Fundamental Building Block for Having Your Life in Order

This is another one of those topics that has a major financial component to it as well as a significant emotional component. In an attempt to overly simplify this topic I see three reasons for establishing Wills and Trusts:

Minimize tax liability when transferring an estate to heirs and beneficiaries.
Establish how you want your estate to be transferred to beneficiaries and heirs both while you’re still living as well as upon your death.
Reduce the risk your wishes will not be followed.
Squarely falls in the category of “getting your affairs in order”.
Once complete, Jules will be a great place to store all these documents.

Don’t forget that once you’re gone the estate transfer process can be a huge benefit and positive experience for those receiving what you’ve worked your whole life to provide them, but it can also (if not handled properly) become a “family buster” if people feel cheated and relationships get strained as a result of poor planning or a lack of forethought.

Basic Documents and Instruments Needed

Let’s start with the basic set of documents and instruments that need to be put in place:

Will for Spouse #1: Determines what happens to Spouse #1 personal property upon death & Guardian assignments for the minor (under age of 18) kids.
Will for Spouse #2: Determines what happens to Spouse #2 personal property upon death & Guardian assignments for the minor (under age of 18) kids.
Durable Power of Attorney for Property Management Spouse #1: Legally empowers someone (often Spouse #2) to make legal decisions regarding Spouse #1 personal property upon death of Spouse #1.
Durable Power of Attorney for Property Management Spouse #2: Legally empowers someone (often Spouse #1) to make legal decisions regarding Spouse #2 personal property upon death of Spouse #2.
Durable Power of Attorney for Health Care Spouse #1: Same as 3 above but for Health Care decisions should Spouse #1 become incapacitated.
Durable Power of Attorney for Health Care Spouse #2: Same as 4 above but for Health Care decisions should Spouse #2 become incapacitated.
Declaration for Natural Death Spouse #1: States the wishes of Spouse #1 as to how they would like to die. Primarily whether you would like a Do Not Resuscitate declaration. In California, this is a standard form.
Declaration for Natural Death Spouse #2: States the wishes of Spouse #2 as to how they would like to die. Primarily whether you would like a Do Not Resuscitate declaration.
Family Living Trust: This is where all your significant Family Assets should be held. Used to avoid the costly and time-consuming state probate process when spouse #1 dies.
Various Other Trust Funds: Can be set up for the kids or anyone you like. Used to transfer and hold assets for the benefit of certain individuals.
Charitable Trust: Used to more efficiently gift assets to charities.

Recommendations

I suspect most of you have all or a subset of these already in place. If you don’t, you should. My recommendation is the first time you do this, you hire an experienced Wills, Trusts, and Estate lawyer to prepare them. Depending on how complicated your situation is, this can cost as little as $2,500 and up to a big number if your situation is very complex. I would guess most of you will fall in the range of $5,000 to $25,000 for a full set of first-time instruments and documents. Secondly, I recommend you instruct the attorney to draft them in a way that you can easily edit the parts that will change over time.

Notes and Updates

My most important recommendation is that regardless of how many pages long the legal documents become, you maintain a written set of notes that accompany these documents in your own words that describe what you feel the intent is that should have been captured in the legal documents. Most good attorneys will either interview you for this information or ask you to write this up anyway. This is very important as most of these documents leave a great deal of latitude in judgment to the Trustee. Once you’re gone, if the Trustee is left with only the legal documents to go by in trying to carry out your wishes, a lot can get lost in the translation to legal speak. I suggest that at least every 2 years you update these notes and at least every 5 years you carefully review whether the legal documents still reflect your written wishes.

Make sure all the above documents are properly executed in accordance with the requirements of the state you live in. I’m shocked by how many times I hear of these documents being prepared but the final step of properly executing them was not taken. Store the original executed versions of each of these documents in a fireproof safe or safe deposit box, and note in your notes where the originals are stored.

What Goes Into Each Instrument/Document

Wills (One for Each Spouse)

Remember any assets held in the Family Living Trust are dealt with in the Trust instrument and not in the Will.
Named Executor: Normally the first in line is your spouse; if there’s no surviving spouse, name a close friend or family member.
Named Beneficiaries: In most cases where you have established a Family Trust, this trust is named the beneficiary.
Named Guardians of Minor Children: It's important to choose wisely to ensure the children's best care.
Execution: In California, this can be done with witnesses; other states may require Notary.

Durable Powers of Attorney (Property and Health)

These instruments legally empower your spouse or someone you designate to make legal decisions regarding your personal property and health care should you not be able to make these decisions yourself.
Each spouse should have one each for Property and Health Care.

Declaration of Natural Death (One per Spouse)

This document details the circumstances under which you would prefer to be allowed to die.

Family Living Trust

The primary purpose of this instrument is to avoid the state probate process when one spouse dies. It saves time, money, and stress.

Conclusion

Regardless of how complicated the descriptions above may sound, it’s important everyone takes care of it. This falls under the category of "having your affairs in order." When your affairs are not in order it becomes something you worry about constantly.