May - June 2018

Written by Chad Eichorn
From his column Elder Law

images/news/2018/elder-law-03-18_articleIn our last column, we talked about the importance of having power of attorney documents in place. These are most immediately necessary because they control who is allowed to make decisions for someone in case there is an emergency and that person is no longer capable of making his or her own decisions. The second step of estate planning is the creation of a document or set of documents that controls how someone’s estate will be distributed upon their passing. This is usually done through a will or a trust. Today, let’s look at the basic differences between these instruments. Before beginning, I should note that different states have different laws, so if you have questions, please consult an estate planning attorney in your area.

People have several options when planning to whom their resources will pass at the time of their death, and how they will get there. First, and most common, is that they can do nothing at all. If someone passes away without estate planning documents in place, the state in which they reside at the time of death has prescribed rules that determine who gets what. Every family has unique circumstances, so the likelihood that these statutes will appoint an estate administrator and distribute a person’s assets the way the deceased would have intended is very low. For this reason, every individual should have at least a basic will.

If someone passes away without estate planning documents in place, the state has prescribed rules that determine who gets what.

A second option is a will-based estate plan. The job of a will is to provide the probate court with direction as to whom a person wants to administer their estate, and those the deceased wants to receive their assets. For many, the will simply states that their spouse will function as the administrator of their estate, and that resources will be split evenly among their children. Others have more complicated situations and their wills are designed to reflect it.

Many people think a will is what you need to avoid probate, but the opposite is true. A will leads to probate unless all assets owned by the deceased would pass outside of their estate through things like beneficiary designations on retirement and bank accounts. Even then, in some states (like my beloved Iowa), if you own real estate, when you die your estate will automatically be drawn into probate, which leads to the third option, revocable trust planning.

Many people want to avoid probate because of the time and expense involved. In some states you can do so by simply ensuring that all accounts have beneficiary designations, and real estate is deeded using a tool called a “transfer on death” (TOD) deed. In some states these sorts of deeds are not allowed. In order to avoid probate in such situations, if a person owns real estate they must create a revocable trust to hold their property. A revocable trust is like a bucket that you carry your property in. It goes where you go, does what you do, you can put property into it, take property out of it, and change or terminate it whenever you want. When you pass away, technically you don’t own the trust property, the trust does, so your resources don’t go through probate. Additionally, trusts are much more flexible when it comes to providing for disabled individuals or children who may have difficulty managing their own resources. As opposed to a will, which becomes effective only after your death, a trust becomes effective the moment it is signed and funded.

When making a decision about which planning tool is right for your family, there are a lot of factors to consider, including how complicated your assets are, as well as family dynamics. If you have questions about the kind of plan that is best for your particular situation, I recommend contacting an attorney who specializes in estate planning and elder law near you.

Chad Eichorn is an attorney licensed in Iowa only. This article is provided as legal information only and is not intended as legal advice. If you have questions regarding your specific situation, please contact an estate planning and elder law attorney licensed in your state of residence.