Seniors & Aging

Real Life | The documents you need to know about for feel-good estate planning

Editor’s note: This a series that runs occasionally in Coasting that takes a closer look at end-of-life issues and how to prepare for them.

Whether it’s your own or someone else’s, the estate plan is manifested by a bundle of awesome legally binding (except one) documentary commandments, called “instruments,” that proclaim your “Thou shalts…”.

Anyone who’s good at it can draft the one that isn’t etched in legal stone. That’s the ethical will. Parallel to the property will directing the disposition of one’s worldly possessions and one’s remains, here you proclaim your profoundest thoughts, feelings, ‘druthers, hopes – any enduring from-the-heart message to posterity.

The others are all legal commandments, and therefore must be unassailable and compliant with state law’s criteria governing validation, content, format and conformance. Antagonists and officials of government and businesses successfully overturn countless homemade instruments. Clever homemade schemes, however legitimate, intended to circumvent taxes, laws, regulations and contractual obligations, inadvertently trigger their own debacles. In short, please let the pros do yours.

Would you like to know about the many kinds of power of attorney to transact your business while you live? A general and durable power is unlimited, except for the prohibitions that you build into it; its attorney in fact has full discretion, even when you’re available and lucid.

Conversely, a limited or specific power covers only the kinds of business that you specify in it. Powers can be sectored, such as financial, health care, specific transactions, and temporary (for times when you’re unavailable). Banks require their own favorite wording in theirs. Do take care about granting too-broad or ambiguous discretionary powers, and in selecting the attorneys in fact.

Health care directives aren’t powers of attorney. They mandate specific actions within narrow sets of circumstances, such as the precise conditions in which the fiduciary, called agent, is directed to issue a specific order, such as “pull the plug.” Do not resuscitate and medical order for life sustaining treatment orders are instructions to emergency medical personnel and come via the attending physician. Carry these emergency documents, or summaries of them, with you, in your wallet, or tablet or smartphone.

Your pre-nuptial, post-nuptial, cohabitation, or domestic partnership agreements also belong in your plan. Your attorney might weave some of your current decisions into them, or expand them. Other domestic affairs documents belong, too: marriage contracts and divorce, adoption, immigration, custody or separation agreements or decrees.

Arrangements for the at-death or during-incapacity disposition of your share of your business or professional firm, or its assets, belong in the plan, too. If they don’t yet exist, or they’re unfunded or underfunded, your lawyer and life insurance agent eagerly will fix that. Examples: A buyout agreement with your partner or key employee, a redemption agreement for the company to purchase your share, or a succession agreement substituting a family member for yourself.

Giving assets away, during life or afterward, personal or charitable, incurs income, gift and death tax implications, and sometimes long-term contractual terms. Hence, gifting declarations. The fiduciaries can be various trustees, agents, etc., depending on the gifting vehicle.

Some major assets and income benefits have their own built-in beneficiary or pay-on-death designations. Despite that, they’re part of the plan. Here we have life insurance, annuities, pension and government benefits survivors’ rights, some bank accounts, and more. If these assets are titled to you, they’re in your probate estate. The death-proceeds recipients are beneficiaries outside the probate estate, receiving proceeds directly. The insured person’s estate itself should be a beneficiary only to provide enough liquidity for its expenses.

We often encounter obsolete and inadequate beneficiary designations. Please assure that yours are updated and that they have two or three layers of succession.

Any guardianship, custodianship or conservatorship that you’re involved in or should create to take care of someone or their assets, belongs too. These are court-appointed fiduciary roles. Don’t neglect to nominate successor fiduciaries for the court to consider, to follow the primary ones.

Almost everyone has a last will and testament, that even if nothing else, bequeathes the assets and ordering various activities. Its fiduciaries are called personal representatives. It’s the operative instrument that officially creates an “estate” and covers all of its activities except the ones that other instruments deal with. At death it must be processed, or probated, with detailed reports and filings through the state’s bureaucracy.

To avoid probate, expense, delay, and sometimes death and income taxes, the popular idea is to have the estate own or receive little or none of the “testator’s” (that’s you, if it’s your estate) assets, income and entitlements. Those will be elsewhere in the instruments, thus bypassing the probate estate.

So where will they be? Joint and third-party ownerships, but mostly in personal trusts, the paradise of estate planning instruments.

Trusts are legal, artificial persons, endowed by their creators to do almost anything. In your personal trust, you re the creator, called settlor or grantor, so you get to dictate the “Thou shalt’s…”. You also can control by being a trustee, the empowered fiduciary, along with others if you wish and the successor(s) that you name to take over after you. You can be a beneficiary, too.

Why trusts? Many desirable reasons. Trusts own the assets, you don’t. Therefore, when their built-in “wills” direct assets to anyone other than the estate, they aren’t part of the probate estate. They don’t suffer the estate administration delays and costs, nor the public record of their assets, either. They can live on after your death, and manage the assets (and liabilities) for ages and in accord with your orders.

A trust that lives while you live is intervivos, and can continue after your death, compared with testamentary, one that takes life at or after your death. Revocable means that you, the settlor, can change or even terminate it, its income is taxed to you and its assets are in your death tax estate.

Irrevocable, means etched in stone permanently. It is its own taxpaying entity. Its assets are insulated from your creditors if you give up enough control. Most revocable trusts that endure after the settlor’s death then become irrevocable.

If your plan has a revocable inter-vivos trust that continues after your death with its own built-in wil, and you are settlor and trustee, and can distribute assets to yourself, then welcome to today’s growing trendy neighborhood.

Other trust strategies include the power to reach back from the grave via a skilled trustee to manage the assets and their distribution, and to direct charitable gifts (charitable foundation) and their use. Others can be used to outmaneuver the gift, estate and income tax rules via multiple title-holding and generation-skipping entities to assure competent long-term management of assets for someone who needs it, to sprinkle gifts among family as needed.