Is your family protected in the event of your disability or death? Asked another way, have you completed or recently reviewed your estate plan? If the answer is no, then we suggest that you read on.

The modern estate plan consists of a revocable living trust, pour-over will, durable powers of attorney for property, health care and mental health care. A slightly more complicated arrangement for tax planning would include the use of an A/B trust. Together these estate planning instruments constitute a basic estate plan that is vital for the protection of your family. Each of these instruments is explained below.

Revocable Living Trust

A revocable living trust (a.k.a., inter-vivos trust) is a trust created by a living grantor (i.e., the person who creates the trust) that can be terminated or modified at any time and for any reason by the grantor. Palermo, M (2005). AARP, Crash Course in Estate Planning, New York: Sterling Publishing Company. Upon the disability or death of the grantor, the trust becomes irrevocable. A trust (trustee) becomes the legal owner of the trust property and deeds, titles, and financial instruments are amended to reflect this change in ownership structure. With very limited exception, there are no adverse tax consequences to transfers between a grantor and his or her revocable living trust.

Unlike a last will and testament, or for that matter dying without a trust or will (i.e., intestate), a revocable living trust does not have to be probated in any court. Probate is a court procedure required to settle an estate of a deceased person and transfer his or her property to beneficiaries of the estate. Bove, A (2000). The Complete Book of Wills, Estates & Trusts, New York: Owl Books – Henry Holt & Co. Unlike a trust, probate proceedings are a public record open for full inspection by anyone interested in the estate. Finalizing an estate is usually an extended process where a court exercises continuing legal jurisdiction for a period of approximately nine months or longer.

A revocable living trust avoids the inefficiencies, costs and complexities of probate. Upon the disability of the grantor a successor trustee(s), previously chosen by the grantor, immediately and without court intervention is empowered to act in behalf of the trust. While the grantor is alive and otherwise disabled the successor trust has a fiduciary duty (i.e., duty of fidelity) to the trust and the grantor to care for the trust property of the disabled grantor. The successor trustee is not permitted to convert the property of the trust to his or her own use or that of a third-party; instead, the trustee must fully maintain and account for the trust property for the benefit of the trust.

Upon the death of the grantor, the successor trustee(s) is required to pay all outstanding taxes of the estate and final expenses such as hospitalization, funeral, burial, et cetera, and account to all beneficiaries for the assets that constitute the trust. These remaining assets are then divided per the instructions of the trust to the beneficiaries as indicated in the trust. Beneficiaries can include people, trusts, charities, and other entities, at the full discretion of the grantor. At no time is court intervention required. All aspects of the trust, including its administration, are private and not otherwise open for public inspection. Further, the time involved in administering the estate is substantially reduced thus creating efficiencies and cost effectiveness. Beneficiaries, especially family members, are not required to wait a substantial period of time, nor endure the cost and public scrutiny of the court system.

Similar to a traditional will, a revocable living trust is not designed to shelter estate taxes. For estates of married persons that are greater than (or approaching) the maximum exemption of $2,000,000 in 2007 (and changing each year thereafter), an A/B trust should be seriously considered. An A/B trust is designed to capture the exemption for each spouse so as to effectively double the exemption (e.g., 2 million to 4 million). For estates valued greater than (or approaching) the double exemption amount other trusts and testamentary instruments must be considered.

Pour-Over Will

A pour-over will is a testamentary instrument that instructs a probate court to pour-over any probate property (property that was not previous titled or otherwise placed in the trust or did not have a named beneficiary) to the trust for execution and distribution by the successor trustee of the trust, and not by the executor in probate court. A primary goal of the pour-over will is to lesson the time, cost, and involvement of the probate court as much as possible. By lessoning the time, cost, and involvement of the court, beneficiaries (often family members of the deceased) are able to receive the proceeds faster and with significantly greater remaining proceeds due to cost savings of trust administration over the process of probate.

A pour-over will is not to be confused with a traditional last will and testament that seeks to complete the distribution of the estate in the probate court with specific instructions as to whom is to receive probate property and when.

Durable Power of Attorney for Property

A durable power of attorney for property is an instrument that permits an agent (a.k.a., attorney-in-fact) to take specified actions in behalf of a disabled person who created the instrument. The power of attorney survives the disability of the person who created the instrument when it is fashioned as a “durable” power of attorney. Upon the death of the creator, the durable power of attorney is terminated or otherwise expires.

A durable power of attorney for property is useful to an estate (and therefore family members of a disabled person) in as much as it creates a mechanism whereby assets held outside the trust, inadvertently or intentionally (e.g., small bank accounts, vehicle titles, et cetera), can be maintained, administered, disposed of, or possibly transferred to the trust during the disability of the creator. This instrument promotes enormous efficiencies and cost saving for families of a disabled person; specifically, it avoids probate or other court proceedings by family members seeking the power to maintain and control a disabled person’s property.

In matters of non-trust property, a durable power of attorney for property is therefore akin to a pour-over will; the only difference is that the power of attorney is effective during disability while the pour-over will is effective upon death.

Durable Power of Attorney for Health Care

A durable power of attorney for health care is an instrument that permits an agent (a.k.a., attorney-in-fact) to take specified actions and to otherwise make medical and health care decisions in behalf of a disabled person who created the instrument. Without a durable power of attorney neither a physician nor a family member is permitted to take medical action or to otherwise make medical decisions once an individual is stabilized, until or unless a court appoints a guardian for the disabled person. Most families mistakenly believe that they have the legal authority because they are related.

Unfortunately, families have no more legal authority, absent a durable power of attorney or court order of guardianship, than a complete stranger. The process of securing guardianship in the courts is costly, time-consuming, and frustrating. This process can be completely, avoided, and families can be spared the expense (in money and time), by executing a durable power of attorney for health care in advance of any disability.

Durable Power of Attorney for Mental Health Care

A durable power of attorney for mental health care is an instrument that permits an agent (a.k.a., attorney-in-fact) to take specified actions and to otherwise make mental health care decisions in behalf of a disabled person who created the instrument. Without a durable power of attorney for mental health care neither a mental health practitioner nor a family member is permitted to take medical or psychiatric action or to otherwise make mental health decisions once an individual is stabilized, until or unless a court appoints a guardian for the disabled person. Most families mistakenly believe that they have the legal authority because they are related.

Unfortunately, as with a power of attorney for health care, families have no more legal authority, absent a durable power of attorney or court order of guardianship, than a complete stranger. The process of securing guardianship in the courts is costly, time-consuming, and frustrating. This process can be completely, avoided, and families can be spared the expense (in money and time), by executing a durable power of attorney for mental health care in advance of any cognitive disability.

		Stephen L. Hicks, JD, MS, AIF® and Roger L. Millbrook, JD, CPA/PFS, are Fee-Only Fiduciary Investment Advisors and principals of Siena Capital Management, LLC and principals of Siena Accounting Services, Inc. Both are accountants and hold law degrees as well as other advanced degrees and designations in the area of financial services.