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Estate Plan

Every Adult Should Have One

Copyright © 2014, 2016, 2018 by David E. Ross

No, this is not an advertisement for a service that creates estate plans. For that, you need to retain an estate attorney; but I am not any kind of an attorney. Also, this is not a "how to" for creating your own estate plan. For that, you again need a professional, an estate attorney. Instead, this is a plea — a campaign based on personal experience — for every adult to have an estate plan in order to spare his or her survivors the extreme efforts required to settle an estate when there is no plan.

Background

My son Allen died on 8 April 2013 at age 46. For four years before then, he lived with inoperable lung cancer. Then, for four months, he quickly declined and died. During the years in which the cancer did not prevent him from working, caring for his family, playing coed adult softball, I pleaded with him to get a will and durable power of attorney for health care; but Allen was in denial and never acted on my plea.

When Allen died, he was divorced from his first and only wife. (In California, we call that "dissolution of marriage", not "divorce".) With no will and no wife, his only heir was his 5-year-old son. My grandson's inheritance included savings and checking accounts at a credit union, 401(k) plans at two prior employers, an IRA, and a Roth IRA. The estate also included bills, bills, and more bills, some of which were not really valid. As Allen's closest adult relatives, my wife and I became responsible for settling the estate. This involved closing Allen's apartment and selling his furniture and other possessions. It also involved securing some small sums of money held by the State of California's Unclaimed Property Office.

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In April 2016, the entertainer and songwriter Prince died. He left an estate worth at least $150,000,000, possibly more than $300,000,000. Much of that estate consisted of the rights to his music.

Prince died without an estate plan, with neither a will nor a trust! Under the laws of Minnesota — where Prince lived and died — the lack of a will means his sister and five half-siblings are his heirs. The 29 additional individuals who also claimed to be heirs had their claims dismissed by the court in Minnesota.

At the time this is written, settling Prince's estate has barely begun. Lacking an estate plan, it is possible that Prince's estate will be divided, with each heir receiving the rights to part of his music. Breaking up Prince's collected works that way might reduce the value of the estate.

His heirs would have been better served if only Prince had an estate plan.

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Since my grandson was only 5, his inheritance required protection and supervision by an adult. My son had requested that, if he did not survive, I handle this instead of his ex-wife. Without a will and without a trust for the benefit of my grandson, the protection and supervision of his inheritance required a guardian of his estate (quite distinct from a guardian of a person). Fortunately, my son's ex-wife formally agreed that I could be the guardian of the inherited estate while she remained the guardian of the person of her son. Even with her agreement, however, this guardianship involved an estate attorney, a court-directed investigation of my wife and me, a court-directed appraisal of the assets of the estate, and my appearance with the attorney in court. Notices of the court session were sent to my son's ex-wife and her mother (my grandson's other grandmother). All this cost money, which reduced my grandson's inheritance.

During the court session, my attorney raised the point that my son's bills needed to be paid. The judge agreed and added a provision for that action to the order of guardianship. Only then was I able to access my son's credit union accounts to pay his bills. The order of guardianship also enabled me to claim my son's 401(k) accounts on behalf of my grandson and to file a claim with the state for my son's unclaimed money: two health insurance reimbursements and a final paycheck from a former employer. It took approximately seven months after Allen died before I could start to collect the funds in his credit union accounts and start to pay his bills. Some creditors were patient. Others sent the bills to collection agencies despite my prior communications about the lack of a will and my assurance that, once access to the accounts could be arranged, the bills would be paid.

More than a year after the guardianship was established, after Allen's last bills were paid, and after a checking account for Allen's estate was closed, an additional asset was discovered: a death benefit from an employer's pension plan. The employer wanted to pay the death benefit to Allen's estate, which no longer existed. Almost six months later, another asset was discovered: a refund of the automobile insurance premium on a policy that was cancelled when Allen was no longer able to drive a car. The insurance company wanted to pay the refund to Allen. The resolution of both issues required significant paperwork before the money could be added to my grandson's estate.

The guardianship of my grandson's inheritance requires ongoing involvement of the court. At the one-year anniversary of the order of guardianship, I was required to return to court and again assert the need for the guardianship and provide a professionally prepared accounting. Thereafter, I must repeat this every two years until my grandson becomes an adult, each time repeating the costs of legal and accounting services.

