No one likes to think about their own mortality. However, once you have children who depend on you, it becomes essential. If something happens to you, what will happen to them? How do you make sure they are protected and financially provided for? I was recently asked about wills during a weekly Ask Me Anything session on Instagram, and Crista of Hermance Law and Estate Planning Mom generously offered to take all your questions on wills vs. estate planning, and more. Here's the full replay of our discussion, as well as a summary below. Be sure to follow Crista at Estate Planning Mom, and contact her to set up an Estate Plan and Kids Safeguard System for your family today.
Disclaimer: Wills and estate plans are regulated by state-specific laws. All information provided in this post is based on California state law. Please consult an attorney in your state to learn the specific laws applicable to you in your state.
10 Things to Know About Will vs Estate Planning
One of the major items on my First Year Financial Checklist for parents is putting a will in place to protect and provide for your children in the event anything should happen to you. But what I recently learned from Estate Planning expert Crista Hermance is that a will does not protect your estate and provide for your children as seamlessly as you might think. Here's what you need to know about will vs estate planning.
What basic documents should be included as part of your will?
Crista Hermance is a California-based estate planning attorney. The state of California is driven by a trust-based estate planning process. Because of this, a will, as most people think about it, doesn't adequately provide and protect your children the way most families would intend for it to.
A will is just a document that says how you want your assets distributed and who you want to be a guardian for your children. In the absence of a will, a probate court makes these decisions. BUT even if you have a will, your estate still goes through the probate process.
Crista recommends a Trust for parents with young children because it provides the most control to say exactly how you want your assets distributed to your children if something were to happen to you. Trust-based planning also allows for planning for far more than just the event of your death. It allows you to plan for incapacity as well.
At the core of an Estate Plan is a Revocable Living Trust. This document contains all the instructions provided by you, as the grantor, to the trustee, the person who will hold legal title to the assets in your trust in the event of your death or incapacity, for the benefit of your beneficiaries, your children. As long as you are alive, you are the grantor, trustee and beneficiary of your trust, and retain complete control of it and all the assets within it. Putting your assets in the trust protects them from ever having to go through the probate court process. It also allows you to make explicit instructions about how and when your assets will be distributed.
A will distributes assets to your children immediately in their entirety, as long as they are over the age of 18. A Trust can exist for years after your death, and oversee the distribution of your assets over time, as your children mature.
Other documents included in a full estate plan should include:
- Pour-over will - a pour-over will address any assets liabilities that may exist at the time of your death that are not contained in your Trust. It says that those assets should be poured over into the Trust following the settlement of any liabilities.
- Power of attorney - this appoints someone to make financial decisions on your behalf. This person could pay your mortgage, file your taxes, and handle any other financial decisions necessary for your estate.
- Advanced healthcare directive - this appoints someone to make healthcare decisions on your behalf, in the event you are unable to make them for yourself. This is also known as a Living Will.
- HIPPA authorization - this allows appointed inviduals to speak to doctors on your behalf and access your medical records
Why should you avoid probate court?
Probate is very expensive. It takes a very long time - in CA, it can take 1-2 years, and more if your will is contested. It also makes your entire estate public. Anyone can pull all the records and see all your assets, debts and your will. It's a cost, time and privacy concern.
Who should you choose to be your agent(s)?
Agents are any of the people you name in your will or estate plan to act or make decisions on your behalf or behalf of your beneficiaries. Agents include:
- Executor or Trustee - the person appointed to manage and oversee the wishes of your will or estate plan
- Power of attorney - the person authorized to make financial decisions on your behalf
- Advanced healthcare directive - the person appointed to make healthcare decisions on your behalf
Each of these are different roles with different required skillsets. In all cases, you want to choose someone from your circle who you trust to make the decisions you would have made yourself. But you should also consider the skillset and knowledge necessary to perform the duties of the role.
Typically, most people choose their spouse for these roles, along with a secondary or alternate selected.
What should you do with your will or estate plan once it is completed?
You want to keep it somewhere safe, and your Trustee needs to know where it is! Some clients actually like to provide the Trustee with a copy. Estate Planning Moms provides all her Estate Plans on a USB drive, and encourage clients to save it somewhere safe, but accessible.
