Estate Planning: What Everyone Should Know

Jeffrey E. Quijano

Older couple Estate Planning

While establishing an estate plan may be a complex and emotionally taxing undertaking, a well-devised plan will provide you peace of mind.



Introduction
While establishing an estate plan may be a complex and emotionally taxing undertaking, a well-devised plan will provide you peace of mind by achieving predictability and security for your family. Your first step is understanding the core elements of your estate plan, the role of each document, and your options in constructing the plan. Making informed decisions regarding your estate plan will ensure that your planning is tailored to your specific financial situation, unique family dynamics, and is aligned with your broader wealth planning goals.

The importance of a will or revocable living trust
Your will or revocable living trust are the foundational documents of your estate plan. Should you pass away without a valid will or revocable living trust, your estate will be administered pursuant to the intestacy laws of the state where you reside or own real estate. Intestacy laws are the default state statutes that govern the distribution of property when an individual dies without estate planning documents. However, the laws of intestacy are unlikely to result in an estate administration consistent with your wishes.

Whether you elect to utilize a will or revocable living trust as your primary estate planning document, both documents carry out the basic functions of your estate plan. They identify who will receive the assets of your estate upon your death, how your beneficiaries will receive those assets, and who the executor or trustee will be to control the administration of your estate. The will and revocable living trust may also incorporate tax planning and asset protection planning, and the will may identify guardians and conservators for your minor children.

Which should be your primary document: A will or trust?
The question as to whether a will or revocable living trust is more appropriate is a decision to be made by you with guidance from your financial planning and estate planning advisors. The factors that are generally most impactful in making the decision between a will or revocable living trust are:

1. Probate Avoidance:
A will-based estate plan will require a probate proceeding, which can be a long and often expensive process. A revocable living trust generally does not require a probate court proceeding if the trust is funded during your life.

2. Funding:
A revocable living trust only governs those assets that are transferred or funded to the trust. This means that accounts and real estate must be retitled in the name of your revocable living trust during your lifetime for the trust to govern the disposition of the assets upon your passing. Any assets not funded to the trust during your life may be subject to a probate proceeding.

3. Privacy:
A will must be filed with a court upon your death, which means the terms of your will and even an inventory of your assets may become part of the public record. Because a revocable living trust generally does not require a filing with the court, the trust does not become part of the public record, thereby maintaining your privacy.

4. Contest Concerns:
As mentioned above, a will requires a probate proceeding. Part of that proceeding provides your heirs with the opportunity to appear in court and contest the terms of the will. Because a revocable living trust does not require a probate proceeding, there is no convenient forum automatically established for a contest.

5. Lifetime Incapacity Planning:
A will does not become a legally-operative document until you pass away. Whereas a revocable living trust becomes effective immediately upon signing the trust. As such, should you become incapacitated in the future and lack the ability to manage the assets of the trust yourself, your successor trustee will be able to manage those assets on your behalf.

6. Drafting Expense:
The legal fees associated with drafting a will are generally less than drafting a revocable living trust-based estate plan. However, depending on your circumstances, the revocable trust may save significant money, time and expense during your estate administration.

7. Avoiding Ancillary Probate Proceedings:
Real estate that you own in states other than the state where you reside will require an ancillary probate proceeding (a second probate proceeding). However, transferring title for the out-of-state real estate to your revocable living trust permits you to avoid the requirement of an ancillary probate proceeding. A will-based estate plan does not permit you to avoid ancillary probate proceedings without additional planning or additional entities being formed.

Finally, once you have decided whether a will or revocable living trust is more appropriate, you should discuss with your advisors the considerations regarding selecting an executor or trustee, and the dispositive provisions most appropriate to include in your estate planning documents to achieve your planning objectives.

Ancillary documents
In addition to your will or trust, the following ancillary documents may also be incorporated in your basic estate plan.

Financial Power of Attorney
A financial power of attorney identifies the person or people who may manage your financial affairs in the event you are unable. This individual, who serves as your "attorney-in-fact", may be granted broad powers or the document may be narrowly drafted to limit the attorney-in-fact's power to act on your behalf. The powers commonly granted in a financial power of attorney include the power to determine investment strategy, pay bills, or continue gifts to family or charities. The power of attorney may also be drafted to remain in effect in the event of your incapacity, which is referred to as a Durable Power of Attorney. You should confer with your advisors to determine the scope of the financial power of attorney most appropriate under your circumstances.

Healthcare Power of Attorney
The healthcare or medical power of attorney identifies the individual or individuals that you would like to make healthcare decisions on your behalf in the event you are unable. The Health Insurance Portability and Accountability Act (HIPAA) became effective on April 14, 2003, and it has become common to include language in the Healthcare Power of Attorney identifying individuals, including your healthcare attorney-in-fact, authorized to receive your confidential healthcare information and records.

Healthcare Directive/Living Will
A healthcare directive—also referred to as a living will—is a document that contains your instructions to physicians regarding the extent to which you would like to receive life-sustaining procedures, medication, or nutrition in the event you are determined to be in a terminal or permanently unconscious state.

Property Agreement
Property agreements are often incorporated when spouses establish their basic estate plan to address spouses' rights to property in the event of divorce or death or to accomplish other estate planning or asset protection objectives. Property agreements most commonly address the treatment of assets owned prior to marriage, inheritances or gifts received during marriage, or income from separate property or proceeds received from the sale of separate property. The terms of the property agreement may vary significantly depending on whether you reside in a separate property or community property state.

It is important to confer with your advisors regarding your estate plan as probate, trust, and property laws vary significantly from one state to another. Consulting with your advisors and an estate planning attorney is also important if you have moved or intend to move to another state as your existing estate plan may operate differently than intended due to the laws of your new state of residence.

Your advisors at Comerica Wealth Management are available to provide customized guidance and analysis to prepare you for establishing or updating your estate plan prior to meeting with your attorney. Once your documents are drafted, your Comerica team will assist in implementing your estate plan, maintaining your plan on a continuing basis, and developing a communication plan regarding your plan to executors, trustees, family members and your advisors as appropriate.

For more information contact your local Comerica Wealth Advisor at comerica.com/wealthoffice.



NOTE: IMPORTANT INFORMATION

This is not a complete analysis of every material fact regarding any company, industry or security. The information and materials herein has been obtained from sources we consider to be reliable, but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel.

The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice.

Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, N.A.; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation. 

Comerica Bank Branch

Jeffrey E. Quijano

Senior Vice President & Regional Wealth Planning Manager