Life's Stages Dictate Different Estate Plans
As you travel through the various seasons of life, you may not require the same estate plan. A plan you created in your 30’s could be vastly different from the one you need in your 60’s.
2. Newly Married. Once you are married, you will probably want to name your spouse as agent on your durable power of attorney for finances and advanced health care directive. You should also create a revocable living trust and name spouse as beneficiary of your 401(k), life insurance policies, pension or retirement plans.
3. Married With Children. Now is the time to amend your trust to provide instructions and designate guardians to raise your kids, should something happen unexpectedly to you and your spouse. Beneficiary designations on life insurance policies, pension plans, etc. should also be updated to cover a situation where both parents die simultaneously.
4. The Middle Years. During this time, your trust should be updated as changes occur such as divorce, additional children, changes in financial situation, inheritances or substantial increase in net worth, or death of a beneficiary or trustee.
5. Retirement. During the retirement years, you may want to add provisions to your trust to make distributions to your children or grandchildren. You may want to designate charitable gifts to certain charities or decide who should receive personal items such as jewelry, heirlooms, or other property. Many people consider preparing care plans which detail your requests for care—from frequency of hair cuts to food preferences—in the event they become incapacitated. If your estate is likely to be subject to estate taxes, you should consider reducing the size of your estate through gifting or creating an irrevocable life insurance trust or charitable trust.
Estate planning is not a one time project. It continues throughout your lifetime. As your life changes, your goals and objectives change which need to be incorporated into your estate plan. For all of life’s seasons and stages, call the Schomer Law Group.
Which is Better: a Will or a Trust?
One of the most frequent questions I receive from clients goes to the very heart of estate planning—the difference between a will and a trust. When creating a trust, most individuals also create a will (usually a pour-over will), which further confuses the issue. When a client seeks guidance from me on whether it is better to create a will or a trust, the short answer usually is: it depends.
A will (sometimes called a last will and testament) is a foundational estate planning document and one that should be considered by every individual. The primary purpose of a will is to provide a set of instructions for the probate court to follow after your death. Basic issues that are addressed in a will are your choice of executors (the person who will be in charge of your estate) and your desired distribution of your property at your death. While a will is essential to any estate plan, by itself a will has two key drawbacks: it does not avoid probate; and it does not address the issue of your incompetency.
By contrast, a trust (sometimes called a living trust) is usually designed to accomplish everything addressed in a will (naming fiduciaries and designating where your assets go upon your death) but also usually provides the added benefits of avoiding probate and allowing the management of your incapacity. Most people want to avoid probate because an administration proceeding generally costs between four to eight percent of the gross value of the assets and take a minimum of nine months, if not several years, to administer. In local cities such as Manhattan Beach or Santa Monica, where home values average close to $1,000,000, probate fees and costs can easily exceed $40,000 or more. A trust also allows incapacity management because if you (as the trust creator or ‘settlor’) are deemed to be incapacitated (such as by a stroke), the trust agreement usually allows your named successor to assume control of your trust estate. Thus with a trust your assets can be managed for your benefit without having to file a court proceeding.
In addition to these foundational benefits, trusts can also be designed to create a host of other benefits for the settlor including some protection from estate taxes, delayed and managed distribution of your assets for dependents, and some protection from potential creditors. All of these benefits usually require that a person spend more money preparing the estate plan, but given the various benefits for most people, the investment is usually money well spent.
In summary, a will-based estate plan is frequently ideal for those with minimal non-real estate assets. For those individuals with real property holdings, dependents including minor children, or a reasonable asset base, a trust-based estate plan usually is the better choice.
Kids Protection Workshop
On May 2, 2009, learn how to protect your family, preserve your weath and leave a legacy for your loved ones. Schomer Law Group will be hosting a workshop at Color Me Mine in Mahattan Beach, California. Participants will be eligible to win a $200 gift certificate from Collen Berg Jewelry. To register, call Schomer Law at (310) 337-7696.
