Preparing for the Inevitable: Estate Planning 101

Updated on December 8, 2022

Death and taxes, long held to be the two things in life you can’t avoid. Except most people only actively work towards planning for one of these…every April. Taxes are an unpleasantness that people are forced to deal with annually, but death doesn’t let you know when it’s coming…and the consequences for failing to plan for it are often disastrous.

Just recently, the death of the artist/musician Prince set off a national discussion on estate planning as it was revealed that he died “intestate”, or without a will. By all accounts, he isn’t alone as six in ten American adults have no will in place, never mind more advanced planning like a trust.

The effect of having no documents, or sub-standard documents, can be expensive and extremely inconvenient. If you don’t have a will, you could have a contested estate or rack up thousands in estate administration fees (or both). If you don’t have strong powers of attorney, you can be forced into a guardianship proceeding, which can cost thousands more and a delay of months before your loved ones can help you manage your affairs.

There is a certain sense of invulnerability that we all feel that contributes to avoiding this planning. We’re sure it will never happen to us. Logically, though, it happens to someone. In fact, it happens to lots of people.

I can still remember a client that came to me after her 53-year-old husband had suffered a massive stroke visiting his father across the country. It took months for his condition to stabilize, and I got involved with the guardianship to help my client manage her husband’s IRA. You see, even as his wife, and the primary beneficiary of the account, she had no legal right to manage that money while he was incapacitated, and they needed to access it quickly to help pay one of their son’s tuition bill. The family spent over $10,000 in legal fees, and three months in and out of court to solve the problem. But, the worst part of the story is that they had gone in to see an attorney and gotten a will, but didn’t get a power of attorney because they thought they were too young, and nothing was going to happen to them.

If you want to put together a solid estate plan, there are six foundational documents that you need to have in place for a decent estate plan. This list applies whether you have a lot of money, or even just a little.

Revocable Living Trust

This document contains in-depth instructions for your care if you become mentally disabled and the care of your loved ones upon your death. Furthermore, it efficiently transfers your property to your loved ones at the time of your death, avoiding probate and allowing for the maximum utilization of estate tax exemptions. It can also help establish protections for the inheritance you leave from a divorcing son-in-law.

Pour-over Will

Upon your death, your pour-over will leaves any property to your living trust that you did not put into it before your death. It functions as a safety net to make sure property you neglected to place in your trust can ultimately be managed by your Trustees pursuant to your instructions.

Durable Power of Attorney

A durable power of attorney allows someone else to handle financial matters for assets in your individual name, particularly retirement plans. It is also used to put assets in your trust if you become mentally disabled prior to your trust becoming fully funded.

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Living Will

This instrument directs your physician as to whether or not to cease life-sustaining procedures which would serve only to prolong your death if you are terminally ill. It gives guidelines for your physician to follow, as well as clarifies your intent as to life-sustaining procedures.

Health Care Surrogate/Health Care Power of Attorney

This instrument designates a health care surrogate or health care power of attorney if you are incapable of making health care decisions or providing informed consent. It must also account for HIPAA (Health Insurance Portability and Accountability Act) of 1996 to be effective.

Re-Titling of Assets

Most assets will need to be re-titled into the trust to make the trust effective for disability planning and to avoid probate. Funding a trust is just as important as creating the trust.

Victor J. Medina, estate planning attorney and registered investment advisor, is a founder of the Medina Law Group and Private Client Capital Group.