An Overview of Estate Planning

A good estate plan will cause your property to go to whom you want, the way you want, when you want and it should minimize the impact of taxes, professional fees and court costs. 
A proper plan should also help you keep control of your property while you are alive and well and provide for yourself and your loved ones if you become disabled.

Traditional estate planning often falls short of some of these goals. In this article I will examine the traditional estate planning process, some of its shortfalls, how modern estate planning overcomes them, and the pros and cons of modern versus traditional estate planning.

Traditional Estate Planning

Traditional estate planning is focused on the transfer of ownership of assets at their owner's death. Its cornerstone is the will. Too often traditional estate planners treated the creation of an estate plan as a transaction. They would also often ignore the client's assets that are not usually subject to probate and focus only on the assets that, with traditional estate planning, must go through the probate process before they can pass to the heirs. It relied on the durable power of attorney to protect the client from having an expensive court ordered and administered guardianship in case of incapacity.

In today's world, with a proliferation of non-probate assets, a more mobile society, and increased longevity, traditional estate planning often falls short of achieving a clients' goals. It does not provide for a disability; it does not necessarily give what you have to who you want, the way you want, and when you want; it will not avoid probate; and it too often ignores or inadequately deals with non-probate assets.

Non-Probate Assets

"Non-probate" assets are those that pass on death in accordance with some contract and thus without being involved in the probate process. In the traditional estate planning days, pretty much the only non-probate asset one ever saw was life insurance. 
In modern times, the portion of the typical estate that is non-probate assets has dramatically increased.

Where once defined benefit retirement plans for the worker and the worker's spouse were the norm, today the norm is the defined contribution plan, which passes by beneficiary designation. Today's planners must also deal with right of survivorship property, IRAs, and all sorts of annuities. Moreover, non-probate assets are typically a much larger portion of today's client's total wealth than they were in the days of traditional estate planning.

The proliferation of the types of no-probate assets, especially accounts with transfer on death or right of survivorship provisions, have likely led many to the false conclusion that they do not need to invest their time and money in estate planning to avoid probate and meet their estate planning goals. Nothing could be further from the truth.

Reliance on the most typical non-probate account provision, joint ownership with right of survival, for example, creates risks for the asset owner that are seldom considered.

Adding a joint or co-owner exposes the affected asset to the joint or co-owner's liabilities, increasing the owner's risk of being named in a lawsuit or losing the asset to a creditor of the joint or co-owner. There is also the risk that the joint or co-owner will not be able to resist the temptation to take or use the property while its original owner is still living.

With some assets, especially real estate, all owners must sign to transact business. If a co-owner (including an owner's spouse) is unable to do so because of incapacity, a guardianship may be required to have someone able to act for the incapacitated owner.

With right of survivorship property, when one owner dies, full ownership usually does transfer to the surviving owner without probate; but what if that owner dies without adding a new joint owner, or if both owners die at the same time? Then the asset must pass through probate before it can go to the heirs. And because a will does not control most jointly owned assets, someone in your family could become unintentionally disinherited when the property transfers automatically on death.

Moreover, avoidance of probate is not guaranteed with non-probate transfers. If "my estate" is listed as the beneficiary, or if a valid beneficiary is not named, the affected non-probate assets will have to go through probate, which will determine who gets what part of the estate. So, too, if a minor is the beneficiary, the asset holder will probably insist on there being a court-appointed and supervised guardian to receive the assets and manage them for the minor.

There is, however, one kind of non-probate asset system that has been demonstrated to work exceedingly well to meet all of your estate planning goals. That is the revocable living trust. Property that is held in a person's revocable living trust will bypass probate and can be used by the trustee to care for the incapacitated owner without court involvement or interference. Other non-probate assets that name the person's revocable living trust as the beneficiary will also bypass probate.

Modern Estate Planning

Modern estate planning is not a transaction; it is a process.

 It involves not only you but many generations. It allows you to care for your loved ones with resources, love and wisdom. It truly is "wealth counseling." Modern estate planning is not just something done to plan for death – it is planning for life, and life involves changes and uncertainties.

Typically the cornerstone of a modern estate plan is a revocable living trust, because a properly funded revocable living trust can avoid both the huge expense of guardianship if you become incapacitated and the expense and delays of probate when you die. But a revocable living trust plan is not a Ronco appliance – you cannot just "set it and forget it." Over time your assets change, your family members' circumstances change, and the law changes. There is truth in the saying, "There is nothing as certain as change." Failure to fund a revocable living trust and keep it properly maintained is an almost sure fire way to get to a probate court.

The modern estate planning process, therefore, includes education, design, drafting of the documents, and implementation. Like traditional estate planning, modern estate planning includes medical directives. Today those include a health care power of attorney, a living will, and a HIPAA authorization. For asset management if you become incapacitated, modern estate planning uses a revocable living trust, backed up by a durable power of attorney.

