FAQs
Estate Planning
Estate planning is not financial planning but should be a part of any financial plan. Estate planning is more about "End of Life Issues". Not what most people want to think about right? A basic estate plan should include, at the very least: A will, a Health Care Directive, a Power of Attorney for Health Care and a Durable Springing Power of Attorney. You may also want a Revocable Trust, minors trust, and trusts used to reduce inheritance taxes.
What should a basic estate plan look like?
The minimum your estate plan should have:
Last Will and Testament
A will allows you to direct what will happen to your property upon your demise. Most important function is to name a Personal Representative. This person will be charged with carrying out your wishes. If you have minor children you will want to name a Guardian and a Trustee for your children. The Guardian will take care of your children physically and a Trustee takes care of the children's money or property. I usually recommend that this be two different people. You will also want to name alternates.
Contrary to popular opinion, a will does not avoid probate. Your will means you have control of the process rather than relying on state law to disburse your assets. A will is a thoughtful thing to have for the sake of your loved ones.
Health Care Directive
Also called a "living will", this directive makes your wishes known regarding the extent of life support you desire. A very personal decision, it makes it clear to your relative and doctors what your wishes are.
Power of Attorney for Healthcare
This directive names the individual you would like to make decisions about your care when you are not able. It is important to discuss this sensitive topic with your chosen representative so he/she can make your wishes known.
Durable Springing Power of Attorney
This Power of Attorney allows someone to handle your financial affairs when you are not able. Durable means it remains in effect though you are incapacitated and Springing means it does not go into effect until your are deemed by your physician to be incapacitated. You will also want to add a HIPPA release so health care providers can release information.
These are the basic minimum documents you should have for your estate plan. Yes, you can find them on line but, of course, I recommend you talk to an attorney. State laws differ and you want to make sure your documents comply with your state's laws. Sometimes one word gives a document a different meaning. If you make a mistake, it can't be corrected when you’re gone. You may be surprised that it isn't as expensive as you may think.
I have heard of a "living trust". What is that and does it avoid probate and estate taxes?
A living trust is a revocable trust, meaning it can be revoked within your lifetime. Also called a Grantor Trust, in which you as the grantor initially will be the trustee. You will name a successor trustee who can manage your affairs even if you are still alive but disabled.
I have a minor child. How does that affect my estate plan?
Anyone with children should have a will. There are two issues with children. One is the physical custody. Who will take care of the children if both parents are gone? While the other parent will automatically become guardian you should have a contingency if both parents are gone. Think of a person who shares your values and who you feel would be nurturing and caring as a substitute parent. This person will be named as the guardian of the person of your children.
The other issue is the children’s finances. Even if you do not have a large estate, you probably do have life insurance. While the court will choose a trustee of the estate, it may not be who you would choose. Also, by law, the estate would be disbursed as a lump sum upon the child reaching majority age 18 in Washington. I know very few people who think their 18 your old should receive a large lump sum of money. Your Will can establish a testamentary trust for your children. (Even if they are over 18 at the time of inheritance) This trust will come into being at the time of your death and the trustee or alternate you named will handle the money. The trustee will pay for the support of the children to the guardian and provide for education expenses and incidentals as you have outlined. The trust can terminate at a certain age (25, 30, 35?) There can also be periodic payouts. While the trustee may pay for a car or car insurance, the child cannot pledge the trust as collateral to buy a race car.
Providing for a different guardian and trustee you provide a great check and balance. There will be an accounting for the money, the trustee is probably a better money manager, and the guardian won’t have to bow to pressure to let the children have the money.
Even if you have grown children, you may want to consider including a testamentary trust in your estate plan as there may be grandchildren or nieces and nephews who will be the heirs.
I'm a divorced, single parent. Doesn't my ex-spouse automatically become the guardian of my child?
It is even more imperative for a single parent to have a Will. Although the other parent is first in line to be the guardian and your Will cannot provide otherwise unless there has been a finding that the other parent is unfit or incapacitated. Nevertheless you do want to provide for the contingency that the other parent is dead or otherwise unavailable by naming a guardian for your children. Keep in mind that while a court may ultimately determine the best interest of the children, your wishes will get great consideration.
Unless your Will provides otherwise, your ex-spouse will also be the trustee of the children’s estate. So then your ex will be managing your money. By establishing a trust for your children and naming a trustee, you can guarantee that the money will be well managed and will be available for your children’s future.
I'm single with no children. Do I really need an estate plan? Won't my estate just go the state?
If you die without a Will and you are single it is not true that your money goes to the state as some people think. However, each state has a statutory scheme for next of kin. You may find that your estate is divided up among people you don’t even know – there is a business in finding unknown heirs. You probably want control of who benefits from your hard work. You may think of nieces and nephews or other relatives you want to leave something to. Or you may want to seriously consider a gift to a charity or your place of worship. Many organizations have planned giving programs and you should contact them to make sure that you name the correct entity in your will. (For example the American Cancer Society is not the same as the National Cancer Society.)
My partner and I are not married. What does this mean for my estate planning process?
There are many couples who choose to not marry for a variety of reasons as well as same sex couples who cannot marry in their state. The Washington State Domestic Partner act does give registered partners the same inheritance rights as married people but do you want to take a chance that this will be true in the future. Not only do you want to make sure you have a Will which states your wishes quite clearly, you absolutely must have a Power of Attorney for Healthcare to ensure that your partner (registered or not) will be able to make health care decisions if you are not able. You also want a privacy release under HIPPA so health information can be shared with your designated agent.
I have a spouse, children and aging parents. How can I accommodate the needs of my parents?
Are you a member of the sandwich generation? You have aging parents to care for as well as children. If your parents are counting on your financial help you will want to make sure you include provisions in your Will. This could be a Testamentary Trust or an outright gift. Do not rely on statements such as “to my son knowing he will take care of granny”.
What is the average length of the divorce process?
The minimum legal requirement is 90 days for a divorce. The process is driven by the involved parties.
Have additional questions? Visit Karin's blog or email her at karin@karinquirk.com.
Karin E. Quirk