The continuing involvement of the court and the resulting ongoing costs could have been avoided if Allen had a will and a trust for his son. Thus, it should be obvious why I campaign for others to avoid the effort and financial burden created by Allen, why everyone should have an estate plan.

Wills

Every adult requires a will. (Minors are usually not legally competent to have a will.) Only if you are homeless, have no possessions of even minor value, and owe no debts might you not require a will.

You might not own much but you use a credit card, have a cell phone, and saw a doctor. After you die, you need someone — the executor of your will — to cancel your credit card and stop your cell phone service; your doctor probably knows you are dead. A will names your executor, who will handle all this.
When you die, you need an executor to pay from your money what is owed on the credit card, on the cell phone account, and on the doctor's treatments. A will authorizes the executor to use your bank account to make the necessary payments. If your debts exceed your assets, that person is also authorized to negotiate partial payments with your creditors. After all, your debts do not die when you die.
If your assets exceed your debts, who do you want to receive what remains when you die? Do you want your obnoxious sister to get her hands on your money? Do you want your drug-addict child to get it all? Maybe you prefer that a close friend or neighbor receive a gift from your estate. A will allows you to specify who gets what. Note, however, some relatives cannot be excluded from inheriting without a very carefully written will.
If you leased an apartment, your will would authorize your executor to terminate the lease. On the other hand, if you owned your own house, the executor would be authorized to continue the property insurance, mortgage payments, and property tax payments until the house could be sold (handled by the executor) or its title transferred to an heir.
Even if you lived in a fully-furnished apartment, you still leave personal property when you die. You owned clothing, a car, various electronics, books, dishes, and perhaps a hobbyist's collection. Either this should be sold and the money used to settle your estate, or else your heirs might want some mementos of yours. Your will either determines how to dispose of your personal property, or it gives your executor the authority to make that determination.
The executor named in your will might also have to file an income tax return for you if you earned any taxable income in the year you died. There might be a tax refund, which the executor must distribute either to your creditors or to your heirs.
In my son's case, his estate also had to file an income tax return separately from his final personal income tax return. No, this did not involve estate taxes. This involved a 401(k) plan for which my son failed to designate a beneficiary; under the terms of that plan, my son's estate became the default beneficiary. Since the estate could not own a 401(k) plan or an IRA, the 401(k) plan had to be cashed-out, which created taxable income to the estate. Another 401(k) plan of my son's also failed to have a beneficiary, but the terms of that plan made my grandson the default beneficiary with no taxable income to the estate.
In my son's case, there was money held by California's Unclaimed Property Office. Collecting that money would have been easier if my son had a will naming an executor.

One important thing to remember is that every mentally competent adult is legally entitled to make a will, but no one (except a spouse in most cases) is entitled to inherit anything.

Another important thing to remember is that, as long as you are an adult, you are not too young to have a will. My son was 46 when he died.

A word of advice: Wills can create conflicts among heirs and also among the disinherited. To minimize conflicts, I strongly urge that the executor of your will NOT be an heir.

Trusts

When a trust is used in estate planning, the trust actually owns the property of the estate. This can simplify and speed the transfer of an inheritance from you (now dead) to your heirs. Thus, when you die, the ownership of your assets does not change until the estate is distributed.

Not everyone needs a trust, but most of us might find a trust to be handy. A trust is needed in the following cases. Note: Where the terms "guardian" and "guardianship" are used, that also includes "conservator" and "conservatorship". The difference is primarily in the age of the beneficiary, with guardians serving minors and conservators serving adults. (In the latter case, the adult is not competent to handle his or her own finances.)

