Elements of a Comprehensive Estate Plan

Hello. My name is Kyle Krasa and I’m an estate planning attorney in Pacific Grove, California. I’m certified by the state bar of California, as a legal specialist in estate planning trust and probate law. The purpose of this video is to give you general information about an important aspect of estate planning law so that you can be prepared when working with your own attorney. Watching this video does not establish an attorney client relationship. The law is far more complex and nuanced than can be explained in a few short minutes. As a result, before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. With that understanding, I hope you enjoy my video and you find it informative. Thank you.

The first component of a comprehensive estate plan is your revocable living trust. For more information about a revocable living trust, please see my other video entitled what is a revocable living trust? Now you want to think of your trust as an empty basket and all of your assets as eggs. It doesn’t do us any good if we don’t put the eggs in the basket. So when it comes to your assets, for example, real property, your home or a vacation home, you want to retitle that property into the name of the trust. So you’re going to take a deed and you’re going to transfer it from yourself to yourself as trustee of your trust. When it comes to your bank accounts or investment accounts, you’re going to want to work with the financial institutions to update the signature card, to name you as trustee of your trust as the owner of those accounts.

That process is known as trust funding, and that is a critical component of an effective estate plan. Getting those eggs in the basket is what funding is all about. Now, there are some exceptions to the trust funding rule. Um, there are certain assets that on purpose you’re going to leave outside of the trust while you are living and we can summarize those kinds of assets into three categories. One, retirement plans, and typically what I mean by retirement plans would be IRAs, 401k plans, 403b plans, 457 plans and so on. Secondly, certain annuities, qualified annuities, would be left outside of the trust on purpose, and third, life insurance is often left outside of the trust. Now instead of retitling these types of assets into the trust, you have beneficiary designations that you fill out with each company naming beneficiaries to receive these assets.

Often if you are married, you might want to think about naming your spouse as the primary beneficiary, especially with retirement plans. There could be some significant tax advantages to naming the spouse. You do have to consider whether you are comfortable with a spouse having complete control over the retirement plan, including the power to designate his or her own beneficiaries. That might be contradictory with your testamentary intent, but it’s definitely something to consider as a contingent beneficiary. You might name a person or a number of people or you could name your trust as the beneficiary of such assets. Now I can’t overemphasize this point. You must be extremely careful about naming a trust as a beneficiary, especially of a retirement plan or a qualified annuity because there are many tax traps for the unwary involved. So with all of the information that I’m presenting in all of my videos, you always want to do this with the counsel of a competent attorney who is licensed to practice law in your community.

And that is especially true when it comes to mixing retirement plans and trusts. But depending upon how your trust is designed and depending upon how the beneficiary designation is filled out and what your overall goals are, it might be beneficial to name a trust as a beneficiary of one of these categories of assets. So the beneficiary designations should really be considered separate estate plans and you should have copies of those beneficiary designations along with all of your other estate planning documents. Far too often you might fill out the beneficiary designation and turn it in to the retirement plan company or the life insurance company and never see that document again. You do not want to rely on a financial institution to keep a critical component of your estate plan for you. You need to keep a copy with your estate planning records so your successor trustees and executors can find those documents and make sure that they go to the right people as efficiently as possible.

Now, there are times even when we try our best to put everything into the trust, there is a possibility that you could forget to put certain assets into the trust that can happen and in order to plan for that possibility to create a plan B. In that scenario, typically you’re also going to have a will. Even though the trust would be your main estate planning document, you’re still going to have a will and we often refer to this type of will as a poor-over will. The idea behind it is if you forget to put an asset into your trust while you are living the will will name the trust as the beneficiary and will essentially pour that loose asset into the trust. Now it’s very important that you don’t rely upon your will to do all of your trust funding for you because if you have too many eggs outside of the basket at the time of your death, yes, the poor over will.

will put those eggs into the basket, the pour over will transfer your assets into the trust, but a probate will be required. So the best practice is if you are aware of the existence of that egg while you are living. Make sure you have it in there while you are living and the pour over will is a plan B just in case you forgot to put something in there. In addition, the next critical component would be a general durable power of attorney. I’m going to put a dollar sign here. I sometimes refer to this as a financial power of attorney and this is distinguished separate and apart from a healthcare power of attorney, which I’ll talk about in a moment. The purpose of a financial power of attorne is to name someone to be able to manage non-trust assets in the event of your incapacity.

So for assets that you forgot to put into the trust, for assets that you purposely didn’t put into the trust such as your retirement plans, life insurance or qualified annuities, and for other personal aspects of your life relating to finances that cannot be placed into the trust such as the ability to get your mail, the ability to sign your personal tax returns to deal with Medicare and social security and those kinds of things. That’s where the financial power of attorney comes into play. And finally, our last category here is healthcare documents and I will typically do two healthcare documents for my clients. The first one is an advance healthcare directive and sometimes this document is referred to as a healthcare power of attorney. The idea behind the advanced healthcare directive is to number one, name someone to be able to have the authority to make healthcare decisions for you in the event of your incapacity and number two, to be able to give guidance and directions to your healthcare agent about how that person should make decisions on your behalf.

The second document is known as a HIPAA waiver. HIPAA is a law that protects medical privacy and it puts very strict penalties on healthcare providers who improperly disclose your private health information. Now, this can be a problem because the healthcare providers might not wish to share critical information about your healthcare, even to your healthcare agents or to your spouse or to your children or to your parents or to your successor trustees. And so how can someone make an informed healthcare decision for you if they don’t have full access to your health information? How can someone obtain a letter from your doctor demonstrating that you’ve lost capacity and you should no longer be serving as trustee of your trust without having access to your health information? The HIPAA waiver is a document that you sign specifically authorizing the disclosure of your otherwise protected health information to certain people, and that’s a very important document, simple to put together, but very important to have.

Now, there is a third healthcare document that’s optional, and this is known as a POLST form. POLST stands for physicians order for life sustaining treatment. It’s a doctor’s order. It is not effective unless either a physician or a physician’s assistant signs it, and that’s why I don’t like to prepare this document for my clients because I don’t want them to think it’s effective. It’s not effective unless a physician signs it. With a POLST, you can give some more detailed instructions about end of life decisions such as do not resuscitate and decisions regarding feeding tubes, and it’s not something that everyone necessarily has, but it’s something to consider if you want to have a little more detail. So taken together, these components come together and create a comprehensive estate plan. They develop into a roadmap or an owner’s manual so that the people that you listed to have certain roles, whether they’re your successor trustees for your trust, they’re executors for your will, their agents, for your power of attorney, for finances or for healthcare. They’re going to be able to have some guidance as far as what to do in a variety of situations to be able to make sure your personal wishes are carried out as well as your financial wishes.

I hope you enjoyed watching my video. As I mentioned at the beginning, this is not intended to be a substitute for proper legal counsel. Before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. Thank you.