ESTATE PLANNING: THE BASICS
Every estate, regardless of size, requires planning for. The primary goal of every estate plan is to ensure that the right “stuff” goes to the right people, in the right proportions, at the right time. Likewise, every person contemplating their estate also must ask the question of who will make important decisions for them in the event they are unable for any reason to do so—this includes both business and health decisions. Depending on the value of a particular individual’s estate, other ancillary concerns will come into play and in some cases may come to dominate the discussion. These include, but are not limited to, privacy concerns, probate costs and avoidance, creditor protection, and tax planning.
THE USUAL SUSPECTS
Regardless of the size of the estate being planned, a common list of documents will be utilized, though their form will vary dramatically from case to case. These include the following:
- Last Will and Testament. Every individual will utilize a Will as some part of their estate plan. At minimum this document will establish who is charged with managing their estate after their passing. If used as the primary depository document, the Will should state clearly who gets what, when, and in what amount. It can address who you want to be the care giver for your children. This is often not the same person that you want to have in charge of the money. A Will may also address tax planning issues in a similar manner as a revocable living trust, discussed next.
- Revocable Living Trust. Likely the most commonly used arrangement in estate planning after Wills, a revocable living trust establishes who is entitled to its assets, when, in what proportions, and under what conditions. A revocable trust may be joint with a husband and wife, or may be individual, but always requires a trustee, a trustor, and property held in its name. When utilizing a revocable trust as the primary estate document it is necessary that the trust own substantially all of the estate assets at issue, which is usually accomplished by transferring the estate assets to the trust outright, or designating the trust as the death beneficiary of various assets. Trusts are favored by many clients due to their avoidance of probate costs and privacy—assets passing pursuant to a trust are not subject to probate or other public record. The specific terms of any trust are varied, and subject to the size of each estate and concerns of the individual planner.
- Other Trusts. In addition to revocable living trusts, there are a myriad of other trusts that may be used in planning an estate. They vary widely in purpose and scope, but typical uses may include: planning for children or family members with special needs; planning for minor beneficiaries of substantial assets; and charitable gift and tax planning with or without life insurance.
- Advance Directive for Health Care. In addition to planning for who will receive a person’s property, planning the estate requires that someone be appointed to make critical health care decisions for the individual when they are not able to do so. In Oregon, the method/document used is referred to as an Advance Directive. Through this, an individual will appoint another as their health care decision maker in the event of their incapacity and provide the appointed individual with instructions on important matters such as life support, tube feeding, and other end of life issues. No estate is completely planned without this.
- Power of Attorney. While not absolutely necessary, it is highly advisable that individuals planning their estate designate another trusted individual as their attorney-in-fact to act on their behalf in the event of their incapacity. For married couples, each will typically serve as the other’s appointed representative. Because a power of attorney holder can act on behalf of the person who appointed them, apart from the married couple example, it is typical that this document would remain in the possession of the represented party or their counsel until needed.
- Other Documents/ Planning strategies. Depending on the size of the estate being planned, there are numerous other planning options which may be implemented that are too voluminous in description to list here. Common examples may include: forming family limited liability companies to own various appreciating assets and implementing a gifting program of interests in the company, implementing gifting plans of existing family assets and interests therein, registering assets in beneficiary format so that they transfer automatically upon death, joint property ownership arrangements, and many other options, the goals of which are typically estate tax minimization and probate avoidance.