Many people are in the position where they are preparing an estate plan for the very first time. Typically, they hear that they should have one or that they see on the news that it’s a good thing to have. In my experience, interest in estate plans seems to pique whenever someone famous dies, such as Michael Jackson in 2009, Steve Jobs in 2011, or Prince in 2016. Prince, in particular, died without an estate plan of any kind. When this happens, it’s called “dying intestate” and a process called Intestate Succession applies. I went over California Intestate Succession in a prior post from 2017.
Anyway, despite all of the interest and the publicity, when a person actually sits down to create an estate plan, they usually don’t know where to start besides, for instance, “find a lawyer”. The process gets too daunting and, human nature being what it is, the person usually puts it aside and promises to “get back to it soon” which, in real life, means never. Lawyers, after all, are expensive.
Today’s post, therefore, is aimed at that person who wants to make an estate plan, but doesn’t know where to practically start. If that’s you, keep reading.
First, let’s define the term “estate plan”. That refers to the set of documents that a person creates to specify what they want to have happen as they near death. This can include many concerns, including (1) what happens to the person’s property, (2) who cares for their minor children, if any, and (3) what medical care they want to receive in the event they cannot articulate that themselves, such as if they are comatose. Those concerns can be addressed by a variety of legal documents, such as a Will, Living Trust, Advanced Health Care Directive, etc. All of those legal documents combined would be the person’s “estate plan”. In reality, it is very common for a person’s estate plan to be in a big 3-ring binder with tabs of various kinds marked “Living Trust”, “Will”, etc.
Now that that is — hopefully — clear, this post is going to focus on just the post-death concerns as those seem to me to be the most common. In other words, the person has already died and now surviving family members and friends have to deal with things like disposing of the deceased’s property. If you want to make an estate plan for such a situation, I have found it helpful to come up with 3 Lists.
List #1
The first list contains all of the property that you own that you care about the disposition of. The “care about the disposition of” clause is important because the average person typically owns so much stuff that trying to inventory or list all of it can be daunting. In my experience, most people tend to list property that falls into one of two categories: (1) items of significant financial value (in other words, it could be sold for a lot of money), and (2) items of significant sentimental value, such as heirlooms. You can — if you want — list out items such as the number of paper clips you have in your desk at home or the number of rubber bands you have in your kitchen junk drawer, but I think most people would deem these items too trivial to worry about what happens to them.
If it helps, you can think of it this way as well: whenever a person moves from one apartment to another or one house to another, they inevitably make a decision about what is actually worth packing up and shipping versus what can be donated, thrown away, or simply purchased again when they arrive at their new home. To me, it seems to be this same thought process at work. Items that are worthy enough to pack up and ship are things that are of significant financial or sentimental value while items that you donate, throw away, or simply just repurchase are trivial items that you ultimately do not care about.
When making any kind of document that is meant to be used after you die, you should pay special attention to clarity. Clarity should be a concern in general when you’re making legal documents, but it is an especially critical concern when the document in question is intended to be used only after the creator has died. If your Living Trust, for instance, is vague or unclear, your children and other family members can’t just call you up and ask what you meant because you’ll be deceased. Ultimately, the decision of what happens to your stuff may be up to a judge who, while competent, didn’t know you as a person and has no idea what you actually may have wanted to have happen. I’d guess most people would not want that to happen to the stuff they’ve worked a whole life time to acquire.
Speaking of stuff, one common area where confusion occurs is in referring to property. The general rule of thumb is that property should be referred to in as unique a manner as possible. If the property has a unique serial number or make and model, then it should be used when describing the item. If, for instance, you want to leave your Rolex watch to your nephew, but you have multiple Rolex watches, you need to be specific as to which one you actually want your nephew to receive. The eagle-eyed amount you should also realize that this applies to people as well. In other words, if you only have one Rolex watch, but several nephews, your Will, Living Trust, etc. needs to be specific as to which nephew you mean.
List #2
The second list contains all of your recipients. In other words, who do you want to actually receive the property you mentioned in List #1? Clarity is, again, very important here. If you have specific wishes, such as your house goes to your second-oldest son and not your oldest son, then that needs to be clearly-specified. Merely saying that you want your house to go to your “son” is not sufficiently clear if you have more than one son. One common clarity-related point to remember as well is that, for better or worse, it is possible that the recipients or beneficiaries you want to receive your property could die before you. In my prior example, suppose you want your house to go to your second-oldest son to to receive your house because, for instance, he works at a non-profit and is unable to afford a house whereas your older son works in banking and bought his own house years ago. Many parents do this if they know that there is an earnings difference between their children.
However, suppose an accident happens and your second-oldest son dies suddenly. Sometimes, our children do die before us. What do you want to have happen to the house then? Will your second-oldest son’s children, assuming that he had some, inherit the house? Will the house get sold and the money donated to a charity in your second-oldest son’s name? Details like that can be specified when you make List #2.
Keep in mind also that the recipients of your property are not limited to just people. Many charities and religious institutions will allow supporters or congregation members to leave property to them in their Will or Living Trust. Many people also choose to leave property to the schools and universities they attended. This is common enough that many charities, religious institutions, and schools/universities will have established procedures that you can follow to minimize the chance of problems occurring when you leave them property in your Will or Living Trust. It might be as simple a thing as just contacting the charity, religious institution, or school/institution to ask.
List #3
The final list is a list of all of the people who will serve in the various job functions that your Will, Living Trust, and other estate planning documents will require. The same risk I mentioned above for List #2 also applies here — in other words, if you ask someone to be the trustee of your Living Trust and they agree, that person could very well die before you. You can hopefully minimize this risk by selecting people you trust who are younger than you, but the risk never goes away. It is also prudent to have several backup or alternate people for each job function also, just in case one of the people you were counting on dies before you, is unable to be your trustee or executor after all, can’t be found when they need to serve, etc.
Practically-speaking, this is where many people struggle. Nowadays, a lot of us just don’t know that many people whom we would feel comfortable asking to be our trustee, executor, etc. A scenario which is very common is for a person (for instance, an elderly grandfather) to select one of his grandchildren as executor, trustee, etc. The grandfather did so with good intentions — for instance, blood is thicker than water, they didn’t want that grandchild to be left out, etc. — but the problem is that the grandchild is completely unqualified objectively-speaking in terms of desire, trustworthiness, discipline, organization, integrity, etc. to be an executor or trustee. From my perspective, I’ve seen the problems that result (for instance, a prolonged lawsuit amongst family members) when a person who lacks the desire or qualifications to be in charge is put in charge simply because they’re part of the same family. When it comes to the jobs that an estate plan will require be filed, I personally would prioritize competence over family.
Anyway, I hope that helps. To summarize the 3 List approach:
- List #1: The property you care about the disposition of
- List #2: The list of beneficiaries or recipients you want to receive the property mentioned in List #1
- List #3: The people who will serve in the various job functions that your estate plan will need filled. It is prudent to have several backup people also and to also prioritize competence above all else when selecting people.
Good luck!
Andy Chen
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