“I want a will. What are all these other documents?”
A good estate plan includes 4 basic documents: a will, a power of attorney for health care, a power of attorney for finances, and an advanced directive. For families with minor children, it also includes an appointment of temporary guardianship, and the will should (at minimum) include a testamentary minor trust. For families with assets above the Washington State Estate Tax Exemption, or families with special needs children or adults, it may include a special needs trust, revocable living trust or other tax-planning documents.
Will
This is what most people imagine when they first first come to me. It is the document that names who your beneficiaries are, details what you want to happen with your property, and nominates your personal representative (sometimes referred to as an executor of your estate). For families with minor children, it often includes the creation of a trust benefiting the children and naming a trustee, and the appointment of permanent guardians. This document comes into effect after you pass away. If you die without a will, your property will pass to your heirs through intestate succession — which may not divide your property in the way that you would’ve wanted.
You must sign your will in the presence of two uninterested people, who can testify that you are of sound mind and judgment in your intent to create your will. Often, a notary public will certify the signatures of the two witnesses.
Power of Attorney for Health Care
This document comes into effect when you are alive but incapacitated. In it, you can name the person you want to make health care decisions on your behalf if you are unable to make them yourself. This document needs to be notarized, but not witnessed, for a hospital to accept it.
Power of Attorney for Finances
While the best practice is to list your spouse on all of your financial accounts, sometimes we forget or simply run out of time. This document allows the person you name to have access to your financial accounts — whether trusts, bank accounts, credit accounts, etc. It can either take effect if you are incapacitated, or it can take effect immediately upon signing. I always recommend that it take effect immediately, as it can take time to get a doctor’s statement of incapacitation and the mortgage still needs to be paid on time. This document needs to be notarized, but not witnessed. In addition, while not strictly legal, many banks will refuse to honor a Power of Attorney that is not recent, under the assumption that it could’ve been revoked in the intervening years. To avoid hassle, I recommend resigning this document every 3-5 years.
Advanced Directive
This is the document that details what kinds of medical care you would like to received at the end of your life. The provisions do not take effect unless you are incapacitated and your condition is terminal, with little likelihood that you will survive without life support or other significant medical interventions. We go line-by-line through the conditions that would need to be present for the document to take effective, and line-by-line through the kinds of treatments you would want to refuse should those conditions be present. For it to be effective, you must sign this document in the presence of witnesses who can affirm that you are of sound mind and judgment in making these decisions. This document is one of the best gifts you can give your loved ones — it is hard to talk about end of life issues, and the people who love you want to honor and respect your wishes. This is one way to make your desires known and understood.
Trusts
For families with assets above the Washington State Estate Tax Exemption, a trust can be a good vehicle for ensure that assets are used for the benefit of your children, and not paid as tax to the state. For most of my clients, the vast majority of assets are community property, which means they automatically transfer to the surviving spouse upon death. There is an unlimited tax exemption for property that transfers to your spouse. However, the tax kicks in when that property transfers to your children. By transferring the first spouse’s property into a trust for the benefit of the children and administered by the surviving spouse, those assets pass directly to the children under the exemption limit, and are not included in the estate when the surviving spouse passes. This is a basic testamentary trust, which is written into the will for most families with minor children.
However, if your assets are above the tax exemption, it may be beneficial to create a trust now, rather than waiting for the first spouse to pass. The biggest factor in making this determination is whether your family needs the financial flexibility to use those fund right now, or whether it would work to lock the property into a trust. The more certainty in your financial situation, and the greater your total assets, the more viable a living trust becomes.