Let’s start with the basic question, what is Estate Planning, and why do I need it? You may be thinking, I don’t need estate planning because I don’t have anything. That’s probably not true.
Are you married? Do you have children? Do you own your own home? Do you have retirement accounts? Life insurance? Do you care what will happen to you if you have dementia, or are in a coma and are unable to care for yourself? Do you care what will happen to your children after your death?
Do you want your minor children to receive their entire inheritance on their 18th birthday, which they can then spend irresponsibly on flashy cars, and bad boyfriends / girlfriends, or do you want a responsible person to manage the money for them, and use it to pay for their college tuition? Do you want to provide for your grandchildren, but have someone hold the money for their benefit until they are older?
I want to be able to control my property while I’m alive, provide for and take of my family and myself if I become incapacitated, and to give, what I have, to who I want, when I want, how I want, and to pay the least amount of taxes, court costs, and administrative fees as possible.
Then you need estate planning.
The “definition” of Estate planning is, I want to be able to control my property while I’m alive, provide for and take of my family and myself if I become incapacitated, and to give, what I have, to who I want, when I want, how I want, and to pay the least amount of taxes, court costs, and administrative fees as possible. I believe that all adults, regardless of age, marital status, wealth, and whether or not they have children have four critical documents in place:
- Last Will and Testament
- Durable Power of Attorney
- Designation of Health Care Surrogate
- Living Will
Some people, depending on the circumstances, will also need a Revocable Living Trust or RLT. The purpose of a properly funded RLT is to avoid probate, and to help manage your assets in case you are incapacitated. A revocable living trust does not: avoid taxes or protect your assets from your creditors. Anyone who says otherwise is either lying or does not know what they are talking about.
Note that I said “properly funded.” In order for a RLT to “work,” you have to transfer all of your assets to it. Every single bank account, stock account, even your house. You no longer “own” the property for state law purposes, but your trust does. And, in order to avoid probate, you have to keep the trust funded for the rest of your life. While a revocable living trust is certainly appropriate in many circumstances, it is not appropriate in every circumstance.
Estate Planning for Unmarried Partners or Same Sex Couples
Unmarried partners or same sex couples can obtain many but unfortunately not all of the same rights established in law that married couples have with regards to inheritance, hospital visitation and medical decision making if they prepare in advance. Properly prepared advance directives, including a durable power of attorney and designation of healthcare surrogate are essential before a debilitating illness or death. Disability and estate planning concerns remain the same for all committed couples; however the options, especially as related to reducing tax burdens are different.