Your Five Most Important Will and Trust Planning Documents

Marc Carlson |

Folks often avoid estate planning (will planning or trust planning) because of the subject matter—incapacity, death, taxes and asset distribution. However, no matter what your age or how many assets you have accumulated, you need an estate plan to protect yourself, your loved ones and your assets—both now while you are still active, as well as after your death.

The information that follows will give you a basic understanding of some key documents involving estate planning in order to help you make informed and intelligent decisions.

1. REVOCABLE LIVING TRUST

For many estate plans, a revocable living trust is often the preferred centerpiece and main legal document. By transferring many of your assets into a revocable living trust (“RLT”) you can provide for continued management of your financial affairs and assets during your lifetime—even if you become mentally incompetent to the extent that you can no longer properly handle your financial affairs and assets. At your death, the trust directs the manner and timing of the distribution of assets to your spouse and/or heirs, such as children or grandchildren. Your RLT allows trust assets to avoid a “conservatorship action” (court action to have a judge appoint a “conservator” to handle your financial affairs), and to avoid “probate” (court action after your death related to a Will). An RLT also reduces the chance that your personal information will become part of nearly all public records.

Every RLT has four (4) important characteristics:

(1) You, as the “Grantor” or “Settlor”, create the trust and transfer many assets into it.  Your accounts might be titled “(Your Name), Trustee of the (Your Name) Living Trust dated (the date you signed it.)”

(2) The beneficiaries (often you, your spouse and/or your children), can receive the income and/or principal in the manner and at the times you direct;

(3) The “trustee(s)” you appoint—which can be you, your spouse, another family member, or a corporate trustee, such as a bank trust department—manage the assets of the trust both while you are alive and after your death. If you act as your own trustee, you don’t lose any control because you can continue to manage your assets, investments and finances. Rather than signing documents in your own name, you simply sign them using your name with the indication you are the “trustee”; and

(4) You can amend or change an RLT’s provisions at any time during your life.

 

2.  WILL

If a Will is the centerpiece of your estate planning (which it is not with a trust-centered plan), it simply provides instructions for distributing only some of your assets to your family and other beneficiaries upon your death. The applicable assets would be only those assets titled or held in your name alone—without any other joint tenant owner or without any “paid-on-death” or other beneficiary designation.

You designate a “Personal Representative”, who a judge must approve, to distribute the limited assets covered by your Will. If you have minor children, you can designate or nominate a Permanent Guardian to raise them. To be effective, the Will must be filed with the Probate Court in your county. Probate is a judicial process for authorizing the distribution of the assets covered by the Will. The court oversees payment of liabilities and debts and the distribution of the subject assets. (The Probate action after your death does not include the management of your assets during your life if you become mentally incompetent to handle your financial affairs because of an accident, stroke or other health issue. Because a Will does not take effect until you die, it cannot provide for management of any of your assets and property if you become incapacitated.

3.  GENERAL DURABLE POWER OF ATTORNEY

A General Durable Power of Attorney is a financial legal document in which you name a person to act as your “agent” on your behalf while you are alive and either mentally competent or incompetent. You give your agent either limited or broad management powers.  You should choose this person carefully because he or she will be able to sell, invest, manage, and spend your assets—even without your direct knowledge.

A traditional power of attorney terminates upon your disability or death.  However, a General Durable Power of Attorney will continue during your mental incapacity to provide financial management, but it also terminates on your death.  However, under Colorado law, no third party—such as a bank, investment broker, title insurance company, nursing home, etc.—is legally required to accept your power of attorney.  They might deny accepting your agent’s authority because of the age of the power of attorney, the language in it or not in it, or because it is not on a form approved by them.  If one third party doesn’t accept your power of attorney, then a court “conservator” action may need to be filed. This public court action involves time, money, legal fees, emotional stress and periodic accountings about how all the money is spent.

4. LIVING WILL

A “living will” merely expresses your wishes and intentions regarding the use or non-use of life-sustaining measures in the event of your terminal illness. It expresses what you want, but it does not give anyone the authority to speak for you.

5.  HEALTH CARE POWER OF ATTORNEY

A durable health care power of attorney authorizes someone you chose (“agent”) to make medical decisions for you in the event you are unable to do so yourself.  This document, along with the Living Will, can be invaluable for avoiding family conflicts and possible court intervention if you should become unable to make your own health care decisions, including, but not limited to, the “pull-the-plug” decisions.

Your having an effective estate plan is one of the most important things you can do. Although these 5 documents are important, any proper estate plan includes other relevant and important documents.

The first step in the planning process is to create a comprehensive listing of your assets (Net Worth Statement), showing all of your assets, including taxable accounts, tax-deferred accounts (IRAs, annuities, retirement plans), life insurance, investment accounts, etc.

The second step in the planning process is for you to choose and work with an experienced estate-planning attorney who can give you advice and counsel so you can know what your choices and options are and can make informed and intelligent decisions.

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