Estate planning: The basics

Planning for your death–or eventual inability to care for yourself–isn’t exactly a fun way to spend your time, but doing so is one of the best gifts you can give your family. Check out the basics of estate planning and get some tips on how to get the ball rolling.

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In a couple of weeks I will argue in court on behalf of a daughter that she should be appointed as the guardian and conservator for her father. The following month I will go to court, not to argue, but to assist a client to become the executor for his late grandfather’s estate. Happily, his grandfather had an estate plan and so clearly indicated whom he wanted to receive his property at the time of his passing. The client seeking to become the guardian/conservator for her father is, in contrast, litigating the matter because her father failed to appoint someone to manage his affairs in the event of his incapacity. The bottom line: the client seeking guardianship and conservatorship is going to spend over $20,000 in legal fees to achieve the same result her father could have accomplished by executing a simple estate plan, while the client who will become the executor for his grandfather’s estate will carry out his grandfather’s objectives with much less expense because his grandfather took the time to make a plan.

So…what is a guardian, a conservator, and an executor? Why does anyone need any of these people? Well, like most of our legal system, the reasons are historical, dating back to medieval England, when our laws regarding the control and transfer of property came into existence. In essence, these roles are essential to prevent your property from being stuck in legal limbo, which is the technical term for that state where no one can access it for your benefit (in the event of your incapacity) or distribute it to your chosen beneficiaries (after your death). Our legal system offers a choice to the person who has property: take affirmative steps through written documents to make these decisions, or leave these decisions to resolution through the courts. Executing documents that express your intentions is called estate planning, and it is much easier and less costly than the alternative.

Now what? Four steps to get you started

1. Take inventory

Make a list of all of your assets and how they are titled (whose name(s) is on the deed or the financial account?). This includes your financial accounts, life insurance policies, real estate, and personal property—everything that you own or possess the ability to leave to someone else.

2. Pick your people

Determine whom you want to leave your property to and the conditions under which you want these individuals to receive it. Then think of people that you know and trust to be in charge of distributing your property at your death or to be in control of your property in the event of your incapacity. Ideally, these people should be above average when it comes to balancing a checkbook and keeping good records.

3. Be ready for some #realtalk

Honestly evaluate any problems that the persons you want to leave your property to might experience if they suddenly received an inheritance from you. Common potential problem areas include marital instability, disabilities—especially when these persons are receiving any government support as a result of their disabilities—financial immaturity, or being under the age of majority (i.e.,18 years old).

4. Get help from the pros

Finally, talk to a lawyer about making a plan that will accomplish your goals and involve the persons you have selected to help you achieve them.

To state the obvious, when Jane dies, she can’t take her stuff with her. All of her assets (financial accounts, real estate, personal property) need to be distributed to somebody–but who? Well, it depends on whether she had an estate plan or, like many people, failed to take any action to ensure that her property went to the persons she wanted to leave it to. Jane has a number of choices available to her when crafting an estate plan, but the basic three options are: beneficiary designation, joint ownership, or a will or trust.

All assets for which Jane has provided beneficiary designations will transfer upon her death to the persons she has named as the beneficiaries. Any property that Jane owned with another person as a joint owner will become the sole property of the survivor upon her death. And all other property will be distributed in accordance with the instructions she provides in a properly executed will or a trust (by her executor if she has used a will and by a trustee if she used a trust). For Jane to create an efficient and comprehensive estate plan, she will want to understand how all of these various estate planning techniques work together, and the possible pitfalls of using one or the others for various assets.

But what if Jane didn’t do any of these things? Then her property will go to those persons that the laws of Virginia direct to receive it, typically her spouse or children, but potentially her great-grand niece or cousin. In addition to transferring to the persons whom our General Assembly has decided should receive it, Jane’s property will only get there after the transfer is approved by the local court in the jurisdiction in which she died, which will add expense and time to the process.

Similarly, it is the unfortunate reality that Jane may experience some period of incapacity before she dies. When this occurs, someone else needs to have the legal authority to take control of Jane’s property and ensure that her money is used to care for her needs. Jane can choose to grant this authority before she becomes incapacitated to a family member or friend through a power of attorney or trust. These documents give the person she designates (her agent in the context of a power of attorney or her trustee in the context of a trust) the ability to access and make decisions with regard to her property when she becomes incapacitated. Again, if Jane has failed to do either of these things, the only way for someone to get the legal authority to make decisions with regard to her property will be for him or her to go to court. This process is called seeking to become Jane’s guardian and conservator, and it is always much more expensive than the cost for Jane to proactively name her own agent or trustee.

Estate planning is primarily about the control and distribution of your property at your death or in the event of your incapacity, and minimizing the cost, effort, and risk in accomplishing your objectives. It’s not really about the size of the estate involved. Often the less wealthy individual is more concerned about reducing the risks of her property going to someone she does not want to receive it than the person with significant assets. And the costs associated with achieving an efficient disposition are usually small in comparison to the expenses of sorting it out when someone hasn’t taken the time to make a plan–even for a modest estate. All of which supports a simple conclusion: make an estate plan, regardless of your age or financial means. Your family and friends will be grateful that you did, and your money will not be wasted on unnecessary expenses in the event of your incapacity or at your death, instead coming under the control of or transferring to the persons whom you want, when you want, and how you want.

Photo by: Marc Roberts

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Jeremy Pryor

Jeremy L. Pryor is lawyer here in Richmond who focuses his practice in the areas of elder law and estate planning.

4 comments on Estate planning: The basics

  1. My grandmother recently passed away and–at least from what I saw–she took the steps to get all of her affairs squared away well before she required extensive care. That way we were left knowing what she wanted *and* we were able to spend the days after her death celebrating her life rather than having to sort through overwhelming details.

  2. Kathleen on said:

    Perhaps more important than disposition of property is guardianship for minor children. I wouldn’t want a court to make that decision for me or my children.

  3. Kathleen, that should be part of it too, I’m sure. We put together a will prior to the birth of our son for that exact reason: to select a guardian. But we also made sure to include information about who would control our assets should we die before our son reaches adulthood, how things will progress once he comes of age, etc. Lots of things to consider.

  4. Definitely it isn’t fun to plan for our death but you’re right, it’s the best thing we can give our loved ones once we pass away. Its a way of securing them in the future.

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