The Four Big Estate Planning Tools
Hello everyone. This is Robert Mansour, and I wanted to present a very quick explanation today of the standard estate plan that most of my clients implement. You'll notice that in the background of this graphic, I have a tool box (a graphic of a tool box), and that is the analogy that I like to use - An estate plan is a legal toolbox and it's full of all different kinds of "legal tools" that can help you and your family.
If something should happen to you, either death or incapacity or car accident (something that happens when people need to assist you). Also this assists in the distribution of property after you pass away. So the four major tools of the estate plan are on the screen. There's the living trust at the top, wills, power of attorney and health care documents.
Now there are other tools, but for our purposes today, we're going to hit on the big four. So a living trust is a legal document up here at the top left that an individual can create, or two people can create like a husband and a wife and three or four people etc. The people who create the living trust are called the "Settlors." You'll see at the very top left the word Settlors. If it's an individual, obviously Settlor, Settlors for plural (when you have more than one individual). The term that you might be familiar with is "Grantor" or "Trustor". They all mean the same thing. The Settlors are the people who create the living trust from the very beginning. So an individual would be that person, a husband and wife, etc.
Now, what I want you to understand also is that a living trust is basically a contract. It's a legally enforceable document. So the contents of the document can be enforced in court. So it's not anything terribly mysterious. For example, my wife and I have a living trust, and it is nothing more than a contract between me and my wife about what happens with our stuff. If we should get sick, something happens to us...who is in charge after we pass away, where does our estate go? Who sees to it that those assets get to the right people? In our case, it's our two children. And we want to make sure that those assets get to our kids in a certain fashion. And all of those rules and regulations are contained in our living trust. Now, the next people involved in a living trust are called the Trustees.
These are the people who are in charge of everything that is in the living trust. So let's say for example, let's say the Smith family creates the Smith Family Trust. Assets that are in the name of the Smith Family Trust are managed by the trustees. In the very beginning, the Trustees are the people who created the trust, whether it's an individual or a married couple. And so you are the initial trustee of your own trust. At some point, you will not be able to be the trustee and the people who will take over are folks called your "Successor Trustees." I use the analogy of the airplane. As you can see at the very top of the graphic - here in the very front of the airplane in the cockpit are the initial Trustees (i.e., the husband and the wife or the individual who created the living trust). The Settlor(s) are typically also the initial Trustees.
And then the first class are the Successor Trustees. They are sitting there having champagne, maybe some shrimp cocktail. As soon as the people in the cockpit can no longer fly that plane, those Successor Trustees step into the cockpit and take control over the living trust. Now they have to follow the "flight plan" (which are the rules of the living trust). So they can't just do anything. Do you see these stars here in the middle of the graphic? The stars represent the "assets" of the living trust (the cargo on the plane, if you will). So a lot of people create a living trust, but they don't put anything in it. It's basically like building a house and not furnishing it.
So once you create your living trust, you have to put things in your living trust - and you do that by changing title to your assets. So for example, your real estate will no longer be held in your name alone. It would say "Smith Family Trust" on it, or "Johnson Family Trust". Your bank accounts, your investment accounts - not all of them - but many of them are going to say Smith Family Trust on them. You have to actually physically go to the bank or call your investment company and change the name on your assets. Once you create your living trust, we call that "funding" the living trust.
The final people involved in the living trust are the "beneficiaries." These are the people who benefit from the living trust. Once again, in the very beginning, it's the Settlors - the people who created the living trust are the beneficiaries of their trust. Eventually, other people will be the beneficiaries such as the children or whoever else you have as the beneficiary of your living trust. Now you'll notice out here, there is a star that is floating out here. This is an asset that's not in the living trust. I'll get to that in just a minute. Now, the living trust is a common document among two people or a single document for one person. Then you have the wills. If you're dealing with a married couple, each person is going to have their own will. The person in charge of the will is called the "Executor." People tend to confuse the terms "Executor" and "Trustee" a lot. They tend to use them interchangeably. In fact, they are not interchangeable terms. They are separate jobs. Now you can choose the same people to do those jobs, but they are nevertheless separate jobs. So the executor is the person in charge of the will and the trustees are the people in charge of the trust.
Now you will notice that I drew a trampoline down here. Here's why I deliberately put the will under the living trust. I want you to get a visual. The will is like a big "safety net" that sits under the trust. If an asset is sitting outside the trust like this one over here, and after you die, we find this asset not in the trust. It falls, bounces off the trampoline, and goes into the trust. So consider the will like a big safety net that sits under your living trust.
Now you're also going to have powers of attorney. The power of attorney is also a very important document. The power of attorney is a managed by somebody known as your "Agent." Your agent is the person who's in charge. Now the agents can be the same people as the trustees, the executor, it can be the same people. It's just a different job. In most cases, with a married couple, the husband is first in line for the wife and the wife is first in line for the husband.
So the agent is the person who gets to act on your behalf. That's what the power of attorney is. You're giving someone the legal authority to act on your behalf in matters that do not directly involve your trust, your will, or healthcare decisions. So for example, let's say I need to call my wife's credit card company or my wife's former employer, because I need information about something. Sometimes you'll run into resistance when you do that - because they'll tell you, "No, we can't give you that information because it's private information." However, if I have power of attorney given to me by my wife to me and I'm her agent, therefore I can act on her behalf. There may be times in life when I need to do that.
Now, keep in mind, this is a power that you have to give somebody. They can't take it from you. I get calls from clients all the time and they say, "Hey, I'm at the hospital. My dad is sick. My mom is sick. I need power of attorney over them." I say, "Well, you can't just take it from them. They have to give you that authority." In many cases, clients are calling me too late. Their father or their mother, or their loved one is in a coma or they are not doing well. They're at the hospital - whatever the case may be. So you want to make sure you get this legal toolbox set up BEFORE something happens. So that's power of attorney, and then you have the health care documents down here. Once again, we use the term agent to be the person in charge of health care decisions.
There are two important documents in California that go under the healthcare discussion. The first one is something called an Advance Health Care Directive. Sometimes people confuse this with something called "power of attorney for health care." In California, we call this thing an advance health care directive - where you give someone the authority to make health care decisions on your behalf. It's very similar to power of attorney but this one is specific to health care. This is where you let people know what your wishes are - what kind of measures do you want. If you're very sick - and this is not just about pulling the plug - that's what people usually think about. It's a lot more than that. This individual is your advocate. They are the ones who can demand answers from doctors and nurses and other professionals. They can move you from one facility to another. They can do a lot of things.
It's not just about end of life decisions. In California, it's becoming increasingly important to have a separate authorization for the release of medical records. So even though you are the agent, some facilities might give you a hard time if you're trying to obtain the medical records of a loved one. There may be times when you need those records for a variety of reasons, including perhaps getting a second opinion about a recommended surgery or something like that. So those are the documents that go into health care decisions.
So this is just a very cursory and quick glance of the four major tools that go into most estate plans. I hope you found that helpful. If you want to learn more about my practice, you can always visit www.MansourLaw.com. You can also call our office at (661) 414-7100. Thanks so much.
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