Article Archive

Estate planning basics

Finance

Issue: March 2010

By: Jerry Mosher, CFP

The creation and implementation of effective estate planning documents can reduce both the emotional and physical cost of a death for the survivors of the deceased. I thought it might be useful to review a few basic distinctions concerning these documents in the hope that some fundamental understanding might launch you into action.

Basic estate planning includes the drafting of wills, wherein you name the person who will act as your executor after your death. An executor is a person(s) who oversees the administration of your estate and makes sure that your wishes and preferences for dividing up your assets and personal belongings is carried out in a timely manner.

Other documents in basic estate planning include powers of attorney for health care and general powers of attorney for management. Either of these powers could be durable, which means they continue on after you are no longer able to act on your own behalf. The power of attorney for health care gives some other person or organization the power to make health care decisions for you if you are no longer capable of making them on your own. The general power of attorney authorizes a person or organization you select to make myriad management decisions, including financial ones, on your behalf should you lose the capacity to do it yourself.

A final document that may be added to this initial group is a living trust. The main purpose of a living trust is to name beneficiaries for your non retirement assets so that those assets do not have to go through the probate process when administering your estate. When an asset has a named beneficiary, that asset is not subject to probate and the associated statutory fee schedule.

You do have to pay something to have a living trust drafted and you will most likely incur some additional cost to make sure your assets are owned by the trust you created. Retirement plans already have a structure for naming a beneficiary, so they will already avoid probate if you have properly completed a form naming a beneficiary. However some assets do not have a structure for naming a beneficiary. Examples of assets that do not have this structure are a residence, real estate and other non retirement assets. To avoid probate on these latter assets a person would have to transfer title into the living trust by reregistering the asset title in the name of the trust. Sometimes people forget or don’t understand that they have to complete this step as well.

If you use a living trust to own non retirement assets, in addition to probate cost avoidance, it also means your assets will not be of public record and any desire for expanded privacy will be preserved.

Perhaps it is the fact that estate planning pertains to an undesirable situation (death) that causes many clients to procrastinate about having documents drafted initially and/or checked for effectiveness and coherence on a periodic basis. It can be an agonizing process to decide on the people or organization you want to fill the various estate planning roles. After spending a lot of mental energy thinking about it, the decision is often relegated to the “I’ll get back to it later” pile or file. Unfortunately, there are many instances when that pile is never revisited and the heirs are left with the chaos of an undocumented estate. The chaos is both emotional and technical for survivors, so I encourage everyone to make sure your estate planning is up to date.

Several estate tax rules and tax tables expired in 2010 without Congress doing anything about it. We’ll address this situation in another article.

Jerry Mosher, CFP® is a 30 year veteran of the financial planning industry and is president of Mosher & Ellis Financial Planning in Lafayette, California. He has been selected three times as one of the 150 best financial advisers for doctors by Medical Economics. Jerry may be reached at (925) 284-9470. Securities offered through AMERICAN INVESTORS COMPANY Member NASD/SIPC.

Back to Article Archive