Do you really need an estate plan?
By Jeanne Blackmore
There are some questions that you should ask only if you are prepared to accept the answer, and this is one of them! Estate planning may not be fun or exciting, but it certainly is necessary. As the old Ben Franklin adage goes, the only things certain in life are death and taxes… estate planning makes managing both easier, for us and for our families. Let’s look at the basics of a good estate plan, and how Trust Company of Vermont can help you implement and maintain your estate plan.
A good estate plan should achieve two primary goals: (1) provide for your end-of-life care needs; and (2) provide for the disposition of your assets on your death. The first goal is easy to explain: every estate plan should include an advanced directive for health care and a power of attorney. These documents allow you to designate an agent to advocate for your health care wishes and your day-to-day business affairs should you become unable to do so yourself. It is important to put these documents in place while you are healthy and of sound mind because an incapacitated person without a valid advanced directive or power of attorney often must be put under court-supervised guardianship. This could be very stressful for your family and caregivers. That said, it can be difficult to settle on who to designate as agent or what authority to give to an agent. We are happy to help clients work through these issues, which are often quite complicated, and can in some limited circumstances fill an agency role.
The second goal is more complicated to explain, but worth understanding. There are any number of ways you can arrange for your assets to pass on death. You can use a Will or a Trust or transfer-on-death or beneficiary designations or a combination thereof. The precise structure of an estate plan depends largely on your personal financial profile. A good estate plan uses a combination of these tools to achieve the goal of disposing of your assets on your death: (1) in the manner you wish; (2) without incurring unnecessary estate tax; and (3) without requiring probate administration.
The most common structure for an estate plan is a socalled pour-over Will and a Trust. The purpose of a pourover Will is to authorize your executor to transfer to your Trust (via the probate process) any asset you forgot to title in your Trust during your lifetime. The goal, however, is to title all your assets in the name of your Trust during your lifetime so that it is not necessary for your executor to use your Will on your death. Your Trust then provides for the disposition of your assets on your death (except for those assets that you choose to pass by transfer-ondeath or beneficiary designation outside of your Trust). Because Trusts are not subject to probate administration, but rather are administered privately in keeping with the applicable state trust code, they are a very efficient way to attend to the disposition of assets on death. Do not worry that your Trust will interfere in your life during your lifetime. While you are alive, you will be the Trustee of your Trust, your Trust assets are fully within your control, the Trust agreement may be revoked or amended at any time, and the Trust does not require a separate tax identification number or tax filing. Upon your death, the Trust snaps into existence as a separate legal entity and Jeanne Blackmore 4 Do you really need an can no longer be revoked or amended. Rather, the terms of the Trust agreement become fixed. The person or organization you designate to succeed you as Trustee is then obligated to administer the Trust assets according to the terms you set forth in the Trust agreement during your lifetime. Common Trust terms following your death might say something along the lines of: please pay my final bills and expenses, and then divide remaining Trust assets equally between my children and hold them in continuing trust for the benefit of each until each turns 35 years old, at which time Trust assets shall be distributed outright to each child.
The most difficult (and important) things to decide when drafting your Trust are: (1) how do you want to pass your assets to your spouse and/or heirs; and (2) whom do you wish to designate as your successor Trustee(s)? The answers to these questions are very personal and can vary depending on personal financial profile, whether the surviving spouse is from a first or second marriage, whether you have concerns about creditors or divorce for your heirs, whether your heirs will wish to protect assets inherited from you for their own heirs, and whether you would like to provide for charitable distributions. There is no single correct way to construct the dispositive and Trustee provisions of your Trust and, fortunately, there is significant flexibility in how a Trust agreement can be drafted.
Trust administration is one of the cornerstone services that Trust Company of Vermont provides to clients. Our trust administrators and relationship managers have reviewed and administered literally thousands of Trust agreements. We are happy to provide support and suggestions to clients regarding what types of dispositive provisions and Trustee structures work in various scenarios, and to provide feedback to your estate planning counsel.
In many instances, we streamline the estate planning process for clients and their counsel and, as a result, reduce legal fees to implement an estate plan. For clients with taxable estates, we often identify tax savings strategies that can be incorporated into your estate plan by your estate planning counsel.
The final step to estate planning is to make sure that all your assets are properly titled in your Trust and/or have a proper transfer-on-death or beneficiary designation so that everything dovetails properly. An improper title or beneficiary designation can result in an asset passing in a manner you did not wish, an unnecessary probate administration, or in the worst case, conflict among your heirs. For clients with retirement assets, life insurance, or taxable estates, this step of estate planning can be complicated and must be done with care. In addition, as your asset composition may change over time, you must periodically review your asset titling and designations. For those clients to whom we provide support and assistance with their estate planning, we consider this to be a critical part of that service.
To circle back to where we started, estate planning may not be fun or exciting, but it certainly is necessary. Here at Trust Company of Vermont we are here to help you get it done, and to keep it done.