One of your heirs is only 8 years old, and her inheritance is a substantial amount of money. A trust can designate who handles that money — the trustee — and how it is to be handled. It can also specify when the heir is to receive her inheritance, which might not be until some years after becoming an adult.
Someone is dependent upon you for care and support and will be dependent for the rest of his or her life. How will you provide that care and support after you die? A will is insufficient; you need a trust so that someone else can oversee your dependent's care and support after your death. Without a trust, your dependent will require a guardian, which is much less satisfactory than a trust (see below).
You are leaving your house to your three children, none of whom gets along with the other two. Your trust can continue to own and rent out your house. After expenses are paid, the trustee can then divide the net income between your children, who do not have to deal with each other in managing the property.
My daughter lives in Canada, where the government imposes a tax on the ownership of real estate owned in other countries; but Canada does not impose any special tax on rental income, which is instead taxed the same as other income. My wife and I have a trust that will continue to own our house after we die. The title to our house will not transfer to our heirs. Instead, our trustee will eventually sell the house and distribute the proceeds to our heirs.
You wish to limit the costs of probate for your estate. My wife and I live in California, where an estate in probate must be appraised by a professional estate appraiser. The appraiser's fee is a percentage of the value of the estate. The parts of the estate held in a trust, however, are not subject to probate and escape the appraisal and its fee.
Some parts of your estate, how it is handled, and how it is distributed deserve privacy. The record of probate, however, is public. As with appraisals, the parts of the estate held in a trust are not public.

For any purpose, you must establish a trust during your lifetime. An estate attorney can tell you if that includes specifying the creation of the trust in your will, in which case the trust is actually established at the moment of your death.

Lacking any will or trust when you die, it is too late after your death for whoever administers your estate to create a trust for the benefit of a child or dependent adult. In California, the closest I was able to accomplish was to create a guardianship for my grandson's inheritance. If my grandson were developmentally disabled (which he is not), the guardianship would become a conservatorship when he reaches age 18. A guardianship or conservatorship is a very poor substitute for a trust.

Trust	Guardianship
The courts might be involved during probate of the estate. After the estate is settled, there is no further involvement by the courts. Eventually, the trustee is accountable only to the beneficiaries of the trust.	The courts are absolutely involved in creating a guardianship; an order of guardianship must be issued by a judge. Then, until the beneficiary becomes an adult, the courts require periodic justification for continuing the guardianship and also require periodic accounting of the assets under guardianship. If the beneficiary is somehow impaired, that supervision by the courts can continue indefinitely during the entire lifetime of the beneficiary. The justification and accounting require court filings prepared by professionals, with filing fees and fees for the professionals.
The trust document can give the trustee significant flexibility in how money in the trust is invested. While records of the purchase and sale of assets should be archived, such transactions are not under the control of the courts.	In California, the court must give prior approval before a guardianship can sell any real estate (e.g., your house). Also, money in an estate under guardianship normally is invested only in federally-insured bank certificates of deposit. My estate attorney and I had to present the judge with an argument why my grandson's inheritance should instead be invested in a mutual fund. (The argument presented two issues: (1) my grandson is not dependent on his inheritance for his support and (2) low interest rates on certificates of deposit and inflation would combine to erode the value of the inheritance by the time he became an adult.)
The trustee might or might not be paid for services, depending on the terms specified in the trust document.	The guardian's compensation — including allowable reimbursement of expenses — is determined by the court.
A trustee must be bonded only if the trust document requires bonding. The trust document should then indicate whether the trustee or the trust bears the cost of a bond.	California law requires a guardian to be bonded unless a judge can be convinced that bonding can be waived. In most cases, bonding is waived only if the guardianship is "blocked"; that is, no funds can be paid out without a court order. If bonding is not waived, the judge determines whether the guardian or the estate pays for the bond.
Obviously, a trust is arranged by you in advance of your death. You have reviewed all the details, and they are in place before the trust is really needed.	Someone must petition the probate court to create a guardianship. If no one submits such a petition, the court will appoint a public official to be the guardian; in California, this is usually the county's treasurer. In some counties, overworked and underfunded treasurer's offices have neglected estates in guardianship, causing real estate to deteriorate, personal property to be lost, and improper investments to be made.

Overall, the courts micro-manage guardianships and conservatorships but are involved in trusts only when a beneficiary accuses a trustee of mismanagement.

NOTE WELL: In California, if the lack of a trust results in the need for a guardianship for an estate and no one is willing to serve in that role unpaid (as I am doing), the probate court will appoint a county official to be the guardian. Too often, that has resulted in severe erosion of the value of the estate through neglect and outright incompetence.