Your Trustee needs to know where your plans are, especially in the event of an emergency. A frequent issue with older clients is no one knows where their documents are when they pass away, or they are in a safety deposit box that no one else can access. And then you have to go to court to get access to them.
How often should you update your plans?
Estate Planning Mom recommends every 3 years, which is included in her Estate Plan packages with clients. She reviews all the agents and confirms they are all still in good health and appropriate for the roles.
If you have another child, you want to make sure you update the plan or that the plan allows for more children without having to explicitly name them: "all of my children, shared equally."
Any attorney can review, update and make amendments to your plans. You don't have to use the same attorney who drafted it.
What should a Will vs Estate Plan cost?
It will vary significantly based on where you live and the level of planning you choose to pursue. A basic will-based plan will cost about $1,500, while a trust-based plan will be $6,000-$10,000. Less than that, and you should be cautious and make sure it includes everything you need.
A basic estate plan will have sub-trusts to distribute assets to beneficiaries at the ages of 20, 25, 35. More advanced planning will plan for a lifetime asset protection trust, to protect beneficiaries from predators, potential ex-spouses, and even themselves in situations of substance abuse. Trust-based plans are more expensive, but you're getting a lot more control and legal protections.
What is the process involved in creating an Estate Plan?
At Estate Planning Mom, they start clients with a Family Planning Assessment. We talk about if something happened today, what would happen to your stuff and your children. Then we create a plan to make sure what happens is exactly what you want to happen. The process is about 4 weeks long, from first meeting to signing final documents.
That 4 week process sets up your Trust. Once your Trust is set up though, the most important part is funding the Trust - moving all your assets (your home, life insurance proceeds, retirement accounts) into your Trust. If you don't move those assets, or list your Trust as a beneficiary on those plans, those assets won't be protected by the Trust in the event of your death.
Who needs an Estate Plan?
If you have children and life insurance, Crista recommends setting up an estate plan with a trust. You don't have to own your own home or have significant assets to make it worthwhile.
Related Posts: Life Insurance for Parents
What about using online legal sites?
Crista has had several clients who tried to use legal sites first. One came to her to finish because they didn't feel comfortable completing them on their own or understand how to. You are able to purchase and download templates of documents, but still need to complete them yourself.
Another client brought her documents that were not properly drafted. They were leaving on vacation and wanted her to review them.
How do Trusts account for philanthropy?
You can allocate via your Trust a specific dollar amount or percentage of your estate to a specific charity. You can also name a charity as a beneficiary.
The Estate Planning Mom Framework
If you have minor children, Estate Planning Mom recommends using this framework for evaluating your Estate Plan to make sure you are protected and all aspects are properly planned for.
You need to be sure you have agents selected and documents in place to care for your kids in the event of your death, as well as in the event you are incapacitated. You want to make sure you are choosing agents who would make the decisions that YOU would want.
Estate Planning Mom also offers the Kids Safeguard System as part of an Estate Plan, or separately as its own package as well. It includes guardian nominations for your children, letters to formally notify guardians. It also includes an exclusion letter - if you think someone would petition the court for custody that you would never want to have custody of your children. These legal plans are your voice when you have no voice.
It also recommends you selecting more than one guardian, including alternates and contemplates different alternatives. As an example, you choose your sister and brother-in-law, but if something happened to you rsister, would you choose your brother-in-law alone? It's also a template for instructions for how you want your children to be raised.
Learn More About Crista, Estate Planning Mom
Crista was born and raised in Ventura, California and lived there a majority of her life. She majored in business management at San Diego State University and soon thereafter started working for Citigroup, as a project manager, traveling extensively throughout the world. She even relocated to the Philippines for a year!
When she returned to Ventura, she started law school, graduating from Southern California Institute of Law. She clerked for a firm in Westlake Village, while finishing law school and taking the California bar exam. She worked for them as an associate attorney and focused on estate planning, personal injury and bankruptcy cases. Crista really enjoyed helping families with their estate planning and decided to start her own practice to focus solely on estate planning and ensuring that young families know how to protect their family. You can find Crista at Hermance Law and on Instagram @EstatePlanningMom.
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