No one wants to think about their death. This is one of many reasons why people avoid
establishing an estate plan. Some people believe their assets are too meager to
warrant the effort. Others are just too busy to get it done. While not everyone needs a
revocable living trust, everyone does needs to spend some time to ensure that loved
ones are taken care of when they pass on. An “estate plan” can be simple or complex,
depending on your circumstances.
At a minimum, everyone needs a will, patient advocate form and power of attorney.
Without a will, you are considered to die ”intestate” and state law will determine the
distribution of assets titled in your name. It is unlikely that state law will distribute your
assets in the same way you would want them distributed.
Many people are confused about wills. Wills direct the distribution of assets that do not
pass on to someone else by the “operation of law”. Examples of assets that pass by
operation of law are life insurance policies, pensions and IRAs which all have beneficiary
designations that specify how the assets are to be distributed. Having a will has no
effect on the distribution of these assets unless you have specified “your estate” as the
beneficiary. We highly recommend that you refrain from specifying your estate as a
beneficiary.
A patient advocate form designates an individual and alternate to represent you when a
decision regarding your medical care must be made and you are incapable of making
the decision yourself. Patient advocate forms typically include directions regarding your
desires for life support procedures.
Should you become incapacitated, and unable to conduct your own business affairs, a
durable power of attorney gives authority to another individual or individuals to act on
your behalf. Even with a power of attorney in place, some organizations (some banks,
for example) will not honor your power of attorney. They require you to use their form. It’
s a good idea, therefore, to check with banks, pension funds and investment firms to
make sure they will honor your power of attorney. If you need to use their form, you
obviously must complete it prior to becoming incapacitated.
Finally, if your estate is very sizable (over $ 2 million dollars), or you are a widow or
widower, you may want to consider establishing a revocable living trust. Currently,
estates over $ 2 million dollars are subject to estate taxes. Married couples can
currently shelter up to $2 million dollars each (for a total of $4 million) from estate taxes
if they have properly set up revocable living trusts. Without trusts in place, taxes will be
due when the estate exceeds $ 2 million, currently. The exemption for estate taxes will
increase to $ 3.5 million per person in 2009. The estate tax is scheduled to be
repealed, effective in 2010 and then reinstated in 2011, with a
$1 million exemption, unless Congress acts to do something else.
Assets placed in a revocable living trust must be re-titled in the name of the trust. The
trustee of the trust maintains the same control of the asset as if it was titled in their name
and can “revoke” the terms of the trust at any time. Since trust assets are not titled in
your name, they bypass the court probate process in the event of your death.
Assets titled in your name must be “probated” when you die. This means that your heirs
must hire an attorney to handle the court probate process to ensure that assets titled in
your name will be distributed according to the provisions in your will. It is for this reason
that widows and widowers often create trusts to prevent their heirs from having to go
through the probate process. Some families try to avoid the creation of a trust for their
surviving parent by utilizing joint titling of assets with beneficiaries. This can be
problematic, however, depending on the circumstances.
There is much more that we could cover about estate planning. Whatever you do, get
started today if you haven’t already. At a minimum, see an attorney and get the three
basic documents in place. We’ll publish a follow-up article or two on other things you
can do to give you peace of mind and also make things easier on your heirs.
David C. Patterson, CFP® and Erin Patterson, CFP® are the owners of Patterson Advisors, LLC, a fee-
for-service-only financial advisory firm. Patterson Advisors, LLC is a Registered Investment Advisor,
registered with the State of Michigan, helping clients in Waterford, Clarkston and Royal Oak, Michigan
as well as other Oakland County, Michigan communities . Visit www.pattersonadvisorsllc.com for more
information or call 248-674-2108.
Published in the Oakland Insider, January, 2008,
Everyone Needs an Estate Plan
By David and Erin Patterson