Estate Planning Misconceptions

All I Need is a Will

If you read the last article, which addressed the misconception that having a will avoids your estate going through the court system, then you remember our friend, Chuckles, who was the “laughing heir.” If you have no idea what I am talking about, then you can catch up by reading that article here.

Now, on to this week’s Estate Planning Misconception, “All I Need is a Will.” When most people think of estate planning, the first thing that comes to mind is a will. The reason for this is that many do not know all the tools available to plan for the future. It is a common misconception that all a person needs is a will. Occasionally, this notion might be true, but generally most everyone can benefit from a more extensive estate plan. Hopefully, this article may shed a little light on other estate planning tools that can be beneficial to someone wishing to plan for the future.

For this article, I will use a hypothetical person, who is starting to plan his estate. I will call him, Chuckles. Now, Chuckles ran into some really good fortune recently. First, a distant relative of his died, leaving him $250,000 in cash. Unfortunately, Chuckles is not a prudent person, and he took the entire amount to Vegas. Low and behold, Chuckles hit it big in Sin City, quit his degenerate ways, invested all his winnings, and amassed a large estate. Chuckles has quite the story. Chuckles is now considering his options for planning for what is to be done with his good fortune when he leaves this world. Like many, he contacts an attorney to inquire about having a will drafted. Now, a poor attorney would do just that. He or she would only do exactly what Chuckles asked and not advise Chuckles on what other options are available to him. If Chuckles came to The Cardwell Firm, he would be advised of all options and would be educated as to why only having a will is not the most secure plan for the future.

The majority of people that have a need for estate planning, especially those that have many assets, benefit the most from a plan that has four elements. First, the plan revolves around a revocable trust, which is the guiding plan for what happens to a person’s assets after he or she passes. In some cases, it can also be a guiding plan for while that person is still living. There are many benefits to a trust. One of the benefits is that trust is administered outside of a probate court. Generally, this means that it is much harder to challenge a trust as opposed to a will on the grounds of validity, interpretation, and so on. Another benefit is that trusts are more flexible than a will when it comes to planning. A trust can provide for a larger number of events without the need for numerous changes.

The next element is what is known as a pour over will. In many cases, most people transfer all of their assets to the trust at the time of its creation, however, many people acquire more assets after that point. These assets are often not immediately, or never, put in to the trust. Therefore, it is essential that any person, who has a trust, also have a pour over will. The sole purpose of this will is to pass any assets, not already in the trust, to the trust. I know what you are thinking, “you said nothing went through the courts with a trust.” Right, that is still true, however, most people do not already have all their assets in trust, therefore, some assets will pass through a probate court. Unlike normal wills, this will is a simple document that only lists the trust as an heir. Typically, they are not disputed like wills that are the sole plan for distribution as long as the pour over will was properly executed.

In addition to the trust and pour over will, there are two other documents that should be included in an estate plan. Thse two documents provide asset protection while a person is still living. They are, a living will and a medical power of attorney. The medical power of attorney gives end of life instructions for when you become incapacitated. It names someone, who will have the authority to ensure that these instructions are followed. Therefore, the person or persons listed should be the most trusted person or people you know. The medical power of attorney addresses end of life care, whereas the living will grants financial power of attorney to an individual over your assets if you become incapacitated. Again, this person should be someone you trust. In addition, it may be smart for this person to be different from the person, who is named in the medical power of attorney.

In most circumstances, these four tools are all that a person or couple needs in order to properly plan for the future. They provide a high degree of asset protection. Like I said, they are quite beneficial for most circumstances, but not all. Occasionally there will be certain situations where a good attorney may advise a client on a different course of action. Also, you are probably thinking, “all these tools are starting to sound expensive.” You would be correct. It is true that this sort of estate plan is more expensive than an estate plan that only has a will, however, I think that many would agree the extra cost of this estate plan is well worth it when compared to the much larger cost of mismanaging a person’s assets. After all, you would not want to gamble the fruits of your life’s work because you did not want to pay the extra cost of this plan over that of a simple will. Then again, Chuckles is our hypothetical client, who made most of his fortune on the tables in Vegas. Something tells me, even Chuckles would not take that bet and neither should you.

I hope these articles on Estate Planning are mildly entertaining but mostly informative. If you feel you may need to discuss what options are available and appropriate for your situation, then send us a message here. We would love to assist you with your estate planning needs.