9. Other Documents You Need

This is part 9 in my series, Estate Planning – What You Need to Know.

Part 9 – Other Documents You Need.

Pour-Over Will

When you create a revocable living trust as the central piece of your estate plan, you should also include a pour-over will.

A revocable living trust only controls property that you have transferred to it. If you die without transferring your property to the trust, such as real property, bank accounts or investment accounts, the omitted assets will not be owned by the trust.

This is where the pour-over will comes in The pour-over will instructs your personal representative to literally pour-over the omitted assets into the trust and distribute those assets as if they were part of your revocable living trust.

This is an effective tool for getting your assets to the right person. But I don’t recommend you rely on the pour-over will.

The better approach is to take the steps to formally transfer your assets to your trust. Assets distributed to your trust after your death via the pour-over will be subject to probate. And if your assets have to go through probate, you will have defeated one of your primary objectives of creating your revocable living trust, AVOIDING PROBATE.

The better approach is to consider the pour-over will as a safety net, which insures your assets get to the right person. But be diligent in funding your trust.

Health Care Documents

Your estate plan should include an Advance Health Care Directive, also referred to as a Power of Attorney for Health Care.

The Advance Health Care Directive accomplishes two objectives. First, it authorizes your spouse, children or close friend (referred to in the document as your “agent”) to make health care decisions on your behalf if you are unable to do so.

The Directive gives your health care agent the right to, among other matters:

  • Consent or refuse consent to medical care or services
  • Choose or reject your physician
  • Consent to the release of medical information
  • Donate organs, authorize an autopsy and dispose of your body.

Second, the Advance Health Care Directive includes a provision for you to state your intent regarding life support if you are seriously ill.

We generally use the following provision by the California Medical Association:

I request that all treatments other than those needed to keep me comfortable be discontinued or withheld and my physician allows me to die as gently as possible.

Most of my clients are comfortable with this language and include it in their Advance Health Care Directive.

In addition to the Advance Health Care Directive is the HIPAA (medical privacy act authorization).

The HIPAA authorizes your doctors and hospital staff to talk to your health care agents about your medical condition. Without a HIPAA, hospital red tape could kick in and delay vital communications with your health care agents.

Durable Power of Attorney

The Durable Power of Attorney authorizes the agent you name to manage your assets for you if you become incapacitated.

This is an important document if you have a revocable living trust, but a vital document if you don’t have a living trust.

If you become incapacitated and you don’t have a Durable Power of Attorney, no one will have the authority to get to your accounts or other assets. So your family would have to go to court to have a judge appoint someone as your conservator.   This is not something you want. A conservatorship can be worse than a probate.

With a conservatorship, someone, hopefully someone that knows and cares about you, would be appointed by the court to manage your affairs.

A conservatorship is expensive and becomes a hardship on the person the court chooses to manage your affairs.

Bottom line. When you do your estate planning, make sure you get all the important documents.


6. Revocable Living Trust

This is part 6 in my series, Estate Planning – What You Need to Know.

Part 6 – Revocable Living Trust.

The solution for probate is a revocable living trust. A revocable living trust is a legal contract you make with yourself, or, if you are married in a community property state like California, with your spouse. The trust is a set of instructions on how you want your assets to be managed if you become incapacitated and how you want them distributed when you pass away.

You, or if it is a joint trust with your spouse, you and your spouse, are the managers, or trustees, of your trust. As trustee, you have full authority over the trust assets: you can buy, sell and spend assets as you see fit, just like you would do without the trust. The difference is that the assets owned by the trust can be managed by your successor trustee if you become incapacitated or pass away.

Because there is someone already appointed and authorized to manage your affairs, there is no need for the probate court.

Here’s the example I use with my clients to make the point.

You and your wife own your home. The deed to your home names both of you as owners. When you sell your home, you will have to sign a new deed to transfer the home to the buyer.

