For years, the “great debate” among estate planning professionals has been focused around one question. Do clients need a will or a trust? Typically, estate planning attorneys end up falling into one of two camps. First are the will-based attorneys whose mantra is some form of “probate isn’t bad in my state and trusts cost too much.” One the other side of the aisle are the tax oriented attorneys who are favorable to trust based estate planning, but only as a tool to avoid probate and save estate taxes. The truth is that neither one of these approaches will meet client expectations without a system in place to make sure that the clients’ plans are well counseled, fully funded, and kept up to date for changes in the law and family. We believe that an estate plan should first and foremost focus on a client’s goals, not which type of word-processed form the attorney should use.
First, before we discuss common estate planning goals and how to achieve them, I want to take a short time to discuss “funding.” In estate planning jargon, funding is the process of matching up the titles on the things we own with our estate plan. While looking at title may sound mundane, it’s absolutely critical to making sure the instructions on our estate plans control our property. If you have a living trust, the trust will not work unless assets are owned or payable, through a beneficiary designation, to the trust. Likewise if you have a will, the will does not control unless the property is owned in your individual name or paid to your estate. Just last week, I met a family who was shocked to find out that the bulk of their estate, a 401(k), would completely bypass the instructions they left for their children in their will. This was not a plan that met expectations.
Over the years we have identified common estate planning goals that many clients share, aside from avoiding probate and saving estate taxes. Providing beneficiaries (ex. a surviving spouse, children, grandchildren, etc.) protections from life risks: such as lawsuit creditor protection, divorce protection, and protection from catastrophic medical expenses is one of the top goals of many of our clients after counseling. Another major goal of our clients is to control the loss of control during a disability scenario, as opposed to handing someone a blank check, immediately effective power of attorney. These client goals led us to create a trust-based estate planning system, called the Three Step Strategy.
A simple will and a power of attorney is not enough if you value creditor protection and personalized disability planning. Simple wills generally leave property to the inheritors “outright”, which means that title is in the beneficiary’s individual name. If that beneficiary has a creditor, that creditor steps into the beneficiary’s shoes and can take the inheritance they received from you. If the inheritance is left in a particular type of trust, the creditor will have a much harder time accessing the money. On the disability side, wills do not control any property while you are alive. Therefore, you cannot leave directions in a will that control when you are deemed disabled or who takes over control of your property on disability.
No matter what estate planning documents a client has, a system must be in place to make sure the plan is created with counseling oriented planning partners, formally and continuously maintained for changes in the law and family, and appropriate assistance is secured to transfer financial and non-financial assets to the next generation. Without these components, we believe that an estate plan cannot achieve the results our clients expect.