Estate planning for you

Tell me about Wills. A Will can be central to an estate plan. But it does not change title to any assets without going through probate in state court.

You do not hear that much from me about Wills because in my opinion, Trusts are better. Still, this time we are only going to talk about Wills.

Wills can be a little technical, but they do two main things:

• They say who gets your assets;
• They name an Executor.

Who gets your assets

A very common will might say, “everything to my spouse, or if they do not survive me, then divided equally among my children.” You can divide your assets by type or amount, but that is very common. You might just as quickly say “the farm to my oldest child, and all other assets and investments to my younger child.”

Name an Executor

The Executor is someone who handles your estate, marshalls assets, pays bills and claims, deals with the lawyer, and distributes assets. People often name their spouse as their first choice and it makes sense to name someone younger as an alternate.

How does my Will work?

Once you sign it, you save it … often in a safe or safe deposit box (and let someone know how to find it). It does not, in Kansas, get filed during your life. Once you pass away, it needs to be submitted to the state court for probate. Again, it does not pass titled assets until the Court accepts it for probate and orders the change in ownership.

Probate, very, very abbreviated.

File the Will, get Executor appointed, they file an Inventory of estate assets. Give notice to heirs, devisees and legatees and publish notice in newspaper that case was filed, including deadline for creditors to file claims. Once assets are accounted for, claims satisfied or denied, some combination of the Executor actions and court order is required to distribute assets of the estate. Every estate differs, but 6 months and a few thousand dollars in expenses and attorney fees are often involved fairly simple estates.

There you go — the bare bones without much opinion. Now you know what Wills do and how they work.

Tell me about Wills. A Will can be central to an estate plan. But it does not change title to any assets without going through probate in state court.

Differences between Revocable and Irrevocable Trusts. It is not simply that one can be revoked, amended and not the other. It is purpose:

Mostly traditional trusts are revocable, and irrevocable trusts are for special purposes.

There are lots of exceptions to this general introduction, but I’ll highlight main points.

Revocable Trust

• You can revoke or amend it.
• Usually a primary purpose is to pass assets;
  1. Without probate; And
  2. potentially under conditions for distribution, for example
     • To my children, but only after they reach age 25; or
     • To my nephew for need-based support for his post-secondary education;
• Assets remain in control of grantors (those who started the trust);
• These become irrevocable at death of one or more grantors (trust still operates but mostly cannot be revoked or changed).

Irrevocable Trust

• You cannot (mostly) revoke or amend it.
• Primary purpose may be to remove assets –
  1. from one’s taxable estate (if they believe they will die with more than 11 ½ million in assets; or
  2. authorities might not count these assets if grantor needs to go into nursing care (there are very particular rules federally and by state for this); or
  3. in hopes that assets are beyond reach of creditors, since no longer under control of grantor(s);(again, one would need to employ particular language for a good result)

So again, it is about purpose. Mostly traditional trusts are revocable and irrevocable trusts are for special purposes. So ask me, “which do I need?” And the answer depends upon the primary aim of your trust.

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How a trust really works. A Trust operates simply, distributes assets without probate, and the ability to distribute assets over time is broad and flexible.

Let’s discover a simple example of how a trust really works.

Suppose Ward and June sign (“settle”) a Living Trust.

They title their major assets into the Trust. Their lives proceed as usual, and they have continual access to the assets in their Trust.

If Disability Arises.

Suppose further that later in life, Ward begins suffering from dementia. The Trust remains there for them. Ward and June are Co-Trustees of their Trust. So, June can still access the assets of the Trust. They can use those assets for regular life expenses. AND they can use those assets for any special care that Ward may require. 

Death of the First Settlor.

Now, Ward passes away, and June becomes a surviving spouse. In the Trust, Ward signed a Personal Property Statement. Through this statement, Ward leaves some of his personal property and sentimental value items. June remains a Trustee of the Trust. She can simply and easily hand out these items to herself, to children, nieces, nephews and friends. Without any court or attorney involvement, supervision or probate procedure, June can distribute those things. She does so per Ward’s wishes (as contractually mandated in the Trust).

During the remainder of June’s life, the Trust assets are still available for her everyday life,. And yes, they are available also for any special care that she may require. (Most couples do elect, however, that the Trust terms are “locked-in” and no longer subject to change or revocation once the first settlor has passed away.)

Years later, June (the surviving spouse or second Settlor) passes away.

Again, when June passes away, the successor Trustee distributes June’s personal property according to her personal property statement. (The Successor Trustee is someone Ward and June named to administer the Trust, according to its provisions, once they are no longer able.)

At this point, the ultimate distribution terms of the Trust become active. The Successor Trustee can distribute the major assets from the Trust Again, he or she does so as mandated by the terms of the Trust — to those to whom Ward and June chose to leave their legacy. Again, without probate and without court supervision, the Successor Trustee can distribute Ward and June’s home and major assets to their loved ones and friends. That Trustee delivers personal property, writes checks, assigns funds and deeds real estate. It is a fairly simple matter.