What if you both pass away and your children need to sell your house? You and your spouse are still listed on the deed as the owners. If your children find a buyer, how will you sign the transfer deed? You’re no longer alive – you can’t sign the closing documents.

That’s when the court gets involved. For the title company to complete the sale of your house, it needs an order from the court stating that someone (the executor) has the authority to sign the deed on your behalf. This is done in probate court.

In other words, your children can’t sell your house without going through the court and getting an order from the judge. That is a real hassle.

However, if you’ve established a living trust, and you’ve transferred title of your home to your trust, then the trust owns your home. It owns your home not only when you are alive, but also when you die. Therefore, your family will not need the court order to sell your house. Instead, the person you named in your trust as your successor trustee can sign the new deed on behalf of the trust to sell your home.

Bottom line: The main benefit of a living trust is it allows your family to manage your affairs “in-house” without court approval and the costs and delays of the probate.

Next is Part 7, Funding Your Trust.


2. Who Needs an Estate Plan?

Here is part 2 my series entitled, Estate Planning – What You Need to Know.

Who Needs an Estate Plan?

If you have a family, a house or a business or you have assets you would like to pass down to certain people or charities, then you absolutely need an estate plan.

An estate plan will make sure there are enough funds to take care of your spouse and young children, often with life insurance, and it will name guardians to raise your young children if you and your spouse are no longer around.

An estate plan will make sure your hard-earned assets will stay in the family and will not be left for the state and federal government to tax and the court to distribute.

An estate plan will make sure your assets go to the people or charities you want to receive them.

An estate plan will include a strategy to manage your business if something happens to you.

An estate plan will make sure the person you want is authorized to manage your assets and affairs if you become incapacitated.

Next is part 3 – What if You Don’t Have an Estate Plan.

1. What is an Estate Plan?

In the next two weeks, I will publish my new series entitled, Estate Planning – What You Need to Know. Here is part 1.

1. What is an Estate Plan?

An estate plan is a set of legal documents that allows certain things to happen when you die or if you can no longer manage your affairs.

If you have young children, it names the Guardians you want to raise your children if something happens to you and your spouse. If you have young children, this is the most important reason to do your estate planning.

It names the person you want to manage your estate when you pass away or if you become incapacitated. You don’t want a judge who doesn’t know you or your family to make the decision for you.

It sets out your plan of who you want to get your assets. You don’t want your family fighting over your stuff.

It can also significantly protect the assets you leave your children from divorce claims and lawsuits filed against your children. If you are leaving assets to your children, why not protect them?

It also names the person you want to make health care decisions for you if you can’t. Doctors and hospitals need to know who is authorized to make decisions for you.

The documents typically included in an estate plan are:


Durable Power of Attorney

Health Care Directive and Medical Privacy Act Authorization (aka HIPAA)

If you have a Revocable Living Trust, the documents will also include:

Certification of Trust

Transfer Deed to transfer your home to your trust

Schedule of Trust Property

Personal Property Memorandum

Next in the series is Part 2 Who Needs an Estate Plan.

Fund Your Living Trust

I can say this every day and it may still not be enough.

Make sure you fund your living trust.

This means transferring title of your real property, bank accounts, investment accounts and business to your living trust. One of the main reasons you created your living trust was to avoid probate. You may have the best living trust in the world, but if your assets have not been transferred to it, your estate may have to go through probate.

My suggestion:

1. Review your property tax bill to confirm the title to your house or other real properties is in your living trust.

2. Review your bank and investment account statements to confirm the title of those accounts is in your living trust.

3. If you own a business, your business interest (sole propriatorship, corporation, LLC, etc) should be assigned to your living trust.

4. We recommend you name your living trust as the primary, or at least the secondary, beneficiary of your life insurance policies. Contact your life insurance company to confirm your beneficiaries.

5. Review the beneficiaries of your retirement plans (IRAs, 401ks, etc). In most cases, you will want to name your spouse as primary beneficiary and your children or living trust as secondary beneficiary.

It’s worth the time to do this.