2020 Estate Planning Documents Checklist - Werner Law Firm

2020 Estate Planning Documents Checklist

As we transition fully into the new year, it is as good a moment as ever to take stock of your financial situation, review your investments, and think of the near (or far) future. With new tax changes upon us, it’s also a great time to review any and all estate planning documents and measures that you may currently have in place and ensure that all newly-acquired assets or account changes are taken into consideration.

But if you do not have an estate plan, then the start of a fresh year is probably the best time to go through the trouble of setting one up. Despite the term, estate plans are not just all about your estate. More than anything, estate plans are like an insurance policy that lets you plan not just for your death, but for disability, incapacity, and grave illness. In a way, an estate plan is about making sure everything goes smoothly, even in the face of an emergency or a sudden mishap.

Estate plans are not just for the wealthy, or for retirees. Young families, freshly married couples, and even individuals with modest savings can benefit from setting up either a comprehensive estate plan or just a couple basic estate planning documents, to save themselves and their family a big headache in the future. Regardless of where you are in life, we are going to walk you through some of the basics of setting up an estate plan in 2020, and what you will want to know.

Do You Need an Estate Plan?

In most cases, the answer is going to be yes. But in every case, an estate plan needs to be meticulously tailored to suit the person in question. Some estates are far more complex than others and require a wider assortment of tools to fulfill a person’s needs. In general, all estate plans are designed to check a few simple boxes:

    • An estate plan must prepare and account for the worst.
    • An estate plan must maximize how much of the estate can be safely, swiftly, and conveniently transferred to the appropriate next of kin.
    • An estate plan must wholly reflect the estate’s wishes.

Yet how these boxes are checked will differ from estate to estate and will require different documents. In some cases, it truly is as easy as filling out an online form and having a local lawyer double-check things. In most cases, it’s better to start with a lawyer to begin with, and have things drafted up from scratch. It is usually still a quick and easy process, as most people will not require complex plans.

But sometimes, complexity is unavoidable – either now, through a large estate plan, or later, when your family must sort through a mountain of paperwork and deal with a variety of potential issues. To save yourself the trouble, it’s always a good idea to schedule a simple free consultation with a local expert on estate planning and family law.

Wills or Trusts?

When it comes to determining who gets what, the two types of estate planning documents that usually spring to mind are the last will and testament, and the trust. The last will and testament (or just the will) is the subject or plot point in many movies and stories, but contrary to popular belief, it’s never read out loud or declared by a lawyer.

Instead, it’s the closest surviving relative who is usually tasked with bringing a will to the courts alongside a death certificate after a loved one’s passing, in order to kick-start the probate process.

Within probate, a court probates a will (declaring it legitimate), and hands over certain legal powers to a designated official (either a hired professional or the same relative who filed the petition for probate) in order to distribute the estate, as per the will. Wills have limitations, the greatest of which is what they must go through probate.

Trusts are different, as they are not just a document, but a legal entity. When a person signs a trust document, they are creating a legal entity between a three-way pact – one wherein the grantor, who signs the trust, hands over control of all assets named within the document to the trust itself, which holds them until the grantor passes away. Then, an appointed trustee oversees the distribution of the trust’s contents to one or more designated beneficiaries.

Trusts can be either living or testamentary, and revocable or irrevocable. Living trusts go into effect immediately, meaning that the grantor only retains quasi-ownership over the contents of the trust once it is signed and notarized. Testamentary trusts go into effect once the grantor passes away.

If the trust is irrevocable, the grantor loses all control over the contents of the trust (and it no longer counts as part of the grantor’s estate, and thus doesn’t need to count towards their estate tax exemption limit). Revocable trusts do not provide such protection, but they also give the grantor control over the assets, and the ability to amend or revoke the trust.

Trusts and wills are not mutually exclusive. One can have both and is often advised to. While trusts can bypass probate and can be immediately dissolved and distributed upon the grantor’s incapacity (and not just their death), many estate planners still recommend having a will for other reasons.

These include assigning guardianship over minor children, which a trust cannot do, and creating a pour over will that automatically funds any remaining assets into a trust if they are accrued before the grantor has a chance to amend their trust.

Powers of Attorney and Advance Directives

A power of attorney is a document with many variants, each of which give another person some degree of power to act as the principal’s proxy (or agent). A durable power of attorney is often the type most recommended as an estate planning tool, because it gives the proxy the ability to make decisions in the name of the principal should the principal be incapacitated.

Powers of attorney are usually created either to grant power over healthcare decisions, or financial decisions. One person can be given both. A principal can also have several agents. Powers of attorney can also be specifically written to limit or adjust this power – for example, one can create a document assigning power of attorney to multiple individuals, but only if they act jointly, and not individually.

A power of attorney can be very useful should you be incapacitated, as it ensures that someone can answer critical medical questions for you and manage your finances in your absence (from making crucial payments to managing investments).

It may also be within your interest to create an advance healthcare directive. This is a document that essentially details what decisions you would make in your final days, should you be incapacitated and unable to make said decisions. An advance healthcare directive can include a living will, which has nothing to do with a last will and testament, but instead gives healthcare professionals a concrete idea of what life-saving measures and procedures you will and will not allow.

Account and Asset Beneficiary Designations

Certain assets and accounts cannot be included in a trust, and automatically pass through the probate process. These are assets and accounts with a designated beneficiary (or multiple designated beneficiaries), and they include retirement accounts (401(k) plans and IRAs), life insurance policies, and more.

Some properties and accounts have the option to be transferred on death (TOD) or payable on death (POD), allowing you to bypass probate by directly attaching a beneficiary to these assets or accounts. This designation overrides a will and can be used to further reduce how much of your estate must pass through probate.

Review Your Estate Planning Documents Regularly

Estate planning documents are often contingent on your current relationships, your current assets, and current tax law. All of these things are subject to frequent change. It is advised to review your estate plan whenever you experience a life-changing event, whenever appropriate tax laws change, or every 3-5 years – whichever comes first.



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