Words of advice:

Continuity is important when a trust might have to exist for several years after we die. For that reason, our trust requires two trustees. Initially, the trustees are my wife and I. The trust names who becomes the first substitute trustee if one of us dies. That person then must select another trustee when we are both dead. Both trustees have authority over all our assets. Thus, there is no delay in accessing our funds to pay our final debts.
Reflecting my comment about a will not naming an heir as executor, our trust explicitly prohibits any beneficiary — other than my wife or me — from serving as a trustee. We do not want conflict between our heirs. The executor of our wills is the first substitute trustee of our trusts.
You can have a single trust covering both husband and wife or a trust for each. You can have multiple trusts, each for a different purpose and category of asset. We have a joint trust that owns our house, bank accounts, and personal property and is the contingent beneficiary of our life insurance. We have another joint trust that owns and (for our IRAs and Roth IRAs) is the contingent beneficiary of our retirement investments.

Beyond Wills and Trusts

Wills and trusts are not the only parts of an estate plan. A comprehensive estate plan is a plan for how you want your possessions and assets handled and distributed when you die. It also includes what you want to happen to yourself as you approach death and after death. Among the documents you need are:

Proof of paid funeral arrangements
Power of attorney for financial affairs
Power of attorney for health care
POLST
Inventory of important papers

Funeral Arrangements

A cemetery plot for one person can cost more than $5,000; mortuary services cost even more, possibly exceeding $7,000. You might have life insurance to cover the cost of your burial; but does your family — your survivors — have sufficient funds to cover those costs while waiting for the check from the insurance company? Our daughter pointed out that she and our son (before he started to lose his battle against cancer) together could not pay for a funeral for one of us, with the assumption that one of us would pay for the funeral of the first of us to die.

After some research, I determined that the cost of buying cemetery plots before we die is less than buying them when one is needed immediately. A double-deep plot costs less than a double-wide plot. We first paid for our plots, and we recently finished paying for mortuary services. When the second of us dies, our daughter will only have to pay an honorarium to the rabbi who performs the funeral service.

Power of Attorney for Financial Affairs

Unfortunately, it is too common that you will be incapacitated before you die. With all of our accounts as joint — other than our IRAs and Roth IRAs — my wife and I can handle each other's finances if that happens to one of us. But our son did not have that arrangement. I had to front his final expenses while he was dying plus his funeral expenses and could not get reimbursed until a year after he died, until after all other debts were paid. In the meantime, his savings and checking accounts were frozen for seven months.

Every estate plan should include a power of attorney for financial affairs. Since that power of attorney expires when you die, you might name the executor of your will or trustee of your trust as having the power of attorney. That would provide continuity in handling your final debts.

Power of Attorney for Health Care

Because of accident or disease, you are in a coma from which your doctor strongly believes you will never awake. Do you want your doctor to keep treating you in hope that you might indeed recover? Or do you want your doctor to allow you to die? I cannot tell you which is the correct decision; this is too personal and very debatable. I can tell you, however, you should make a decision now while you can and not delay until you are no longer capable of expressing your wishes. You definitely should not make your family agonize over such a decision, especially because conflicts over the decision can horrifically split a family apart.

There are several ways to document how you want to be treated when doctors agree that you will most likely not recover from an illness or accident.

Living Will: This merely states your wishes. While it might guide your family and doctor, it is not binding on them.
Advance Directive: Beyond a living will, an advance directive can be enforced upon your doctor and other medical providers. However, it might not specify anyone authorized to undertake enforcement or to make decisions that are not covered by what you have explicitly stated.
Durable Power of Attorney for Health Care: This goes beyond an advance directive by specifying a person who becomes your agent if you cannot make your own health-care decisions. Your agent has the legal right to enforce your expressed wishes and even remove you from the care of a doctor or other provider who wants to treat you contrary to your wishes. Your agent even has the authority to override decisions made by your family. Most important, your agent has the legal authority to make decisions about your health care in situations not covered by your expressed wishes.
California's Probate Code now makes advance directives the same as durable powers of attorney for health care, indicating that an advance directive should name an agent who will have the legal power of an attorney relative to your care.

