Wills vs. Trusts
Also known as a Last Will and Testament, a Will is used to direct how your assets are distributed at the time of your death. A Will allows you to:
express how you want your assets to be divided and who will inherit them;
name a personal representative to oversee the probate of your estate; and
choose a guardian to take care of your minor children.
Revocable Living Trust
If a Will alone falls short of your estate planning goals, a revocable living trust, is an ideal planning option. Think of a revocable living trust like a bucket. You create the bucket, put “stuff” in the bucket, you carry around the bucket, and can add or remove what you put in the bucket at any time. If you become incapacitated or pass away, the bucket is handed to someone else who you trust to carry around and manage the bucket according to your instructions.
One of the most common misperceptions regarding trusts is that they are only for the super wealthy who have large taxable estates. This couldn’t be further from the truth.
There are many important benefits of Revocable Living Trusts beyond estate tax considerations. A Revocable Living Trusts allows you to:
Avoiding probate and ensuring a smooth transition
Planning for incapacity or disability (without court oversight)
Controlling distributions to beneficiaries (give what you have…to whom you want, the way you want, when you want)
planning for incapacity
Powers of Attorney
Advance Medical Directives
Incapacity Planning is planning for the unfortunate circumstance of becoming unable to control your finances or health decisions. This could be brought on by a car accident, illness, or old age.
The two main aspects of incapacity planning are control over finances and control of health decisions. There are legal documents that can be executed to give that control to specific person(s) whom you feel would make the best decisions on your behalf. Making your own choices is always better than surrendering your decisions to a court who has never met you.
Powers of Attorney - Financial Control
If you become incapacitated, you won’t be able to manage your own financial affairs. Many are under the mistaken belief that their partner or adult children can simply take over for them if the need arises. The truth is that for others to do this, they must petition a court to declare you legally incompetent. This process can be lengthy, costly and stressful.
If you want your family to be able to immediately take over for you, you must designate a person that you trust, in proper legal documents, so that they will have the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, and refinance your home.
Advance Medical Directive - Medical Decisions
All adults in Virginia have a right to prepare a document called an “advance directive” to put their wishes regarding medical care in writing. You may authorize another person, such as a spouse, child or friend, to be your agent to make decisions for you if you become incapable of making informed health care decisions for yourself. You can also specifically tell your agent what kinds of care you do and do not want. This authorization is called a “health care power of attorney.”
In addition, you may also state what kinds of life-prolonging treatment you want or do not want if you are diagnosed as having a terminal condition and are unable to express your own wishes. The term for this is a “living will.”
A parent's job is never done, but things get more complicated when kids head off to college. Most of those heading off to school are 18-year-olds and legal adults, which means parents are no longer automatically entitled to their child's medical and educational records, or make decisions on their behalf. That can pose a problem while their children are away at college or in a medical emergency.
Often, parents find themselves last to know that a child is struggling while away from home. This can be avoided by taking some proactive steps before your child's move-in weekend at college to ensure that parent access to grades, academic status, and medical records is maintained. Knowing what documents to complete, and when, is essential to ensuring that you have access to the information you need, when you need it.
At a minimum, your child needs to execute an advance medical directive or medical power of attorney, a power of attorney for financial matters, and a power of attorney specifically for tax matters. In addition, there are several other forms that a student may complete which give parents access to his/her educational record. Completion of these extra forms, which are sometimes university-specific, can save you both time and effort when requesting your child's records in the future.
Child Protection Trusts
As a parent, it is your duty to protect your children. That includes having a plan in place in the event you are not capable of protecting them yourself. Kids' Safeguard Planning is exactly that; planning for the well-being and care of your children should the unthinkable happen.
If you are a parent of minor children, your estate plan needs to include Kids’ Safeguard Planning to ensure your children will always be taken care of by the people you want, in the way you want, and never put in a situation you wouldn’t like. Without this type of planning:
a judge (who does not know you or your children) will decide who will raise your kids, even if it is the last person you would choose.
your children will receive their inheritance from you, in cash, in their bank accounts the moment they turn 18. Most kids at that age are not mature enough to make responsible decisions with moderate amounts of money let alone the proceeds of your life insurance policies and retirement funds.
Blended families are families in which two partners share a life together with children from one or both of their previous relationships. Every blended family looks different; one may involve a person with children marrying someone with no children; another could involve divorced parents or widowers who both have children and stepchildren and marry later in life.
Consider a scenario in which both partners have children from separate relationships. It’s possible for the children of one partner to be completely cut out of an inheritance after one of the partner's dies. If one spouse leaves all their assets to their partner in the form of a simple Will and then dies, the surviving partner could change their Will to leave their entire inheritance to only their own biological children. This scenario tends to be most common when one partner passes decades before the other and then the surviving partner remarries or becomes estranged from their partner’s children.
These complex relationships and the increased number of family members in blended families creates complicated issues when drafting an estate plan. It’s critical to be aware of these potential issues and set solutions in place as you write your create your estate plan.
Trusts are a great solution to these problems as they can be as flexible as you want them to be. A trust can be used to provide for your surviving spouse during his/her lifetime, while ensuring that what remains unused by them will pass to your children at their death. Or, a trust can be written to assign a portion or even specific assets of your estate to pass directly to your children at your death, rather than your children having to wait until the death of your spouse to finally receive their inheritance.
Beneficiary Designation Guidance
This part of the planning process is one of the most crucial, yet is separate and distinct from your will and/or trust. If you thought that by completing your will, you had ensured that your assets would be passed on as you intend, think again. There are some assets, which commonly make up a large percentage of an individual's estate, that are not controlled by the terms of your will at your death. These assets hang around outside the bounds of your will and play by different rules. These assets are categorized as "non-probate assets" and some common examples of these assets are as follows:
Retirement Accounts (IRAs and 401(k) plans);
Bank Accounts and investment accounts with transfer on death (TOD) and payable on death (POD) designations.
These assets pass by beneficiary designation — which is the ability to fill out a form with the financial company holding the asset and name who will inherit the asset upon your death. The proper completion of these forms is absolutely essential for your estate plan to work as you intend. This is the most underrated and overlooked part of the estate planning process. That's why I include this guidance in every estate planning package.
Most of us who have a pet consider them to be a part of the family. Unfortunately, the plans we may have so carefully put together to protect our loved ones typically do not take our pets into consideration. Most of us assume that because our close family members know how much our pets mean to us, someone in the family will take responsibility for our pets after we are gone. However, many pets that outlive their owners wind up in shelters because no formal arrangements have been made for them.
By statute, Virginia allows pet owners to create a trust for the care of their pets. You can create a trust that would go into effect upon your death or if you become incapacitated and unable to care for your pet. You would name someone as trustee to handle the money and a caregiver, who would be responsible for the day-to-day care of your pet.
In your pet trust, you can get as specific as you want with regard to your pet's care. For instance, you can specify exactly how your pet is to be treated – how many vet and groomer visits per year, what the pet should be fed, and any special medical needs that will require special attention. When your pet's life comes to an end, the funds left over in the trust will be distributed according to your wishes.