Confused by Estate Planning Documents? Here’s a Primer to Help
NOTE: This information is intended to provide a high-level overview of typical estate planning documents. It is not a substitute for the professional advice of a qualified estate planning attorney in your jurisdiction and we strongly recommend you seek such advice.
A thoughtfully created estate plan provides an individual or couple with the confidence that their wishes will be known and can contribute to harmony within a family for generations to come. Estate planning documents can be confusing, however, and many clients find the topic uncomfortable to address. With this in mind, the following overview briefly explains the basic documents used in creating estate plans for individuals or families.
Wills
A will provides for the distribution of assets following death and applies only to assets that are owned in an individual’s name. It does not govern assets owned jointly with rights of survivorship, as tenants by entirety, nor does it direct assets that pass by contract or a beneficiary designation (IRAs, life insurance and variable annuity contracts, qualified plan benefits or TOD/POD accounts), or assets held in trust. A will may direct personal property that cannot be titled, such as clothing, jewelry, furniture and other personal effects such as art and collectibles.
The will must be validated through a public process known as probate. Probate transfers the estate of a decedent via an appointed executor or personal representative to the estate’s beneficiaries once all assets are identified and gathered and any debts are settled. The timeline and costs vary by state. Probate is overseen by the jurisdiction where the deceased was domiciled and/or where the subject property is located. This can be especially burdensome when real property is owned across numerous states and not held in trust.
Trusts
A trust is a legal vehicle that allows someone to specify how their property will be held and distributed for the financial benefit of another. Trusts can be structured to take effect before or after death. Trusts are designated as either revocable or irrevocable. (A testamentary trust is a separate category – a provision of a will creating a trust with its own set of provisions and terms to manage the assets of the deceased.)
A trust typically involves at least three parties. The grantor/settlor is the creator of the trust. The trustee – often the grantor to start for revocable trusts – is the individual or institution named to carry out and oversee the trust’s terms including administrative and investment powers; successors are named in the trust to take over in the event of the incapacity or death of the initial trustee. The beneficiaries are the recipients of the trust income and/or property, and are most commonly spouses, children, family, friends and/or charitable organizations.
Some trusts may also provide for additional roles to expand oversight by way of a trust protector and/or a trustee remover. Specific terms may be included to provide for future generations and special provisions.
Revocable living trusts can be used to manage property in the event of the grantor’s illness or incapacity. The trust grantor can include terms to personally define the way in which they may be deemed incapacitated. A grantor may include terms and conditions surrounding health care needs and oversight.
A trust also allows for the ownership of real estate in various states and eliminates ancillary probate in the state in which the real estate is located.
Selecting a Trustee/Executor:
When choosing an executor, trustee or power of attorney, it is important to identify someone who understands finances, has a good business sense and can execute your wishes. Extra care should be taken if considering someone who lives out of state, in-laws or those who may not be able to seek out the advice of professional counsel as needed. Families often empower professionals (independent corporate trustees) to serve in these roles to mitigate the burden on family members and lower the chances of conflict among beneficiaries.
Durable Power of Attorney for Property
This document allows an individual, known as the principal, to appoint an agent to act on their behalf in the event of incapacity. An individual may only create this document when they are deemed to be of sound mind. The agent has the power to sell property, manage investments and even make gifts when specified.
Advanced Medical Directives
Advanced medical directives express one’s health care wishes in the event that they are unable to communicate at the time of care. There are several documents within this category for different purposes:
- Durable healthcare power of attorney – (also known as a healthcare proxy, depending on the state of residence) – Document appointing a person to oversee and make healthcare decisions when a patient is unable to do so. Generally, anyone over the age of 18 may serve as agent/proxy. Document lasts until revoked or upon death, if no termination date is specified.
- Living will – States a patient’s preferences of different types of treatment in different types of circumstances, most commonly in an end-of-life state.
- Medical orders for life-sustaining treatment (MOLST) – These are standing orders that are decided on by a patient and their doctors for end-of-life preferences. They become part of a patient’s chart and are followed in a health care setting. Also known as physician orders for life-sustaining treatment (POLST); different states recognize different names of these documents.
- Do-not-resuscitate order (DNR) – A medical order that is entered into a patient’s chart at a particular hospital or with a primary care physician.
- Five Wishes document – This form, which is legally recognized in 42 states, can be a more specific alternative to a health care proxy where allowed. Created with assistance from the American Bar Association’s Commission on Law and Aging, it lets a patient lay out final wishes in detail as well as specify how they are to be treated if they become seriously ill.
Special Note to Parents with Young Adult Children:
Once your child turns 18, health care providers are not legally permitted to disclose or discuss health issues with parents, even when that young adult is still covered under their parent’s health insurance. For parents to have this right, the young adult must sign a HIPPA medical information release form, naming their parents (or another individual) as having that access. Additionally, it is recommended that children 18 and older appoint a power of attorney for healthcare to grant a parent the right to make health care decisions on their behalf should they become incapacitated. Because state laws can vary on these documents, be sure to review the laws of both the parents’ residency as well as where a child lives or attends school.
Additional Considerations
Plan for Digital Assets
It is not uncommon for households to have a growing list of digital assets – social media accounts, travel points, cryptocurrency, documents/photos saved on computers, phones and in the cloud. It is important to document these assets, passwords for accessing them and any other specific instructions, including assigning access to your fiduciary or a family member. Password managers can be used to streamline passwords and assist with access when the time comes.
Communicate Your Plans
Don’t keep your plans a secret. Your family needs to understand your wishes and know where your documents exist. Talk with those who are designated in your plans and make sure they understand and accept these responsibilities. Also, it is important to store estate planning documents in a way that is easily accessible, especially for frequent travelers and for out-of-state family members. Copies of wills and trusts should be held by your attorney and health care directives should be provided to health care professionals and shared with the appropriate designated agents. For more information on this, see our article on compiling and sharing the location of financial data on our website here.
The estate planning process can be complicated, and we strongly recommend that you work with a qualified estate planning attorney to establish an appropriate plan. Altair can assist you by acting as a sounding board, examining a current estate plan or sparking conversations within families to start the process. We also encourage you to ask other family members you are responsible for, including young adult children and the elderly, if they have a plan in place that accurately reflects their current wishes.
Resources:
Advance Medical Directives: Living Will, Medical Orders, Do Not Resuscitate Orders – American College of Trust and Estate Counsel Foundation https://actecfoundation.org/videos/advance-medical-directives-dnr-molst-polst/
Demystifying The Estate Planning Process – Chicago Estate Planning Council http://e.learn.com/files/upload/resources/cepc/cepc_storyline_12.13/story_html5.html
The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice. Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training. While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented. Please see Altair Advisers’ Form ADV Part 2A and Form CRS at https://adviserinfo.sec.gov/ for additional information about Altair Advisers’ business practices and conflicts identified.