This outline provides an overview of the decisions you will need to make with respect to your estate plan. Please note that this overview is intended only as an introduction to these decisions. If you were to retain our law firm to assist you with your estate plan, we would discuss all of these decisions in greater detail before drafting any legal documents.
I. DISABILITY DOCUMENTS:
There are two documents that would be effective during your lifetime and that are extremely important in the event that you should become incapacitated and unable to speak for yourself. With these documents you greatly reduce the necessity for a court appointment of a guardian or conservator, which is a costly and time consuming process.
Durable Financial Power of Attorney. This document transfers to another person (who is called your “Attorney-In-Fact”) the ability to transact business on your behalf. This would include, but is not limited to, banking, insurance, real estate and security transactions. You will need to identify both a primary Attorney-in-Fact, as well as an alternate Attorney-in-Fact.
Health Care Directive. This document allows you to designate another person (called a “Health Care Agent”) to make health care decisions on your behalf in the event you should become incapacitated. This might include decisions regarding surgery, medication, care professionals and living arrangements. You will need to name a primary and alternate Health Care Agent.
II. KEY INDIVIDUALS (Fiduciaries):
Personal Representative. Upon your death your designated Personal Representative will gather assets and distribute them according to your Will through the probate court process. You will need to designate someone to serve as your Personal Representative, as well as an Alternate Personal Representative.
Trustees. The Trustee is responsible for managing and distributing the assets of any testamentary trusts created under your Will or Revocable Trust. The Trustee will have the ongoing responsibilities associated with the management of these trusts. You will need to designate a person to serve as Trustee and a second person as Alternate Trustee.
Guardians/Conservators. The Guardian is responsible for the care and custody of your children that have not reached age 18 at your death. If you have minor children, you will need to designate someone (or a couple, to act jointly), to serve as Guardian, as well as an Alternate Guardian.
III. DISTRIBUTION OF ASSETS:
One of the main decisions we can assist you with making is deciding how all of your remaining assets should be distributed after your death. In this regard, we generally break down this decision into three parts: (i) first, if you are married, how to benefit your spouse in the event that your spouse survives you; (ii) second, how to benefit your children in the event that your spouse does not survive you (or immediately after your death if you are not married); and (iii) third, how your remaining assets should pass among charities, extended family members or friends.
A. Providing for Your Surviving Spouse
Most married clients wish to name their spouse as the beneficiary of all of their assets. To do this, you have two options: you can distribute everything to your spouse outright (the “outright” option); or you can create a trust for the sole benefit of your spouse (the “marital trust” option).
Under the “outright” option, your spouse would become the sole owner of all your assets following your death. However, the outright option can become problematic if the surviving spouse decides to remarry. In this event, your surviving spouse may find themselves in a difficult position. Your spouse will either disappoint your children by naming their new spouse as the new beneficiary, or they will disappoint their new spouse by keeping your children as the named beneficiaries following his or her death. This can be further complicated if your spouse has additional children with his new spouse.
Under the “marital trust” option, all of your assets become legally owned by a “Marital Trust” for the sole benefit of your surviving spouse. Under this scenario, your spouse is entitled to receive all of the income, and enough principal distributions to maintain the standard of living that the two of you enjoyed during your joint lifetime. Following the death of your spouse, all assets remaining in the Marital Trust are distributed according to your estate plan, not according to your spouse’s estate plan, which may have been revised following your death.
B. Providing for Children
If you have living children, you will need to decide (i) how much each child should receive (either a specific dollar amount or a specific percentage of your overall assets) as well as (ii) the terms of distribution to each child.
After you have decided upon how much each child should receive, the next question is determining the terms of distribution. Again, there are two options—either immediately (“outright”) or under the structure of a testamentary trust for their continuing benefit (“in trust.”) If a child receives his or her share outright, and if the child is not yet financially responsible, the child may lose their inheritance to a creditor or to the claims of a spouse in the event of a divorce.
Alternatively, if a child’s share is held in trust for their benefit, then the Trustee (named by you) would have the authority to make investment and distribution decisions. The Trustee distributes income and principal to the child to provide for his or her health, education, support and maintenance. You may also decide to provide the Trustee with the right to make distributions to allow the child to purchase a home or enter a business or profession. You can also specify when a child should receive distributions from the assets in his or her trust. For example, the Trustee could distribute 1/3 of the child’s trust to them at age 25, ½ of the remaining balance at age 30, and the remaining balance at age 35.
C. Other Beneficiaries
Some of our clients who don’t have any children will name as beneficiaries: (i) other family members (such as siblings, nieces or nephews); (ii) favorite ministries or charities; (iii) friends; or (iv) a combination thereof. If you decide to name friends or family members, you would need to determine not only the amount distributed to each of these family members, but whether such family members should receive such assets outright or through a testamentary trust. . If you are considering naming a charity as a beneficiary, please consider (i) the amount of the gift and (ii) whether the gift should be directed for a specific use by the named charity.