How Can I Protect My Family and Assets with Estate Planning?

Today SevenPonds continues its interview with Stacy Turner, Esq. Stacy has kindly agreed to give some estate planning tips to our readers to help ensure that their wishes are respected after their death.

Debra: Stacy, can you give me a quick overview of estate planning?

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Stacy Turner: Estate planning has several, equally important components. First, it is the process of making sure that you have selected another person to manage your assets, financial decision making and making health care decisions if you become too sick to handle those decisions yourself. Second, estate planning is the process of deciding who will take care of your minor children and how your assets will be managed for their benefit. Third, estate planning is the process of deciding who will receive your assets when you die and how those assets will be received.

Debra: How do you suggest your clients handle their assets?

Stacy: Usually in California, a revocable living trust is the central tool used to deal with asset management and financial decision-making if the owner becomes incapacitated or dies. A revocable living trust is established by a written agreement that appoints a trustee to manage and administer the trust’s estate. This person is called the “settlor.”

A trust is like a rule book for how the trust’s assets can be handled if the settlor gets sick or dies. This trust discusses how assets the trust owns can be managed and who can benefit from these assets — i.e. the beneficiary. The settlor is also the trust beneficiary while they are alive, and the trust names other people or charities to receive trust assets when the settlor dies. These people are called remainder beneficiaries.

For a trust to own or control assets, each asset must be titled in the name of the trust. In California, if an asset is owned by a revocable trust, the trustee can administer and distribute that asset privately instead of going through the court process for closing out an estate through probate court upon the owner’s death.

Debra: What are some other financial documents that are important in estate planning?

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Stacy: When a revocable living trust is used as the primary tool in an estate plan, we must include several other documents. Earlier I mentioned that in order to move an asset to the trust, the asset must be re-titled in the name of that trust. This leaves room for human error. So, we must plan for the possibility that some assets may be sitting outside the trust when the person who created the trust becomes incapacitated. For this reason, we always include a durable power of attorney for finance in the estate plan. It appoints agents for finance, usually the same person who was appointed as a trustee, and gives them the authority to manage all non-trust assets if the owner becomes incapacitated. The power of attorney does not, however, discuss where non-trust assets go at the owner’s death and becomes void when the owner dies.

When the person creating the estate plan dies, one of two things happens to the assets outside the trust. If the asset has a beneficiary designation (for instance, a life insurance policy or retirement account) the asset will still pass outside of probate court, even though it was not owned by the trust. That’s because it has a built-in mechanism to name a beneficiary.

However, we need some mechanism to handle assets just held in the name of the person who created the estate plan. For this reason, we include a last will and testament in the estate plan. This will appoints executors, usually the same people appointed as asset managers in the other documents, to manage and distribute assets governed by the will. This will is special because it names the trust as the only beneficiary. In this way, we make sure that these assets ultimately get to the trust for distribution.

Debra: Stacy, thank you for your time and the valuable information you’ve offered.

Stacy: You’re welcome, Debra.

If you missed Part One of our interview with Stacy, you can catch up here.