Your Estate Plan and its Supporting Cast: Mini-Me, Thor, The Office, and The Titanic

When most people hear about an estate plan, they normally associate it with a trust.  Certainly the trust is the lead actor in the estate plan because the trust is designed to set forth the plan or instructions for what will happen to your assets in your trust upon your death.  For most people, making sure your legacy goes to who you want it to go to (or not!) is the primary reason to for estate planning.  However, estate planning is not limited to just what happens to our assets when we die, but also includes a supporting cast of other legal documents which, although it may not be as popular as the trust, serves very important purposes in your estate plan.  This usually includes the Certificate of Trust, the Pourover Will, the Durable Springing Financial Power of Attorney, the Durable Power of Attorney for Health Care and/or Living Will.

The Certificate of Trust

The Certificate of Trust is like the “mini-me” to the Trust.  It is most often used for purposes of legitimizing a transfer real estate held by your trust after you pass away.  If you die, and real estate is held in your trust, how would third parties know that the person that you appointed as trustee is, in fact, the actual trustee with authority to transfer the property?   One way would be for the trustee to actually provide the third party with a copy of the trust that confirms their appointment.  However, most people regard their instructions in the trust as private and would not want to have to give copies of their trust to some random third party, much less have it recorded with the county recorder as a public document.   For that reason, the Certificate of Trust is a certification by the Trustee that he/she is, in fact, the acting successor trustee, and is usually supplemented with language from the original Trust that confirms the appointment of the trustee, along list of powers that trustee is authorized to engage on behalf of the trust.  In the most common case, a successor trustee will record the Certificate of Trust in the county where the Trust is seeking to sell property owned by the trust so that there is evidence of the Trustee’s authority in the chain of title for the property.

The Pourover Will – The Lead Stand-in

The will is like the stand-in for its lead actor, the trust.   Not quite as flexible or useful, but important if something went wrong with the setup or funding of the trust.  Many people ask why they need a will if they already have the trust.  There several reasons why a will may be important but the primary reasons  include the following:

  1. If you fail to properly transfer assets into the trust (i.e. fund the trust), then the Pourover Will serves as a backup and provides that any assets left in your personal name will be transferred to the trust (hence the term “pourover will”). Completing your trust is only half the mission, the other half is making sure the assets in your name are properly transferred to the trust (e.g. by deed, beneficiary designation, entity transfer, etc.).  Failure to transfer an asset into the trust could result in a court probate for that particular asset at which point the will, not the trust, becomes the operative document.  For more information on funding your trust, see here:
  2. Nominating Guardians for minor children.  Since guardians can only be appointed by a court, the Will is usually used as the method for making decisions on who will take care of your minor children if you are no longer around (subject to court approval).   So if the parents pass away leaving minor children, the Will would generally be used to express their wishes with respect to guardians for the minor, but any provisions to ensure the guardians have sufficient funds or compensation to fulfill these duties would be set forth in the Trust, and so the Trustee of the Trust would work with the guardians (assuming they are not the same person) to ensure the financial needs of the children are met, subject to the rules of the Trust.

The legal representative for the Trust is the Trustee who is responsible for executing the instructions set forth in the trust.  By contrast, the legal representative who is responsible for executing duties under a Will in a court probate action is the Executor (sometimes also referred to as the Personal Representative or Administrator).   The Executor must be appointed by the court as part of the probate process and it is the role of the Executor to, among other things, gather and inventory the assets of the deceased, notify creditors, satisfy any of their claims, and distribute any remaining assets to the ultimate beneficiaries.   Most people would rather not go through this costly process and delay which is why it is important to set up the trust and make sure it is completely funded.

Best Supporting Cast :  Durable Power of Attorney for Finances and Durable Power of Attorney for Health Care

Whether you have a Will and/or a Trust, neither really takes effect until after your death.   So what happens if you have a medical condition where you are still alive but unable to make financial or medical decisions on your own.  This is where the supporting cast for the estate plan comes in.
The purpose of the Durable Power of Attorney for Finances and Durable Power of Attorney for Health Care (also sometimes referred to as Advanced Care Directive or Health Care Proxy in some states)  is to authorize another individual to make financial or medical decisions if you are still alive, but unable to make these decisions on your own.  For example, lets say you are severely injured in an accident and in a coma or have dementia, and therefore, are unable to make financial or medical decisions on your own. The Durable Power of Attorney for Finances would step in.

  •  Durable Power of Attorney for Finances operates via a trusted third party you choose (spouse, friend, adult child) who is able to make financial decisions, such as paying bills, selling assets, filing taxes, etc. on your behalf to prevent your money or assets from being locked up because you are not functional.   This type of power of attorney is different from a “General” power of attorney because, whereas the “General” power of attorney becomes effective once the principal executes it, this type of power of attorney only becomes effective once you become disabled and unable to make the decisions on your own (commonly known as a “springing” power because it “springs” into effect upon your disability).  It is “Durable” because it remains in effect even if you (as the principal) are incapacitated or mentally incompetent.      However, once you as the principal pass away, the authority granted by these power of attorneys terminates and is replaced by the Trust or Will.
  • The Durable Power of Attorney for Heath Care allows a designated individual to make medical decisions if you are unable to do so.  This can include consenting to or withholding  medical treatment.  So if you were in the unfortunate situation to be in a coma following the accident, the agent you appoint as your agent for health care can then decide to authorize or decline treatment on your behalf.  Most states have restrictions that prohibit naming certain individuals such as your health care provider as agent on the Durable Power of Attorney for Health Care.

The agent you select for either of these roles should be someone you completely trust and has the knowledge and sophistication to execute your wishes competently.  Giving someone durable power of attorney for your finances essentially gives them carte blanche authority to transfer your assets, and unfortunately, there are cases where the agent chosen under the power of attorney transfers property to themselves or engages in other self-dealing transactions.  If trust is an issue, consider appointing another person to serve as a co-agent to serve as a check on the authority of any one individual or use a professional trustee who is licensed and insured.  Talk with the people you are considering conferring these powers to make sure they are willing and have the moral, ethical and sufficient expertise to carry out your wishes.

The Living Will, the Grand Finale

The Living Will, depending on the state, may be a separate legal document or included in your Durable Power of Attorney for Health Care or Advanced Care Directive.  With the advances in medical technology allowing us to live longer, some of us may be faced with the decision whether we would want to be kept alive artificially if were in a persistent vegetative state.   Many of us who are old enough remember the Terri Schiavo case where Terri suffered a cardiac arrest and was in a coma.  A seven year legal battle then ensued between Terri’s husband and Terri’s parents whether she should be kept artificially alive or allowed to pass away naturally.   The Living Will takes away this uncertainly and allows you to express your wishes as to whether you would want to be kept alive artificially if you were in a persistent vegetative state or allowed to pass away naturally.
An estate plan is something that everyone can benefit from and is not just for the wealthy.  Certainly if you have life insurance or a home or investment/retirement accounts, an estate plan is highly recommended to make sure your wealth goes to who you want with your stipulations as to when and how.  Even if if you don’t have assets or a home, an estate plan can be beneficial for many other reasons such as, choosing a guarding for your minor children, if you have family or charities you wish to benefit, if you have a lot of valuable information in emails, social media or in the cloud that you don’t want to lose in the event of your death, or if you want to make sure your finances or medical situation isn’t held in limbo in the event of an unforeseen emergency.  The estate plan and its supporting cast allows you (not the government or some court) to plan your estate and/or medical decisions so that the legacy you leave is done on your terms.