A living will lets physicians know the kind of life support treatment you want in case of a terminal illness or injury. But its scope is limited, and in some states physicians are under no legal obligation to follow it. A health care power of attorney is broader; it lets you give legal authority to another person in advance to make any health care decisions for you—including the use of life support—should you become unable to make them.

Revocable Living Trust

A living trust-centered estate plan is more likely to achieve your goals in today's world. It plans for your disability, provides for your loved ones, contains your instructions for care, addresses your fears, and can reflect your love and values. It can also avoid probate, is valid in every state, and is more private and confidential than a will. For all these reasons, a living trust-centered plan has become the plan most preferred by estate planning professionals and clients alike.

Planning for Disability

Planning for disability with a living trust is superior to relying solely on a durable power of attorney. Today, many financial institutions and other third parties will not accept a durable power of attorney unless it is recently signed and on their own form. But they will, and indeed must, accept the instructions of a trustee (or successor trustee) named in a revocable living trust concerning the trust assets. 
This makes it less likely that a guardianship/conservatorship will be needed for you. (Note: A will has no effect at disability because it can only go into effect after you die.)

Usually, several successor trustees are named in a trust, in the order in which the grantor wants them to serve. It is a good idea for you to also have a durable power of attorney with the same successors named, in the same order, for even more ease of acceptance.

Why a Revocable Living Trust Works

The concept is simple. When a revocable living trust is established, the name on the titles to you assets are changed to the trustee of the trust. Legally, the individual no longer owns the assets; the trustee of the trust owns them. Thus, when the individual becomes disabled or dies, there is no reason for the court to become involved. The trustee (or successor trustee) already has the legal authority to transact business with the assets. The trust is made revocable so you retain the power to change your mind as well as adapt your plan to changes in your assets, your family, and the law.

Most people name themselves as trustee of their revocable living trust so they can keep control of their assets, naming a successor to step in when they can no longer conduct business due to incapacity or death. Many include a corporate trustee as co-trustee for professional asset management.

Avoiding Probate

Probate administration is very state specific; procedures and costs vary greatly from state to state. Wills do not avoid probate. Assets titled in the your name at death and assets that are directed by a will must go through the probate process before they can be distributed to the heirs. If you die intestate (without a will), your assets will be distributed according to the probate laws in that state, which will almost certainly not be what you would want. If you own out-of-state real property, probate is usually required in each state in which you owned real property at death.

As explained earlier, many assets (survivorship and pay-on-death property, life insurance, IRAs, defined contribution retirement plans, and annuities) are designed to pass outside of probate. That can result in an uncoordinated estate plan. Moreover, many clients—and even attorneys and professionals—fail to understand the importance of asset titling and beneficiary designations, and it is not unusual for a non-probate asset to become a probate asset because of a title or beneficiary designation that is incorrect or out of date.

Living trusts can avoid the need for probate altogether if the titles of all assets have been vested in the trustee and all beneficiary designations have been changed to the trustee of the trust. However, probate avoidance requires rigorous maintenance of titling and beneficiary designations. All it takes to require probate is for you to open a bank or brokerage account in your individual name instead of as trustee. Also, because living trusts are valid in all states, the need for multiple probates can be eliminated.

It is important to avoid any asset or beneficiary designation not being changed to the trust. If one is forgotten, or the valid reason for not putting it into the trust to begin with no longer exists, probate may become necessary. If that happens, a person's "pour-over" will, a standard accompanying document to a living trust, will redirect the asset into the trust. The asset may have to go through probate first, but it can then be distributed according to your instructions in the trust.

It is usually advisable to transfer your home and all your other valuable assets to your trust to make sure they all become part of the unified trust-based estate plan.

Privacy and Confidentiality

Once filed for probate, a will becomes a public document. Moreover, many states have a statutory requirement to file a decedent's will even if there is no probate. With rare exceptions, probate files are open to the public, and private information has become a commodity. Do you really want the planning you have put in place for your loved ones and what your loved ones will inherit to become public information?

Living trusts are not a matter of public record. While some states now do require some notices, a living trust provides more privacy than any other estate planning mechanism.

How to Distribute Assets to Heirs

Distributions made outright to your heirs have no protection from the variety of risks to which personally-held assets are exposed. Once distributed, the heirs can use those assets however they choose and the assets can be subject to their creditors' claims. However, bequests that are kept "in trust" for the benefit of the heirs enjoy protection from creditors, predators (including ex-spouses), irresponsible spending (protection from "self") and future estate taxes. Assets kept in trust can also provide for individuals with special needs without affecting their entitlement to valuable government benefits.


Many clients put off estate planning, thinking they have plenty of time to do it before they die. But the truth is that none of us knows how long we have. We only have to watch the nightly news to be reminded of that. And, estate planning should be a process, not a transaction. We are always available to provide initial consultations at no obligation to discuss estate planning, both for individuals with existing plans that want them reviewed or for clients with no prior planning. Please feel free to contact us with your questions!

Dan A. Penning