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Top 6 Essential Estate Planning Documents

March 17, 2020

Clients who have never had an estate plan often ask what estate planning documents are included in a basic estate plan. Although every situation is different, and many individuals or couples require more advanced estate planning, most California estate plans comprise a few basic estate planning documents. This article discusses the difference between the most basic estate plan, which does not include a living trust, and the more common plan, which includes a living trust. It then describes each document included in the plans.

The Basic Estate Plan

A simplest estate plan consists of these documents:

1. Simple Will
2. Advance Health Care Directive
3. Durable Power of Attorney for Financial Affairs

A simple estate plan is most appropriate for young people or people with modest estates. Young people may get by with a basic estate plan because their life expectancy is long, and their basic estate planning documents are aimed more at managing their affairs in the case of incapacity rather than planning for their deaths. In such cases, they are more concerned about naming a guardian for their minor children (which is done in a will) or naming someone to handle their medical affairs (Advance Health Care Directive) or financial affairs (Durable Power of Attorney for Financial Affairs) if they are incapacitated.

Estate planning documents

To save money (simple plans are usually cheaper), some older people with small estates choose a basic estate plan. But saving money on the estate plan while there are alive often costs their beneficiaries after their death, because estate plans that do not include a living trust often have to go through probate, which is typically more costly than a trust administration.

Trust-Centered Estate Plan

Clients who want or need a living trust will have the same three documents in a basic estate plan, plus a living trust. In a plan that includes a living trust, the will is a “pourover will” rather than a simple will.

1. Living Trust
2. Pourover Will
3. Advance Health Care Directive
4. Durable Power of Attorney for Financial Affairs

Most estate plans drafted by attorneys in California include a living trust because without a living trust, many estates over $150,000 must be “probated,” which means they must go through the probate process. This isn’t the disaster that many think it is, but generally it is more expensive and cumbersome to probate a will than it is to administer a trust. There are also many other reasons, besides avoiding probate, that generally make living trusts preferable to simple wills.

Simple Will

A simple will is the most recognizable estate planning document—a common plot device in literature and cinema that everyone seems familiar with, which makes sense because it’s a simple document that has changed little over the ages. A simple will names an executor (to marshal your estate, pay your bills, and tie up your affairs), names guardians for any minor children, and, most important, names your beneficiaries.

Living Trust

A living trust is considerably more complicated than a will, and more difficult for non-lawyers (and non-estate planning lawyers) to understand. A trust is a relationship among three parties: the “settlor,” who creates the trust; the “trustee,” who runs the trust; and the “beneficiary,” who gets the benefits—the principal and income—of the trust. A written trust instrument (varying greatly in length, but typically 25-35 pages) formalizes the terms of the trust.

While the settlor (or settlors in the case of a married couple) is alive, she is the settlor, trustee, and beneficiary. This means that once the trust is signed and funded there are virtually no restrictions on the settlor’s use of her money. She continues to use her assets as she always has, except that her accounts and real estate are now owned by her trust rather than by her personally. A California living trust typically does not shield trust assets from taxes or creditors.

Real estate planning

A living trust names one or more successor trustees or cotrustees, who assume the position of trustee when the settlor is dead or incapacitated. (With a will, the executor takes over only after death; with a living trust, the successor trustee takes over when the settlor becomes incapacity, which provides for management of trust assets while the trustee is living, but unable to manage her trust assets.)
Like a will, a trust names beneficiaries, who receive the trust assets after the settlor’s death. The trust may provide that a beneficiary’s share will be held in trust for a time. If the settlor has minor children, it is common for a trust to provide that they receive shares of their trusts when they reach certain ages, perhaps half at age 25 and the remainder at age 30.

Pourover Will

A pourover will is just like a simple will with one exception: The beneficiary of a pourover will is always the settlor’s living trust. So whereas a simple will would say “at my death my estate shall be distributed to my wife, if she survives, and if she does not survive, my estate shall be distributed to my children in equal shares,” a pourover will would say “at my death my estate shall be distributed to my living trust.” In other words, the dispositive provisions of the estate plan—the terms of the estate plan that specify the beneficiaries—are in the trust rather than the will.

The purpose of the pourover will is to ensure that any assets not titled in the name of the trust at the settlor’s death will still pass to the beneficiaries according to the trust. The pourover will “pours” anything outside the trust into the trust. A pourover will is a backup measure, meaning that if the estate planning documents are done correctly and the living trust is properly funded, the pourover will is never used and there will be no probate.

Advance Health Care Directive

An advance health care directive is a basic estate planning document in which one person (the principal) appoints another person (the agent) to make their medical decisions if the principal is incapacitated. Although a health care directive may grant the agent the authority to dispose of the agent’s body or make funeral arrangements, the other powers expire with the agent.

Durable Power of Attorney for Financial Affairs

A durable power of attorney for financial affairs is another basic estate planning document which, like an advance health care directive, is to be used upon the principal’s incapacity rather than death, and the authority granted in a durable power of attorney expires on the principal’s death. It gives the agent the authority over the principal’s non-trust assets while the principal is incapacitated. (Assets in a living trust will be controlled by the successor trustee, rather than the agent under a power of attorney.)

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