Not to complicate the explanation, but if Ward and June included such directions in their Trust, assets can either be distributed right away. Notably they could also provide that certain people receive their distribution at age 25 or 30 . Or maybe it is administered to assist with post-high school training or education. 

This ability to administer assets for a time, pursuant to a schedule or triggering events is another way that a Trust differs from a Will.

A Trust operates simply, assets are distributed without probate, and the ability to administer and distribute assets over time without court involvement is broad and flexible.

Why is a durable power of attorney so vital? I push them and say how important they are, but why? Hopefully convenience, but they may save you a lot.

Basics… what does it do:

• allows you to delegate powers, so that someone can act on your behalf;
• the person acting on your behalf can not act against your competent wishes; and
• the powers all expire automatically upon your death (so, do not make the common mistake of believing that this person has authority to pay final expenses, funeral arrangements after death, and so on)

Details

Two roles in the document:

• principal (this is the person signing the document) and

• “attorney in fact” (the person to whom the powers are delegated)

What can they do on your behalf

Banking, taxes, insurance, pay bills, write checks, contract for utilities or medical care, lease, mortgage, buy, sell, mail, prosecute or settle lawsuits, make claims, receive review and act on personal medical information … the list goes on and on

Things they can’t do on your behalf:

Make, publish, declare, amend or revoke my Will;  Make, execute, modify or revoke a Living Will or “do not resuscitate” order or directive;  Require me to take any action against my free will;  Require me to refrain from taking any action against my free will; or  Carry out any action I have specifically forbidden while not under disability or incapacity.

When can they act:

when you are present, or when you’re absent, out of country, across the street, unconscious, asleep, comatose

When is it really important?

If your own competency fades; without it you need to go to court to be appointed as guardian (to be able to care for person) and Conservator (to handle business, finance, assets), even to act on behalf of your own family or spouse

Why is a durable power of attorney so vital? I push them and say how important they are, but why? Hopefully convenience, but they may save you a lot.

Your Estate Plan is not just a plan for when you pass away. A Trust and a Durable Power of Attorney work together during your lifetime.

Do not make the mistake of thinking that not having an estate plan only matters when you die.

Let’s talk about how your estate plan takes care of you during your life.

When you begin and fund your major assets into a Trust, that Trust is going to provide for you during life in a number of ways; let’s use an example of “Ron and Dorothy”:

1. Ron and Dorothy can use any assets of their trust, sell, trade or lease out assets in their Trust during life;
2. Suppose either Ron or Dorothy reach a point where their capacity is somewhat or extremely diminished; the other can continue to act as Trustee of Trust and even add one of their children as Co-Trustee if they like, and of course, the Trust assets can be used for regular life things for the well spouse and for the spouse who now has a diminished capacity … and importantly this is nearly seamless … neither needs any court or legal action to be able to access Trust assets and care for their spouse;
3. Suppose Ron passes away; just as before, the Trust assets remain available for Dorothy’s life, care and support whether she was the one with diminished capacity or not; if she’s fine, she manages assets of the Trust, and if not, one or more of her children become Co-Trustees to handle those things; either way, the Trust assets are available for the survivor for their life

How about the Durable Power of Attorney.

Let’s stay with Ron and Dorothy. They were smart and signed powers of attorney, naming one another to be able to act on their behalf, so long as they are alive, for healthcare and financial/property matters.

If we suppose that one of them begins to suffer from dementia, and needs assistance. They are ahead of the problem. Rather than one of them seeking appointment by the Court to act for the other as Guardian (for health and person) and Conservator (for property and financial matters), they are already empowered to act under the Durable Power of Attorney. By the way, it is called “durable” because it remains effective during periods of absence or incapacity of the principal (the one who signed the document naming the other). 

With the Durable Power of Attorney, the well spouse can take care of a great variety of things on behalf of their spouse:

• Banking, taxes, insurance;
• Legal matters, claims and settlements;
• purchase/sale/lease of real estate and vehicles;
• Financial management and speaking/acting on his/her behalf with representatives;
• Acting/speaking for the other with respect to medical visits, information and decisions; and even
• Small things like subscriptions, library books and utilities.

And, that is by no means an exhaustive list … those are only common examples.

So, do not go on believing that estate planning is only for when you pass away. It is important long before that for a number of reasons. Moreover, if you get to a point during life that you no longer have capacity, it can be too late to sign an estate plan, and your spouse and family may need to go through the expense, process and time of going to court to get you a Guardian and Conservator appointed. While it may seem less than logical, your spouse (without a Power of Attorney or court appointment) does not have some automatic authority to act on your behalf.

Your Estate Plan is not just a plan for when you pass away. A Trust and a Durable Power of Attorney work together during your lifetime.