Most estate plans include a set of legal tools that can help you and your family if something goes wrong. I call this the "legal toolbox." People can reach into it if you pass away, develop dementia or Alzheimer's disease, are in a car accident or run into other trouble. Sometimes we need legal tools to help ourselves and to help others help us.
A lot of people do not have a legal toolbox. Without one, you might end up in court asking a judge for an order. If everything is set up in advance, you do not need to involve the court, because you already have the tools you need. Here is a flyover view of the four major tools.
1. The living trust
A lot of people think the living trust is the estate plan. It is not. People call me all the time and say, "We need you to do our living trust." I ask whether they mean an estate plan, and they say no, just the living trust. I tell clients that is like buying the engine of a car and nothing else: no steering wheel, no wheels, no seats. The trust is a big part of the estate plan, but it is only a part.
A living trust has three major players:
The settlor
creates the trust. If there are two, they are the settlors. You are always the settlor of your own trust.
The trustee
is in charge of the trust. At the beginning you are your own trustee, or a married couple are their own trustees. After you pass away or can no longer handle your own affairs, the "successor trustees" you name manage the trust.
The beneficiaries
benefit from the trust. At the beginning that is you. You are the settlor, the trustee and the beneficiary.
The trustee manages everything "inside the circle." That means the title to the asset actually says "Smith Family Trust" or "Johnson Family Trust." The title has to be changed for something to be in your living trust.
There are three main reasons people set up a living trust:
- Everything in the name of your trust avoids the court system, because you have taken care of things in advance.
- Your successor trustees, the people you name, in the order you name them, manage everything in the trust. It is not anybody who wants the job.
- The trust sets rules. It is a legally enforceable document, and what it says has to be followed. You set out who gets what, how they get it and when they might not get it. A living trust can be a very powerful tool.
2. The will
The will that goes with a trust is not the usual will with "Johnny gets this, Sally gets that, my brother Skippy gets that." It does one thing: it directs everything back to your living trust. We call it a pour-over will because everything pours over into the trust.
People ask why they would need it. Assets in the trust avoid the court system, but sometimes an asset is not in the trust, because of a clerical error or because you forgot or did not get around to moving it. The will catches that asset and directs it back into the trust. The person in charge of the will is the executor, and the person in charge of the trust is the trustee.
3. The power of attorney
You appoint someone, usually a spouse, friend or family member, as your agent, and that person can act on your behalf in many circumstances. People sometimes ask whether that sounds like the trustee. The trustee does act for you, but many things in life have nothing to do with the trust.
For example, if my wife needs to speak to my former law firm or former employer and get information from an HR file, that is not part of the Mansour Family Trust. She can act for me under a power of attorney. The same goes for speaking to a credit card company or helping someone with other matters.
4. The advance health care directive
This person is also called your agent and makes health care decisions for you if you cannot. Most people think of the "pull the plug" person. I would say it is about 20 percent "pull the plug" and 80 percent advocate. There will be times when you are sick and need people to advocate for you, get answers, talk to doctors and hospital staff and make difficult decisions. The people you choose, in the order you choose them, serve in that capacity. Sometimes it is a very tough job.
Other tools
There are other tools, but these are the big four in most estate plans. If you would like to set up an estate plan, call my office at 661-414-7100 to make an appointment.