Estate and Trust Planning

Your estate and trust planning should reflect you, your family, your financial and health situation, and your goals.

At a minimum, everyone should have a Will (planning for inheritance) and Powers of Attorney for health care and finances (planning for incapacity). Many people will benefit from additional trust planning. There are three types of trusts: a revocable trust, an irrevocable trust and a testamentary trust. One or more types of trusts might be right for you.

The basics

For many people estate planning is to make sure that they have a Will in place. That states how your assets will pass when you die. If you don’t have a Will, the State of North Carolina has “intestate succession” laws that state how assets pass. You might be surprised, but if a married person dies without a Will, the surviving spouse doesn’t automatically inherit everything. In fact, if the couple has no children, the surviving spouse might have to split the estate with the decedent’s parents! Or if the decedent had children (but no Will) then the surviving spouse may split the estate with the children. Usually that is not what people want to do, so that’s reason enough to have a Will.

A Will would also have contingent or alternate beneficiaries. For example, if your spouse doesn’t survive you or dies in a common accident, then likely you would name your children equally to receive your probate estate. However, what if a child predecease you? That becomes even more important if you’re no married or widowed. If a child predeceases you, do you want his or her children (your grandchildren to inherit that child’s share? That is generally a “per stirpes” distribution. Or would you prefer for the surviving children to receive your estate equally, share and share alike without the deceased child’s children receiving a share. That is called a “per capita” distribution. If it’s possible that your beneficiaries (such as your children/grandchildren/great-grandchildren) are too young to manage funds, then you may want to leave that beneficiary’s share in trust.

Another important function of the Will is to name who should administer your estate. That person is called the Executor, or is sometimes referred to as the Personal Representative. You could also name Guardians for underage children, and Trustees to administer any assets that pass into trust under your Will. Having these decisions made in advance will make the estate administration process go smoother.

Your Will only takes effect at your death. That’s why you need to name someone to make decisions for you if you can’t during your lifetime. That’s done through properly written Powers of Attorney. If you become incapacitated and don’t have a Power of Attorney for health care and another one for financial matters, your family likely will need to go through a Guardianship proceeding for you. Guardianships are generally best avoided, because they are adversarial proceedings that can cause family friction, and are cumbersome, time consuming and involved lots of court oversight and red tape.

Your Powers of Attorney are not one-size-fits-all documents. Talk with your lawyer about what these documents actually should say. Particular for leading edge boomers and for seniors, your financial Power of Attorney should include Medicaid and VA friendly language that allow your Attorney-in-Fact (that’s the agent named under your Power of Attorney) to preserve assets, simplify your estate, and qualify you for important government benefits if you need long-term care due to illness or accident. Talk with a lawyer who deals with elder care and long-term care questions to make sure your financial Power of Attorney is “powerful enough.” (In other words, does the durable power of attorney have the language needed so that the Agent can take necessary steps if and when the time comes.)

Trust planning

So often people ask me, “Should I have a trust” or “Do I need a trust?” The answer is that not everyone needs a trust.  A trust is simply a tool that is useful if it accomplishes what you want to do.

Using a “Living Trust” is a typical estate plan for someone who has significant assets that otherwise would require a court supervised probate estate administration. The primary benefit of a living trust is that it can minimize the costs, delays and burden of having the court involved with your estate. The other benefits include saving time and court costs, and keeping your estate more confidential. Many people don’t realize that in North Carolina probate estate administration reports are available to anyone to read. That means your neighbor, relatives, or some complete stranger can get information about what property you owned when you died. Many people prefer to keep their finances out of the public record, by using a Living Trust.

There are other types of trusts as well. For example, a Medicaid Asset Protection Trust can help to protect assets from future Medicaid costs. Also, an IRA Beneficiary Trust can increase the tax deferred benefits of an IRA to protect and benefit your family for generations.

When you do your estate planning, it is important to work with an estate planning specialist who you feel comfortable with and who takes the time to understand you. You also want someone who can communicate with you in language that is easy to understand.