How To Create A Solid Estate Plan

I have just finished my estate plan and discovered lessons that many people don’t know off regarding the process. In this article, we will do an A to Z of how to establish a solid estate plan. 

What is a Trust?

Firstly, some definitions. A trust is basically a fiduciary agreement between a grantor, otherwise known as a trustor, or settlor and that grantor’s trustees, who are entrusted with some asset or stream of income, which they hold title to on behalf of a third party. The trustee overseas that the deed of trust is adhered to. So, for example, you, the trustor, could appoint someone, a trustee, to oversee a trust, according to a “deed of trust” or “charter” that will have certain “beneficiaries”. 

A trustee must be independent, and can be a friend, relative, or a professional, like a banker or lawyer, though in some states it is possible to establish “private trust companies” that protect you from having to cede control to an outside party. 

A self-settled trust, which is what you are aiming for, is essentially a trust of your making, in which you are both the creator and the beneficiary and it can be created for the period of your life, in which case it is known as an “irrevocable trust”, or for the period after, in which case it is known as a “revocable trust”. In creating my trust, my aim was to protect my assets, but also, to minimize inheritance taxes. These two reasons happen to be the most common reasons for establishing a trust. The most common reasons for starting a self-titled trust are: 

1. Asset protection
2. To avoid probate or will-contestation
3. Minimize taxes
4. Anonymity
5. Preserve Benefits
6. Control distributions

The degree of protection you will get from creditors varies according to jurisdiction, so you will have to check this first.  

It is not necessary for a US citizen to go offshore to establish a trust. Some states in the United States allow for domestic asset protection trusts (DAPT) that have the same advantages of an offshore trust. So even if you are in a non-DAPT state, you can always create a DAPT in a DAPT-state. 


Draft a Will

Fidelity defines a will as “a legal document that coordinates the distribution of your assets after death and can appoint guardians for minor children”. The name suggests the meaning, it is an expression of what you want done with your assets after your death. The AARP estimates that 60% of Americans do not have any estate planning documents. Indeed, 78 percent of millennials (ages 18-36) and 64 percent of Generation Xers (ages 37-52) do not have a will.

The will names an executor who executes your will, settling your debts and distributing the residuals according to your will. Without a will, your estate passes onto your legally defined heirs according to your jurisdiction’s laws of intestacy. 

A revocable trust would allow you to pass on your assets after your death. This is perhaps the most tax-efficient approach to take and allows for greater asset protection, while avoiding probate. If you have minors, it is advised to still have a will in place to name a guardian for the minors. 

Name Beneficiaries

Without a will or trust, the courts will determine your beneficiaries, even if that goes against what you would have wanted. Nevertheless, there are asset types that do not go through probate, for example, a house jointly owned with one’s spouse and which your spouse has survivorship rights to, will automatically pass in toto to them. Financial instruments such as payable-on-death savings, your 401(k), etc, will pass to the beneficiaries named in the registration documents you signed. 

Use Federal Estate Tax Exemptions

US law allows for federal estate tax exemptions. The Internal Revenue Service announced in November 2019, that the 2020 federal estate and gift-tax exemption will be $11.58 million per individual and is adjusted-to-inflation. Spouses may combine their exemptions, without it affecting their federal estate tax exemption status. So, an individual can leave $11.58 million to heirs and pay no federal estate or gift tax, while a married couple can shield $23.16 million. The annual gift exclusion is $15,000. 

To take advantage of the federal estate or gift tax exemptions, the surviving spouse, or executor, must file the deceased’s estate tax return even if no tax is due within nine months after the date of death, though the estate’s executor may ask for a six-month extension. 

Write a Letter to Your Heirs

Not everything belongs to the will or deed of trust and so, you might want to leave a letter to state what arrangements must be made for your funeral, or any other such things you wish to say. Deposit the letter with your lawyer or a friend or relative. Some states do not give legal standing to such letters, but they may mean something to your heirs. 

Draw Up a Durable Power of Attorney

In power of attorney or letter of attorney, you name someone as your attorney-in-fact (or agent) to make financial decisions for you. The power gives your agent control over any assets held in your name alone. With a power of attorney, you can ensure your finances are managed according to your wishes, even if you are too sick to act. A durable power of attorney is in effect even if you are incapacitated. Often emotions blind us to who the best person is to give power of attorney, so, think about naming co-trustees, balancing out a relative or friend with a professional. Many banks prefer to use their own durable power of attorney forms, so if you want to use your own, be sure to deposit a copy with your bank.

Create an Advance Healthcare Directive

An advanced healthcare directive, or living will, an example of which is here, is a legal document where you choose a healthcare agent and specify your wishes for health care, in the event you are ever unable to communicate. In some states, the health care directive is combined with a durable power of attorney. Where it is not, you will have to name someone as a healthcare agent in a separate durable power of attorney. 

Your attorney must also prepare an HIPAA release form which will mandate health care personnel to release your medical records to your health care agent and this right of your health care agent must be included in your living will and health care durable power of attorney. 

See the American Bar Association’s “Consumer’s Toolkit for Health Care Advance Planning,” to decide what type of health care you want.

Organize Your Documents

Organize your digital and physical documents, deeds, financial records and the like, and store them in a safe space. This will make everyone’s lives easier. Keep originals with your attorney or in a bank’s safe deposit box and ensure that the safe deposit box is owned by your spouse or heir so that your attorney does not have to petition to have it opened. Remember to keep a record of your passwords as well. 

Review Your Estate Plan

Things change, people die, feelings evolve, so make sure to review your estate plans every five years or so to keep it in line with your wishes and changed circumstances.