ArticlesThe Comprehensive Estate PlanThe comprehensive estate plan is comprehensive in two ways: First, it is a plan which takes into account all of your property interests and directs where that property will go at the time of death. Many people believe their Will controls all of their property when they die. This is not always true. Such items as life insurance, annuities, pension benefits and IRAs do not pass by Will, but are controlled by beneficiary designations. Joint tenancy property likewise is not controlled by Will, but on death, passes to the surviving joint tenant(s) by operation of law. The comprehensiveness of this estate plan therefore deals with this type of property and directs it towards the goals of your estate plan. The second way in which this plan is comprehensive is from a time viewpoint in that it deals with your property as soon as the plan is put into effect, then continues on past death until you specify when it will terminate. The plan therefore benefits you during your lifetime, benefits your loved ones immediately after your death and can continue on to benefit your family long after you are gone. The following discussion demonstrates this. THE COMPONENTSThere are four basic components to the comprehensive estate plan, namely:
In the case of a husband and wife, there would be a Will and each kind of power of attorney for each of them. Depending on their goals or the extent of their property, each may have his or her own trust, or one single trust might be utilized. LIVING OR INTER VIVOS REVOCABLE TRUSTThe living trust is so named (inter vivos being Latin for during life) because it begins operation during your lifetime. In other words, you transfer property into the trust right after you sign the trust instrument as opposed to waiting until your death for that to occur. The trust is used to hold your real estate, investments and money, the items which normally must go through the probate process at death. At death, whatever is held in the trust is not part of your probate estate and therefore does not have to go through the probate or court supervised administration process. This feature saves time and money and is the main reason people use a living trust. It also keeps your private business private, because the trust is not filed with the court at any time and is therefore not available for inspection by the public. The trust is the main dispositive instrument of your estate at death. In other words, by it you direct where the property in the trust (and property that will come into the trust as a result of your death) will go after you die. Your Will and beneficiary designations dovetail with the trust in this regard. The trust is flexible enough that it allows many estate planning goals to be met simultaneously. One of those goals is estate tax avoidance or minimumization. Other goals may be the protection of a child or grandchild's inheritance from foolish spending, insulation of a disabled child's inheritance from public creditors or the protection of children's inheritance from a second spouse. The revocability of the trust means you can undo the trust during your lifetime as long as you are competent to do so. More importantly, it means you can amend the trust to reflect changes in circumstances or estate planning objectives. Once you die or become permanently incapacitated, however, the trust does become irrevocable and cannot be changed. Finally, you can be the trustee of your trust. You need not name a bank, trust company or some third party to be trustee. Coupled with the revocability feature, this ensures that you need not give up control of your property just because you use a trust in your estate plan. The subject of trusts is dealt more thoroughly in "Is a Trust for You?". WILLNormally your tangible personal property (i.e. your household goods and furnishings, jewelry, and automobiles) is not placed in your trust, because those items are not as a practical matter subject to the probate process.* The comprehensiveness of the plan dictates that there be a way to dispose of this personalty. The Will is the chosen instrument for doing so. The Will is also used to pour over into the trust any property, which might be in your probate estate at the time of your death. Ideally, there will be no property which fits into this category, but it can occur, so the Will simply directs that that property be put into your trust, which means it will be disposed of as outlined in your trust. By law a Will must be filed in the circuit clerk's office within thirty days of death. If there is not enough probate property to require a probate of the estate, the Will is not admitted to probate, but is simply kept on file by the Clerk. POWERS OF ATTORNEYThere are two kinds of powers of attorney. Both are durable which means they remain effective even though you might subsequently become incapacitated mentally. Both, however, terminate at your death. With both kinds of power of attorney you appoint someone to make decisions for you. In the Power of Attorney -- Property, the person you appoint (called an "agent") makes management decisions regarding your property. With the Power of Attorney -- Health Care, your agent makes health care decisions for you. For an in-depth discussion of these powers of attorney, see "The New Powers of Attorney". How do these powers of attorney fit into the comprehensive estate plan? The power of attorney for property is intended to deal with property interests, which are not or cannot for some reason be put into the trust. For instance, in the discussion above regarding the Will, it was mentioned that your tangible personal property is not put in the trust. Should you become incapacitated, it could become necessary to sell some of that personalty. The successor trustee of your trust, however, would not as trustee (because that property is not in the trust) have the power to sell those items, but as your agent under the power of attorney he would hold that power. Another example would be the simple act of signing your personal income tax return. The trustee again could not do so, but your agent could sign it for you if you were not able to do so yourself. Therefore, the power of attorney -- property becomes a crack-in-the-sidewalk filler, which will enable the person to whom you are entrusting management of your property to reach and deal with all aspects of your estate, which is the overall goal of the comprehensive estate plan. That same goal is the reason for including the health care power of attorney in the plan. While you are living, your property is not the only item, which may need management by someone other than yourself. Your person, if you are unable to care for yourself, is something with which your family will have to contend. The Power-of-Attorney -- Health Care authorizes someone to address health care issues for you if you are unable to do so. Both kinds of powers of attorney allow you to name backup agents, and both are, like the trust, revocable and amendable. FINAL REMARKSThere are estate planning situations where more than the comprehensive estate plan will be needed. In that instance, however, all of the components on the comprehensive plan are still used; there are simply additional components added. By the same token, the comprehensive estate plan may be more extensive than is needed. Not everyone needs to have a living trust as part of his or her plan. The extent of their property, as well as their individual goals and circumstances, determine whether a trust is used at all. Even in instances, however, where a trust is not utilized, everyone should still have a Will and both kinds of the powers of attorney. In that instance, the Will will be different in many respects than the one described above, since it will then be the main dispositive instrument. For a more thorough discussion on Wills, see "Just a Will?" The purpose of this essay is to help you understand what is available to you for your own estate planning situation. A lawyer will need to draw these documents for you and, more importantly, tailor-make them to fit your particular needs and goals. * The exception to that statement is your automobile which has a certificate of title, but since there is currently a $50,000 threshold limit for probating an estate, the value of the automobile will normally be low enough to allow passing of the title using a Small Estate Affidavit. This assumes the other probate assets (i.e. real estate, investments and monies) are in a living trust. Prepared by: George C. Hupp, Jr.
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