The Lesson Plan for Your Estate
In honor of Teacher Appreciation Week last week, we are taking this opportunity to thank everyone that teaches the future generation, whether in the classroom, at home, at church or any other child-centered space. You provide the foundational knowledge necessary to ensure the success of tomorrow’s leaders.
We are here to make sure you have the foundational estate planning documents to ensure your own successful future. Below are some basic questions and answers about estate planning and how estate planning, or the absence of an estate plan, may impact your life.
What is an estate?
Although you may not be a billionaire, you have an estate that needs a proper legal plan. Estate is a general term used to describe everything you own. This includes things such as bank accounts, real estate, household furniture, automobiles, etc. At your death, everything you own has to find a new owner.
What is an estate plan?
An estate plan is your personal set of “lesson plans” for use by your trusted decision-makers. The legal documents that dictate what will happen to you and your money and property at your death comprise the lesson plans. If you have a minor child, your estate plan can also enable you to nominate your child’s guardian. Some estate planning documents allow you to dictate what happens to you and your finances during any period when you cannot make your own decisions or if end-of-life decisions need to be made on your behalf.
Is retirement planning really necessary?
Defined-benefit plans, also known as pension plans, calculate ahead of time and promise a specific payment amount when you retire. Defined contribution plans allow you and your employer (if the employer chooses) to contribute money to your individual account. The amount you receive from this type of account is based on the investment results. Regardless of the available options, you may need to do a little homework to make sure you understand the basics of your plan:
● What type of payments will you receive: a lump sum or installments?
● Do payments stop at your death?
● Does your spouse receive any money at your death?
● Are your children entitled to any payments at your death?
● Do you need to complete any paperwork to control what happens at your death?
● What happens if you die while you are still employed?
● What happens if you die before you retire but after you are no longer employed by the district?
Because the rules governing retirement plans can vary depending on the type of account, it is critical that you study and understand your plan’s rules and requirements.
What documents make up an estate plan?
Once you have done your homework regarding your retirement plan, you must look at the estate planning steps you have already taken. If you have already had some of the following documents prepared, you are on the right track. If you have not had any of these documents prepared, we are here to make sure you have a plan for any situation.
Revocable Living Trust
A revocable living trust (RLT) is a trust you create during your lifetime. You can change this trust at any time until you become incapacitated (unable to make your own decisions) or die. During your lifetime, you will either change the ownership of your accounts and property from yourself as an individual to yourself as the trustee of the trust (the person or entity who manages, invests, and hands out the money and property) or designate your trust as the beneficiary of your accounts and property (with some exceptions).
Contrary to what some may think, you do not have to have a lot of money and property to benefit from a trust. This planning tool enables you to name yourself as the current trustee and to designate a co-trustee or substitute trustee if you are unable to act as trustee for any reason. An RLT also allows you to continue enjoying your money and property during your lifetime and to designate what will happen to that money and property upon your death, protecting it for your chosen recipients.
An RLT can be an excellent way to provide instructions to your loved ones about handling the money and property owned by the trust. In the trust document, you can specify how the money and property should be used during your incapacity and after your death. This can include your loved one receiving a specified percentage upon reaching a certain age (e.g., one-third at age thirty, one-half at age forty, and the remainder at age fifty). You can also structure the trust as an incentive trust to allow the trustee to give your loved one money only after certain goals are met (e.g., successfully completing postsecondary education, being gainfully employed by the same employer for more than a year, being sober for one year, etc.) You can also use your trust to teach your loved ones to be charitably inclined (e.g., allowing your loved one to select a charity to give a stated amount of money to, providing funding to participate in a mission trip, etc.).
Last Will and Testament
As an alternative, some people choose to create a last will and testament to carry out their wishes. This document also called a will, is where you name a personal representative or executor (the person who collects all of your accounts and property, pays your outstanding debts, and distributes your money and property to those you have named), specify who will receive your accounts and property, and name a guardian for any minor children. Although this document is useful only at your death (and not during your incapacity), it provides a way to officially express your wishes.
In contrast to having an RLT, having a will to distribute your money and property will require your family to go through the probate process, the court-supervised procedure that must take place to distribute to your loved ones the accounts and property you own at your death. If you have no will, the probate court will determine who gets your money and property according to state law. In California, there are laws that determine how much your attorney and the executor will be paid out of the estate (e.g., 4%-11% of the gross estate).
If you have an RLT as part of your estate planning, you will still have a will, but it will be called a pour-over will. This document will be used only if an account or piece of property was not transferred either to your trust during your lifetime or to your trust or another beneficiary at your death through a beneficiary designation. As with a last will and testament, a pour-over will names a personal representative or executor (most likely the same person you named as your substitute trustee) and a guardian for any minor children. The difference is that a pour-over will directs that all accounts or property subject to probate be transferred to your RLT. Although your loved ones will still have to go through probate, your money and property will end up in the trust, managed, and handed out according to the trust’s instructions.
Financial Power of Attorney
In a financial power of attorney, you choose a trusted person, or agent, to handle financial transactions (e.g., signing checks, opening bank accounts, signing a deed, etc.) for you. You can customize, according to your specific needs, what the agent is allowed to do and when your agent is authorized to act for you. If you do not formally choose someone to make financial decisions on your behalf, your loved ones will have to wait for a judge to appoint someone with no input from you.
Medical Power of Attorney or Advanced Health Care Directive
A medical power of attorney allows you to name a trusted healthcare decision-maker to communicate your healthcare wishes or make medical decisions on your behalf if you cannot do so. If you do not formally choose a medical decision-maker, your loved ones will have to ask a judge to appoint someone to make medical decisions for you, and the person appointed might not be the one you would have chosen. In addition, the court process is public and takes time and money during an already stressful period.
An advance directive is your lesson plan for communicating your specific wishes regarding end-of-life decisions. Carefully considering your desires regarding life-prolonging procedures and clearly communicating them to your chosen medical decision-maker is imperative. Without these instructions, your medical decision-maker will be forced to guess what you want. Not only can this situation be very stressful for your medical decision-maker, it can also be a breeding ground for disagreements among your loved ones if their opinions differ.
Health Insurance Portability and Accountability Act Authorization Form
In a Health Insurance Portability and Accountability Act (HIPAA) authorization form, you grant the named individuals the right to receive information about your medical condition (e.g., to get a status update on your condition or receive your test results). Although these individuals have the right to obtain the information, they do not have the authority to make decisions on your behalf. That power belongs to the decision-maker you have named in your medical power of attorney (or the person who was appointed by the court if you have no valid medical power of attorney). Providing information to your loved ones can help calm the anxieties and uncertainties that often arise during times of emergency. The HIPAA authorization can also help alleviate any tension between the person you name as the medical decision-maker and the rest of your loved ones and allow them to at least understand why those decisions were made.
Now that you are familiar with what estate planning is and the benefits it can provide for you and your loved ones, your next assignment is to call us. Together, we can dive deeper into your unique situation and design a plan that will protect you and guide your loved ones.
Meza Talbott Law
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