William Daniel Powell
William Daniel Powell is a San Diego attorney that focuses his practice in the Estate Planning area helping families and individuals with Estate Planning needs. This is his regular blog where he writes on various subjects relating to estate planning and estate law.
Should I Use a Will, or Revocable Living Trust Based Estate Plan?
Part 1
What is the Purpose of Estate Planning?
First, let’s quickly look at some of the purposes of Estate Planning. As I have discussed on my website and various other blog posts, the main advantages to estate planning is to best manage and control your property while you are alive and well. Another advantage is to provide for ourselves and those who depend on us in the event that we lose capacity from such causes as a coma, or a loss of mental capacity such as Alzheimer’s. The next reason is the one with which we are perhaps most familiar – to give what we want to whom we want, and in doing so we hope to promote harmony, enhance the lives, and protect those we choose to be beneficiaries. Finally, another big reason is that through proper Estate Planning we hope to minimize professional fees, costs, court costs, and the like.
Part 1 of this Blog covers reasons A and B. Part 2 covers C and D.
Let’s look at these reasons and compare Wills and Revocable Living Trusts
- A. To manage and control your property while you are alive and well.
- B. To provide for ourselves and those who depend on us in the event that we lose capacity
- C. To give what we want to whom we want
- D. To minimize professional fees, costs, court costs, and the like.
A. What Does a Will do to Help Me Control My Property While I’m Alive?
The short answer to this question is – nothing. A Will, by itself, does not help you control your property while you are alive because a Will “speaks on death”. This is so because a Will only becomes effective at death. When a Revocable Living Trust is used and property is put into the Trust, the Trustee, or successor Trustee can deal with the property. More on this later.
B. How is a Will and a Revocable Living Trust Different if I Lose Mental Capacity?
Because a Will only “speaks on death”, it does nothing by itself to help you manage your property. With proper ancillary documents, we can provide some solutions, but there are drawbacks. A Power of Attorney can be used to allow another to deal with your property should you lose capacity. Keep in mind that a Power of Attorney is a very powerful document and it requires careful thought and consideration before being entered into.
Advance Health Care Directive, Power of Attorney, and HIPPA
With a Power of Attorney, there are basically two types – springing and durable. A Durable Power of Attorney becomes effective immediately upon execution and allows the person you name as the Agent to deal with your property – buy, sell, enter into contracts – as if the Agent were you. So you can see why many people are reluctant to use this type of Power of Attorney. The other type of Power of Attorney is a Springing Power of Attorney. This type becomes effective upon the Principal’s incapacity. This is why some people choose this type of Power of Attorney. But in order to exercise the authority granted under a Springing Power of Attorney, incapacity must be established and this is most easily achieved with additional documents. The two additional documents are and Advance Healthcare Directive, and a HIPPA Authorization or HIPPA Release. By statute, an Agent under an Advance Healthcare Directive has access to the Principal’s medical records, but the Principal must be incapacitated. Incapacity is easily shown in the medical records. What a Catch-22! Thus, the HIPPA Release allows the Agent under the Advance Healthcare Directive to view the medical records.
Drawbacks of Will Based Estate Plans and Management of Property During Incapacity
The major disadvantages to using a Will, Advance Healthcare Directive (sometimes called a Living Will), HIPPA Release, and Power of Attorney to manage your property in the event you lose capacity is that often times third parties are reluctant to accept a Power of Attorney, especially if it is an older document. What makes a Power of Attorney “old” varies with the situation, but 2 years old can be all that is required to make third parties reluctant to accept the Power of Attorney. If the incapacity is long-term, the Principal may end up in a guardianship which is akin to a “living probate”.
Another drawback to this type of Will based Estate Planning is that it lacks guidance and direction from you on how your affairs are to be handled. In fact, the Agent under a Durable Power of Attorney has a fiduciary duty to the Principal to only care for the Principal, and disregard those that may have been relying on the Principal for support such as an elderly parent.
Benefits of a Revocable Living Trust Based Estate Plan for Management of Property During Incapacity
So now let’s talk about the benefits to using a Revocable Living Trust centered Estate Plan to plan for incapacity.
A Revocable Living Trust can dictate how incapacity is determined, and thus when your successor trustee is to step in to manage your property. Further, the Trustee is to manage your property as instructed by you in your Trust document. Therefore, clear guidelines can be used to guide and instruct the Trustee in his or her management. Because of this, you can instruct your Trustee how to provide for you, and how to provide for others who rely on you for support such as an elderly parent, or a child, or other person. This can be done with a Will as discussed above.
Under this type of estate planning, a Power of Attorney ancillary document would still be used even though the Living Trust gives the successor Trustee the power to deal with property that is in the Trust. The Power of Attorney is used here to give the successor Trustee the power to do things like open mail, file tax returns, and to deal with property that is not inside the Living Trust and even put new property in the Revocable Living Trust.
The other advantages to Trust based estate plans are:
- A long-term incapacity is less likely to end up as a guardianship
- More privacy is provided because a Living Trust is a private document, and a Will becomes public when the court becomes involved.
- A third party can look to the Trust document, if necessary, to see how disability is to be established as well as whom is to be the Trustee in control.
Call me today and let’s start planning! Thanks for reading.
William “Dan” Powell
****Reminder****
Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California. Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.
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