October 2014< Back to View All Publications
My best friend and her husband recently had their first child. She texted me to say they need to get their documents in place but that they are confused about what they need: an irrevocable trust, a living trust or a living will? If my best friend is confused, you may be, too. Here’s a rundown of the basic estate planning documents you likely need.
First and foremost, all adults need powers of attorney regardless of their age, their health or their wealth. There are two types of powers of attorney. A health care power of attorney allows you to name an agent to make health care decisions on your behalf if you are ever so sick you can’t make decisions on your own. Similarly, a financial power of attorney allows you to name an agent to act on your behalf for financial and legal decisions.
What about the so called “living will” that my friend mentioned? A living will is a document wherein you can express your wishes about life prolonging medical treatments aka life support. Some attorneys incorporate these types of “living will” provisions into their health care power of attorney. The Nevada statutory form health care power of attorney includes several provisions about wishes for using or declining life support.
Most people think of their will as being the most important estate plan document. The will is important, but in most states the revocable trust (aka living trust aka family trust) is really the foundation of a proper estate plan. A revocable trust is a trust that can be changed or amended.
In Nevada and many other states, people create revocable trusts to hold their assets for the primary purpose of avoiding probate. The revocable trust names successor trustees to act in the event of your incapacity or death. The trust also contains the provisions about who will be your beneficiaries as well as how/when they will receive their inheritance.
Revocable trusts are important for anyone who owns real estate – especially if they own real estate in more than one state. A revocable trust is also important for people with young children, like my friend with the new baby. My friend and her husband don’t currently have any real property, but they do have significant life insurance. If something happened to them, their life insurance would benefit their child but we would have to establish a formal guardianship with the court to manage the money. Using a revocable trust would avoid this requirement.
The trust would also allow them to prevent their child from receiving the money upon reaching age 18. If there was no trust, a beneficiary could get their inheritance immediately upon turning 18. Most people agree that an 18 year old has no business having access to any significant sum of money. The trust can delay the inheritance to a more mature age or even keep the inheritance in trust indefinitely.
When is it better to use an irrevocable trust? Irrevocable trusts are typically used to achieve more sophisticated estate planning needs such as special needs trusts or asset protection trusts. Most people won’t need an irrevocable trust and can achieve their estate planning goals with a simpler revocable trust.
After explaining trusts, most people ask me “Well, then do I still need a will?” The answer is yes – you do still need a will. In my friend’s case, the will is crucial because that’s where we will nominate guardians for her young child. The will is also where you name an executor to oversee probate if probate is necessary. Lastly, it is a good practice to nominate a guardian for yourself in your will in case you are ever incapacitated and a guardianship becomes necessary.
It’s easy to see how all of this can be confusing. The good news is working with an experienced estate planning attorney can help make the process much simpler.
By the way, the third week of October is “National Estate Planning Awareness Week.” It’s a great time to make an appointment to get your own documents in place if you haven’t already done so.
Cordially, Kristin Tyler