Yes, I strongly believe that a durable power of attorney for health care is far more important than the other two documents. The key feature is the appointment of an agent that you trust to fulfill your wishes.

If you are an adult, you are never too young to have a durable power of attorney for health care. At age 26, Terri Schiavo suffered a heart attack that temporarily deprived her brain of oxygen. The damage to her brain left her in a vegetative state, sometimes called a "waking coma". Unable to even swallow — let alone feed herself — Terri received food and water through a tube inserted into her stomach. Lacking any written expression of her wishes, her husband and parents fought each other for 15 years over whether to remove her feeding tube and allow her to die. Do not subject your own family to this horror.

In California, the Probate Code contains a template for creating a durable power of attorney for health care along with instructions on how to tailor its provisions to suit your own situation and wishes. This means that — unlike a power of attorney for financial affairs — you might not need an attorney to create a durable power of attorney for health care. In addition to the sections in the template, our estate attorney advised us to include a section on HIPAA (the federal Health Insurance Portability and Accountability Act), which imposes strict rules regarding health care privacy; the attorney expressed concern that HIPAA might limit the ability of our agents to discuss our care with doctors when we are incapacitated.

Advance care directives, durable powers of attorney, health care proxies, and other such terms are used in other states. Forms for outside of California are available through Caring Connections, which is part of the National Hospice and Palliative Care Organization.

POLST

The physician orders for life-sustaining treatment (POLST) is a relatively new legal document. This is a one-page (two-sided) form that is completed jointly by you and your primary doctor; no attorney is involved. Unlike a durable power of attorney for health care, which provides for your eventual care after your condition has been evaluated by a doctor, POLST gives emergency care givers (both ambulance responders and emergency room doctors) their initial orders for your care. Thus, a POLST might indicate that you wish all effort be made to resuscitate you while your durable power of attorney for health care indicates that you do not want resuscitation. The former is for your treatment before a full evaluation of your health status is done, and the latter is for treatment after such an evaluation.

A POLST form valid in California can be downloaded from the Web; similar forms are used in most states. The form should be printed on bright pink paper to attract attention. Completion of the form should be done in consultation with your doctor in your doctor's office and signed by both of you. Your doctor then makes a copy — also on pink paper — for your medical records. (Those records should also contain a copy of your durable power of attorney for health care.)

The recommendation is that your POLST should be posted in your home in a place where emergency responders will see it immediately upon entering, which is why it should be on bright pink paper. In our case, our POLST forms are in envelopes with contact information (family and doctor), medication lists, brief medical histories and statuses, and our durable powers of attorney for health care. A bright orange sign in our entry hall tells emergency responders where to find those envelopes, which are visible to anyone standing near that sign.

Inventory of Important Papers

My father had a will when he died. Since my brother and I were already adults and our mother was our father's sole heir, the fact that Pop did not have a trust was probably unimportant. What was important was that Mom had to spend several weeks combing through drawers and cabinets to find all the papers necessary to settle Pop's estate. This illustrates why an inventory of important papers is necessary and why it should be updated frequently.

Our inventory includes the following items and where they can be found:

check books, account statements, and boxes of blank checks
bills to be paid
list of credit cards and other accounts with their account numbers
a personal balance sheet
mutual fund investment statements and records
federal and state tax returns
papers for the guardianship of our grandson's inheritance
life, home, and auto insurance policies
my stamp collection
the "pink slip" (California ownership title) for our automobile

passports
deed, paid trust deeds (California equivalent to mortgages), title insurance, property tax statements, and other ownership documents for our house
wills and trust documents
ownership documents for our cemetery plots
our birth certificates and marriage certificate
backups of computer files (encrypted and stored remotely from our computers)
passwords for Internet accounts (encrypted on my computer)
emergency medical information for each of us

This inventory also includes a list of the contents of our bank safe deposit box, which duplicates some of the other entries in the inventory. Note that some items are encrypted; the decryption keys and passwords are in a sealed envelope in our safe deposit box. A copy of our inventory is in a notebook with our wills and trust documents. Our daughter and the first substitute trustee of our trusts also have copies.

6 December 2014
Updated 28 October 2018

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