones on how you intended to transfer any assets you might have had.
1. Holographic wills - this is a will handwritten and signed by the testator (the person dictating the terms of the will). Some states accept holographic wills and some do not. If your state does accept holographic wills, go ahead and write your will on that napkin. However you write your will, be sure to date the document and be as clear as possible about what you’re doing - who is to receive what item of property, where the property is, and maybe even its value. Often, holographic wills are created by someone on their death bed, and is often the source of a lot of litigation because no one agrees on what the testator “actually meant” by his own handwriting, or they argue the testator was under the influence of someone who wanted to take all of the testator’s property.
2. Pour over wills - this refers to a type of will that “pours” everything into a previously established trust. It usually means that the testator put in the work up front, by establishing a trust during their life, transferred assets to that trust, and are simply using the will as a catch-all to make sure they didn’t miss anything. Everything the testator owns is meant to go into that trust. Why? Often, the testator has minor children, and the testator wants the assets managed for the benefit of the children, which are better served by being held in a trust.
Trusts - I consider trusts to be the final level for estate planning. If your attorney advises you to establish a trust as part of your estate plan, at the most basic level, you’re looking at 2 different ways to establish a trust:
1. Revocable trusts - typically created within the life of the person creating the trust (grantor), and capable of making changes to the trust during the grantor’s life. These trusts usually become irrevocable upon the death of the grantor. There are many kinds of trusts depending on your level of tax planning and gifting plans, but generally revocable trusts are used for 2nd marriages to keep assets separate and given to each spouse’s children from an earlier relationship, for minor children, or people with high net assets.