A little conversation goes a long way towards the understanding that trust-based estate planning is as much about taking control of what happens during your lifetime as it is about realizing that unlike the ultra-wealthy, most of us haven’t enough assets not to have a trust-based estate plan.
Every trust-based estate plan receives the following: (Note: I recommend one, primary initial agent/trustee plus two back-up persons, in the event the initial agent/trustee is unable to act for whatever reason.)
Durable General Power of Attorney
This document goes into effect at signing and remains effective through the life of the principal, a document we often create to support an older relative. This document covers household and personal matters. This is the power that covers emergencies and permits the Agent to step into the shoes of the principal for things like signing checks, paying bills, dealing with vendors of all types and managing all aspects of owned real estate.
Durable Healthcare Power of Attorney
This document also going into effect at signing and remains effective through the life of the principal. This permits another, trusted person, to make healthcare related decisions for the principal when the principal cannot do so. A typical example involves surgery. But the Healthcare Agent can also make decisions about hiring aids, making accommodations to a principal’s home, and other healthcare related decisions.
This comprehensive HIPAA release authorizes all agents/trustees selected by the principal to have the ability to access medical records. If you’re like me, when you go to the doctor each year and sign their HIPAA waiver, you never put down anyone’s name as having the ability to access your records. This HIPAA waiver would cover those exact scenarios.
Advanced Medical Directive (also known as a Living Will)
This essential document applies only to extreme end-of-life situations where-in the principal can no longer communicate. In Virginia, every effort will be made by the medical profession to keep the principal alive, even through artificial means, unless the principal has an Advanced Medical Directive explaining they prefer to be given pain meds (morphine) and allowed to go home to pass in peace.
Last Will and Testament
Of course, every estate plan contains a Last Will and Testament. This document permits the principal to determine to whom their bounty or wealth is to go and in what proportions. The principal’s tangible and intangible assets, however, plus their real estate, will be generally subject to the Virginia probate process, managed by the court of the jurisdiction in which they live. (Unless real estate is held by a trust, probate will need to occur in each and every jurisdiction in which there is real property owned by the principal.)
The probate process is both expensive, timely and public, so I recommend it be avoided. In Fairfax County, following the death of the principal, the Personal Representative needs to qualify the estate so that the winding up may commence. It currently takes 8-9 weeks to get that initial appointment, and a fee of $.10 for every $100 of value of the estate is paid on the value of the principal’s augmented estate (counting everything). Four months after that appointment an Inventory is due, along with another fee. One year following the Inventory, an Accounting is due with yet another fee. The Last Will and Testament, Inventory and Accounting are all public records available for viewing for free. Further, if your executor is permitted compensation, that occurs on a sliding scale that starts at 5% on the first $400,000 of the estate value.
Revocable Living Trusts
Revocable Living Trusts are private contracts and therefore not subject to probate and remain private to everyone but the creator and the trustee, both during the life of the creator and after their death. That means NO probate process. Like with a Will, in a trust the principal determines to whom their bounty or wealth is to go and in what proportions. The Trustee is responsible for making that happen. If the trustee is permitted compensation, that occurs on a sliding scale that starts at 1% of the first $500,000 of the estate value. Truly, this tool simplifies everything.
Trusts work for the benefit of the creator. Once a trust is executed, the assets of the principal are retitled or transferred into the name of the trust. This permits anyone named as trustee to manage those assets for the benefit of the principal in the event they cannot do so for themselves – with far more convenience and ease than a power of attorney. This is because the trust owns the asset, and a trustee is expected to be the asset’s manager. This applies to initial trustees and successor trustees who step in at a later time.
In my office, if the principal owns real estate, we prepare the deed transferring the real estate into the trust. (Title companies are well-versed in transactions where the property is owned by a trust.) We also prepare assignments, so that interest in tangible property or businesses can also be transferred into the trust. I work frequently with financial planners and investment managers so that a client’s retitling paperwork can be signed at the same time the trust is signed.
Revocable trusts pay no tax and require no paperwork of their own during the lifetime of the creator.
Trust-based estate plans cost individuals $4000-$5000* depending on the complexity of the asset structure. A will-based estate plan (no trust) would cost an individual $3000-$4000* again, depending on the asset structure. You can see it makes so much more sense to set up the trust for convenience and ease. Also, estate planning is fee-based and most attorneys request half at the beginning of the relationship and the final half at signing. Fees for filing a land deed are considered extra.
*Prices are estimates and are subject to change.