What Is Estate Planning?

The concept of estate planning is really very simple. It can be broken down into three elements:

1. You accumulate property;
2. You preserve the property you have; and
3. You distribute that property when you die to whomever you have chosen.

You may ask yourself the question, "Why should I take the time and expense of preparing an estate plan?" Let's begin by saying that all of us actually have a "default" estate plan. We may not like it, but the State of Arizona and its courts dictate one for us - free of charge. The results may not be what you want, but because the state has only one set of choices and rules, one size must fit all. Preparing a custom estate plan provides you with another alternative - one that puts you in control.

At a very minimum, an estate plan will include:

1. A Last Will and Testament
2. A Power of Attorney Over Assets
3. A Durable Power of Attorney for Health Care
4. A Living Will

A more detailed plan will also include a Revocable Living Trust. The following paragraphs will briefly explain each of the above components of an estate plan and how they fit into planning for an individual or couple.

Revocable Living Trust

A Revocable Living Trust is often used as a substitute for a Will. Like a Will, a Revocable Living Trust can provide for the orderly disposition of the property. However, unlike a Will, which automatically controls all assets personally owned by the deceased person, the Trust controls only those assets that have been placed into the Trust by the party creating it. The process of placing assets into a trust is known as "funding" the trust, or naming the trust as the beneficiary of life insurance or retirement accounts. This is not a difficult task. A Revocable Living Trust can include provisions designed to save a wide variety of death-type taxes and it can easily be amended by executing a document known as a "trust amendment."

The primary advantages of a Revocable Living Trust are the savings in money and time it affords by avoiding the probate process and the privacy it offers, because the Trust does not involve public court proceedings. In addition, the Revocable Living Trust can help avoid the need for court-supervised conservatorship if you become incapacitated. The primary disadvantage of a Trust is its expense (which is more than a Will with similar provisions), and it requires funding to be effective. It is our experience, however, that the time, expense and effort involved in administering a Trust is substantially less overall than that involved with a Will.

Generally the Revocable Living Trust contains the provisions and instructions you want for governing the administration of your property. Property is usually retitled in the name of the Trust. Where beneficiary designations are used to transfer property, such as life insurance, the Trust is named as the primary beneficiary on your policies so that the specific instructions you put in the Trust about the use of the money are followed.

Additionally, an additional type of trust may be needed to help care for minor beneficiaries:

Last Will and Testament

A Will is a document which is used to control the disposition of one's property at death. A Will is effective only at death and must be probated in order for the property to be distributed to the heirs. In a Will you provide instructions to the court as to how you want your property to be distributed. You also express your wishes as to who should be guardians of your minor children. However, a Will controls only the disposition of your property that is in your name alone. It does not control or override joint tenancy property or property where you have designated someone to be a beneficiary, that is, a named beneficiary for your life insurance or retirement plan.

Durable Power of Attorney Over Assets

This is a document under which a person may appoint an agent (known as the attorney-in-fact) to act on his or her behalf. A Durable Power of Attorney remains effective (or becomes effective) if the person becomes incapacitated. It allows the agent to conduct a wide range of personal financial transactions on the incapacitated person's behalf.

Durable Power of Attorney Over Health Care

The agent appointed under a Durable Power of Attorney for Health Care is empowered to give medical consent for the person when he or she is unable to do so. This Power of Attorney gives the agent legal authority to make health care decisions on the person's behalf and to enforce the provisions of the Living Will.

Living Will

Unlike a regular Will, a "Living Will" carries out your wishes while you are alive. It is a statement of your desire not to be artificially sustained when certain death would occur if not for the use of machines or other artificial methods to keep your body functioning. One of the primary reasons for having a Living Will is to avoid a spend-down of resources to keep a person alive in a vegetative or comatose state. In the Living Will, you provide guidance to the person making medical decisions for you so that your family can follow your wishes.

Minor's Trust

A Minor's Trust is desirable whenever you have potential beneficiaries who are under the age of 21. It is typically incorporated inside the Revocable Living Trust. A well-planned Minor's Trust will provide guidelines to the persons who will be guardians over your young children. It is a place for you to state your desires regarding aspects of raising your children. This trust will also control the property you leave behind to take care of your children. Again, you provide guidelines to the person controlling the money (the trustee) as to how you want money spent to support your children and what you don.t want money spent on. A well-developed Minor's Trust is a set of instructions for the person you have chosen to do what you would do if you were still alive and able to raise your children. Most often the person who is the guardian (this is the person your children will live with) is not the same as the person who is the trustee (the person who manages the money for the children).