Most people think of an estate plan as something only effective at death and that, without a sizeable estate, an estate plan is not needed at all. This could not be further from the truth.
Estate plans are important tools both during life and at death. If a person becomes unable to manage their own finances, due to dementia or other cognitive decline, a well-crafted estate plan can be the difference between a fairly simple and easy transition of control over the finances, and expensive and time-consuming court proceedings. What that estate plan may look like will vary depending on the person’s financial situation; however, some kind of estate plan should always be in place.
A Durable Power of Attorney for Finances (DPA) is a good place to start. This document names someone responsible for managing your finances if you are unable to manage them yourself. The DPA should have a clear definition of “incapacity” so that those relying on it know when it becomes effective. Even in a Trust-centered estate plan (see below), the DPA plays an important role, governing the assets held outside the Trust.
With a smaller estate, a Will can effectively address distribution of the assets after death. It is important to note that a Will does not avoid probate; however, it will ensure your assets are distributed to the people and in the manner you desire.
With a larger estate, a Trust-centered plan may be appropriate. A Trust is a legal arrangement in which a Trustee holds legal title to property for a Beneficiary. Typically, the Settlor, Beneficiary, and Trustee are initially the same person. The Settlor creates the Trust and is the only person who can make changes to the Trust document. If the Settlor becomes unable to handle his or her own financial affairs, a successor Trustee (named by the Settlor in the Trust) takes over the management of the Trust for the Settlor’s benefit. As with the DPA, “incapacity” should be defined clearly. The Trust assets are to be used for the benefit of the Settlor, with the remainder beneficiaries receiving their interest only after the Settlor’s death, much as a person’s estate passes to their beneficiaries under a Will, but without a probate. As you can see, a Trust plays a part both during a person’s life and at their death.
When properly drafted, an estate plan is a powerful tool not only in the event of a person’s death, but also during life. Estate plans are designed to grow and develop as we do and should be reviewed periodically.
When deciding on a professional to assist you in drawing up your estate plan, be sure to choose someone who specializes in this area of law. As an estate planning attorney in California since 2001, and in Oregon since 2017, I am uniquely qualified to review your current plan with you and help you make any changes which may be desired.