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by Andrew H. Hogenson

What is estate planning?

Broadly speaking, estate planning is a process through which a person plans for the management and distribution of the person’s assets after death, as well as for the management of the person’s health care and financial affairs while the person is alive but unable to handle his or her affairs.

An estate plan provides detailed directions and expressions of desire for loved ones regarding the person’s health and assets, and for the appointment of individuals who the person believes will be most capable of effectuating the directions and desires. Among other benefits, this can help eliminate, or at least alleviate, some of the stress and intense emotional issues associated with a person’s death or incompetence.

While every person should have an estate plan, some individuals have unique issues that should be addressed in a comprehensive estate plan. These individuals include business owners, high net worth individuals, individuals who have children with special needs, and individuals in second marriages who have children from a prior marriage.

What are some basic estate planning documents?

Revocable Living Trust

A revocable living trust is a legal arrangement by which a person, called a “grantor” or “settler,” creates a separate legal entity called a “trust” and then transfers property, such as real estate or a brokerage account, to the trust. The trust becomes the owner of the transferred property.

A revocable living trust is created during the grantor’s life, and the grantor is free to amend or terminate the trust at any time. The grantor is also free to take assets out of the trust and to otherwise use the trust assets as he or she chooses. Income generated from the trust assets are treated as income to the grantor for income tax purposes as if the grantor owned them personally.

The trust is controlled and managed by a “trustee.” The grantor is typically the initial trustee of the trust. The grantor will usually name at least one successor trustee to succeed the grantor. The trustee typically has broad powers over the trust assets. Upon the death of the grantor, the assets will be administered and distributed to or for the beneficiaries of the trust as the grantor provides and, in this sense, the trust serves as a replacement for a will.

One of the advantages of a trust is that the trust can provide a procedure to determine if the grantor is incompetent, and how the trust assets will be managed for the grantor if that occurs, without the involvement of the probate court and without the appointment of a guardian or conservator for the grantor.

Will

Most people associate estate planning with the creation of a will. A will is a written document that sets forth how the property of a person, called the “testator,” is to be distributed after the testator’s death. In a will, the testator can set forth the beneficiaries of the testator’s property, how much each beneficiary will receive, and when they will receive it. A will can provide for the creation of a trust or trusts upon the testator’s death. A will can also appoint a guardian for the person’s minor children, although this “appointment” is not binding upon the court.

A personal representative is appointed in the will to handle the administration of the estate after the testator’s death. Among other things, a personal representative provides any necessary notices to heirs and creditors, files an inventory of the probate property, manages the probate property, pays creditors, distributes assets to the beneficiaries and prepares a final accounting.

Durable Power Of Attorney For Property

A durable power of attorney for property allows a person, called a “principal,” to designate another person, called an “attorney-in-fact,” to handle the principal’s financial affairs in the event the principal is unable to do so. Common powers include the right to pay bills and expenses and to maintain and invest assets. The attorney-in-fact can also be given special powers such as the power to create, amend or terminate trusts and to make gifts for the principal.

Durable Health Care Power Of Attorney

A health care power of attorney is a document that allows a person, called an “attorney-in-fact” or “agent,” to make medical decisions on behalf of a principal, if the principal cannot make them for himself or herself. The powers of an agent may include the power to consent to a physician giving or withholding treatment, including life-sustaining procedures. The principal may also limit the scope of the agent’s powers.

Living Will

A living will sets forth a person’s desire not to be kept alive on machines or other life‑sustaining procedures if the person’s condition is incurable or irreversible.

What is the difference between “probate” and “non-probate” property?

Probate is a court action in which the court decides who will receive the “probate property” owned by a person at death. Probate property is the property that a person owns that does not, by virtue of the way it is owned or titled, provide survivorship rights or for an immediate transfer on death to another person. Examples of probate property include a residence or vehicle owned by the person solely and individually. Probate property is distributed at death according to a person’s will. If the person died without a will, then the property is distributed pursuant to the Missouri intestacy laws.

Not all property a person owns is probate property. As discussed earlier, property owned by a revocable living trust is “non-probate property.” Jointly owned property is often non-probate property. Property with a beneficiary designation associated with it (e.g., IRA accounts and annuities), is non-probate property, unless the estate is the beneficiary due to a failure of the beneficiary designation or for some other reason.

Many assume that, upon death, the distribution of all property in which a person owned an interest will be governed by a will or revocable living trust. Often this is not the case. This is because, in many instances, at least some property is jointly owned with another person or has a beneficiary designation. Generally, it is the joint ownership or beneficiary designation that controls who gets the deceased person’s interest, and not the will or trust.

It may make sense in some instances to create a beneficiary designation for property that does not have one. For example, Missouri allows for the creation of a “beneficiary deed.” A beneficiary deed may be used to transfer real estate to a person upon the death of the owner. The beneficiary deed is recorded; however, it is not effective until the owner’s death, and can be revoked prior to death. Upon the owner’s death, title to the real estate passes to the named beneficiary.

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