What Is An Estate Plan?

Many people are confused when they mention a need for a will or trust and are referred to an estate planning attorney. What’s the connection? What does “estate planning” mean anyway?

Let’s start with the fundamentals. Your “estate” is everything you own – your money, bank accounts, investments, house, furniture, knickknacks, copyrights…if it’s in your name, then it’s a part of your estate. An “estate plan” is a plan for what happens to your estate when you are no longer in a position to manage it anymore. While a will and trust are part of an estate plan, the term is broader than that, and covers other documents that will also be useful in various circumstances. Here are the most common documents found in a typical estate plan:

  1. The Will. This is the most basic part of the estate plan. If you have anything, it is probably this. The will dictates what happens to your estate after you die. It is also the document where you name the person in charge of making sure your wishes are carried out (the “executor”), and the person who will take care of your children if you are unable to do so yourself. It is not the ideal document for avoiding probate or holding assets over a long period of time. For that, you want a trust.
  2. The Trust. There are many kinds of trusts, which serve many purposes. Most people just need a living or revocable trust, which solves the problems named above. First, it avoids probate, the process of distributing your estate under the supervision of the Probate Court. Probate is required in California if your estate is larger than $150,000. Assets in a trust are not counted as part of your estate, so putting your assets into a trust keeps your estate below that minimum threshold. Second, a trust is an excellent vehicle for holding assets over a period of time. This may be necessary if your children are too young to inherit when you die, or if you have an income-producing asset that you want to be managed by a trustee, with the profits going to your chosen beneficiaries.
  3. The Financial Power of Attorney. This document gives your designated agent the power to pay your bills if you can’t do so yourself (for example, if you’re in a coma or have dementia). You can make the power of attorney effective immediately, or you can have it only take effect only upon your incapacity. Once the power is granted, your agent can do anything with your money that you can, so make sure your agent is someone you can trust.
  4. The Advance Heath Care Directive. This document gives your agent the authority to speak to doctors on your behalf if you can’t do so yourself. Most health care directives also tell your agent what your wishes are in regard to your care and end-of-life decisions. Studies have shown that agents who do not have clear directions usually make decisions based on what they would want, rather than on what the patient would want, so it’s important that you make your wishes known to your agent. It will also help avoid situations like the Terri Schiavo case, where Terri’s husband and family battled in court for 10 years over whether Terri’s feeding tube should be removed after she was declared to be in a permanent coma. Both sides insisted they were trying to do what Terri would have wanted, but there was no evidence that Terri herself had ever made her wishes known.

Most people are best off having all four documents. There are some, however, though don’t need all four, and there are others that need additional documents to cover all of their assets. If you’re not sure which category you fall into, it’s best to talk to an attorney and find out.

If you have any questions, or if you want to find out more, you’re welcome to contact me at kaway@kawaylaw.com.

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