When I am asked what I do for a living when I meet someone new, I try to say that I am a “wills and trusts attorney.” In the past, when I said I was an “estate planner,” I have received some interesting looks. One person thought I did landscaping work for estates like those found along the Potomac River. If I said I was an “estate planning attorney,” even with a qualifier of “attorney,” many people find the term confusing. First, many people confuse estate planning with strictly financial planning or retirement planning. Second, people do not understand that estate planning does not just deal with your will.
“Estate planning” is a puzzling term but, in general, an estate is all the debts and assets that I person leaves behind when they die. The planning part is ensuring the assets in the estate are protected and try to minimize the debts. In short, it is putting your legal affairs in order.
However, estate planning does not only deal with planning at death but also deals with a person if they have become incapacitated. For example, if you were in a car accident or suffered from some type of seizure and went into a coma. If you have not planned for your incapacity, just like dying without a last will and testament, the court will get involved or even Congress could get involved, like in the Marie Schiavo case.
For the average American without a large estate, say under a million dollars in 2011, the basic estate planning documents you should have include the following:
- Last Will and Testament
- Durable Power of Attorney
- Advanced Medical Directive (with a Living Will incorporated into it)
Many trust and estates attorneys affirmatively state you should have a living trust or revocable living trust no matter what. I disagree on some level and I wrote a three-part article on whether a living trust makes sense (See Part I, Part II, and Part III). I feel that an individual’s situation trumps the automatic living trust view and I take a flexible approach with my clients.
Without a living trust, a Last Will and Testament names a guardian for your children, possibly pours your assets over into a testamentary trust that is created by your Will for your beneficiaries, generally your children, and disperses your estate according to your wants and desires. With a living trust, a will generally only names the guardian for your children since most of your property is not held by your estate.
A Durable Power of Attorney is a legal document that allows you to nominate a person to control your affairs if you become incapacitated.
An Advanced Medical Directive is a legal document that allows you to nominate a person that will manage your medical decisions if you are unable to do so. It also allows you to dictate to what extent you want life saving steps taken to save or preserve your life.
A Living Trust is the legal document that holds title to your assets while you are alive. It allows you to name successor trustee(s) to manage that property if you become incapacitated or die without going to court.