In our practice we come across a lot of questions from our clients about what kind of “estate planning” they need to do. There is a lot of information out there and claims about what you should do, but the truth is that every single person is different and what one person may need may not translate to another person. Beyond that there is also a lot of anxiety around these concepts because frankly death is sad and scary and most of the terms used when talking about estate planning aren’t familiar.
The truth about estate planning is this: whether you want to think about it or not, it IS important. As Northstar’s point person on estate planning and trusts, here’s my take on what you really do need to think about when it comes to estate planning. I’ll cover this over three separate posts:
Kaitie’s Essentials of Estate Planning
We focus first on why it’s important to ensure your wishes are carried out after your death.
Here we look at the estate planning that carries out your wishes while alive, specifically Power of Attorney, Advanced Directives, and Living Wills.
Kaitie’s Deep Dive on Trusts
For those who think they might want a trust, this provides more detail on what to think about.
What is Estate Planning?
At a high level, the term “estate planning” means the act of writing instructions in legal documents while you’re alive and of sound mind for how you want decisions to be made on handling your assets when you die or are unable to make sound decisions.
When we die, all of the things we own are legally transferred to a newly created entity called your estate. An estate is a legal entity that pops into being when someone dies. The estate now owns all of your stuff, someone who is still living is designated as the personal representative for that estate, and that representative will open what’s called a probate. In doing this they go to the courts and present your will (or lack thereof) and death certificate to be verified and to get documents called letters testamentary from the judge that say that your personal representative can now represent your estate and sign legal documents on its behalf (because ghosts can’t hold pens and mediums are not usually welcome in courtrooms).
With this power to act on your behalf, your personal representative will then inventory all of your stuff (and I mean all your stuff, make sure your personal representative is cool with what they may find. Or don’t, you’re dead who cares?). They will also file other necessary legal documents or tax returns for you (because ghosts can’t use Turbo Tax). Yes, even though you’re dead, you still have to file a tax return, so your personal representative will do that.
How does your personal representative know what to do?
If you wrote a legal will, they can use whatever you put in there as a guide. But if you didn’t, your personal representative will have to follow the rules your state has specified for who inherits your stuff and gets your kids. Preparing these estate planning documents while you’re alive will ensure that the personal representative will follow your instructions rather than the state’s when they decide where the items in your estate should go.
Wills
This is one of the most common estate planning documents for individuals and families. A will is a legal document who’s job is to lay out your wishes on what you want to happen with the important things in your life after you die. Your will tells your loved ones (and the courts) things like who should get your house, who is in charge of raising your children into functioning adults (hopefully), and who is in charge of making sure all of these demands are carried out (by designating that personal representative instead of leaving it to the probate court to assign one).
What are the duties of the personal representative?
They are required by law to act as a fiduciary and to act in accordance with your wishes as set forth in the will. If they do not, the beneficiaries are welcome to sue them. Here’s a fun example:
Well known fiction writer Terry Pratchett continued to write novels just for fun on his laptop even after he was diagnosed with Alzheimer’s disease (which he called an “embuggerance”). Terry asked that “whatever he was working on at the time of his death” to be taken out along with his computers, to be put in the middle of a road and for a steamroller to steamroll over them all. And that is just what his personal representative did. Pratchett’s hard drive was crushed by a vintage John Fowler & Co steamroller named Lord Jericho at the Great Dorset Steam Fair, ahead of the opening of a new exhibition about the author’s life and work.
What sort of things won’t a will cover?
A will has no power to dictate where things you don’t own go. This means you can’t just toss in your will that your son gets aunt Milley’s tea set if you don’t own it. Heads up: this means that anything that is held in a separate trust will not be covered by your will even if the will lays out instructions for it. As you’ll read in my third post on trusts, a trust is considered a separate entity and it owns the assets you place in it, not you.
Your will also cannot override any “transfer on death” instructions you’ve put on your bank accounts, IRAs, 401(k)s, or other investment accounts. Because of this, you should check these designations regularly to make sure they are in line with what your will or other estate planning documents say. This is another important element of estate planning.
When do I need to make a will?
After the age of 18 having even a simple will isn’t a bad idea. If anything, it just makes whoever you leave behind’s life simpler when they’re in charge of passing on your things. It becomes more important to have a will if any of the following are true:
You’re married
You own a home, car, or any property which has a title to it and doesn’t have a transfer on death instruction
You have kids (do you really want that crazy family member to end up raising them?)
When should a will be updated?
It’s a great idea to revisit it at least every 5 years, but you should definitely pull it out and dust it off if any of these life events happen:
Your marriage situation changes (you get divorced or re-married)
You find yourself with another kid
Something happens to one of the beneficiaries or the personal representative named in your will
You acquire a large asset, like a second home
You’re going on an extended trip, and you can’t quite remember what was in there (this is how my parents discovered I was not actually in their will…)
How should estate planning documents be stored?
This depends very much on you and your lifestyle. It should be somewhere safe, preferably fireproof, and findable. Most people use safes within their home, a file cabinet with other important documents, a safety deposit box at a bank, or many lawyers will have the option of keeping it at their office in a vault. No matter what, it should be somewhere that makes sense for your life. Wherever you store your will is probably also the best place to store other estate planning documents we’ll cover later (living wills, power of attorneys, and possibly a list of the online accounts you use to pay bills or hold funds).
Why does Susie Orman keep saying I need a trust?
Well, the answer is partially that Susie lives in California where the probate process is an expensive nightmare, and the second answer is you may, and you may not.
During the process of probate, the estate planning documents and the assets they mention become public knowledge. Some people may not feel comfortable with that. In some states, probate can be expensive and time consuming and if you have property in more than one state you will need to go through probate in each state where you own property. Also, wills can be changed easily, right up to the day you die. What if you’re worried that your wife in her golden years is going to meet some young cute new beau and he’s going to convince her to change her will to give him the lucrative family oyster farm rather than the kids? In short, if you’re concerned about privacy, want to avoid the probate process, or want to place more specific restrictions on your assets, you might want to consider using a trust for estate planning instead of just a will.
We’ll cover trusts in part 3 of this series, Kaitie’s Essentials of trusts
Wills and trusts carry out your wishes after you die, but what about before? Estate planning is also effective when you use it to spell out your wishes for how you want to live. There could be a period of time before dying where you can’t take care of your financial situation, make decisions, or verbalize how you want to be treated. For these purposes I’ll outline advanced directives, living wills, and power of attorney documents in the next post.
Well done. Easy to read and understand. I learned some things. Thanks!