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Estate Planning Fundamentals

Mon July 23, 2018 News

Estate planning is a process that enables you to control the disposition of your property after your death or incapacity and avoid any uncertainty that can invariably happen. Proper estate planning will help preserve the assets you have worked hard to accumulate over the course of your lifetime. Moreover, it may also minimize or eliminate taxes on your assets (which your heirs or family may have to pay) after your passing. For these reasons, among others, it is vitally important to have a fundamental estate plan in place at the very least.  The basic estate plan is comprised of the following components: a Trust, Will, Durable Financial Power of Attorney and Advance Health Care Directive.


A trust is essentially a relationship between three parties: the ‘settlor’ (or ‘grantor’), who creates the trust and contributes assets to it; the ‘trustee’ who is technically the legal owner of the trust property and can administer them by reinvesting or paying out funds; and the ‘beneficiary’ who, although not the legal owner of the property, is entitled to benefit from it.  The rights and powers of the settlor, trustee, and beneficiary are set forth in the applicable terms and governing the trust.  In the event of your incapacity or death, the trustee designated administers the assets you furnish (that is, title in the name of) into the trust. The trust instructs how the assets are to be managed, and after the settlor’s death, how they are to be distributed.  A trust can have more than one settlor and more than one trustee – in a community property state like California, married couples often create a joint trust, where they are each a settlor and each a trustee.  People can also have more than one trust – sometimes couples will create a joint trust for their community property, and each will also have an individual trust for his or her separate property.

Further, a trust can be either revocable or irrevocable.  For basic estate planning, people generally create revocable trusts (also called living trusts or inter vivos trusts) during their lifetime, which means that they can alter, amend, or completely revoke the trust at any time prior to death or incapacity.  After their death, the trust becomes irrevocable, which means it cannot be changed.  Irrevocable trusts can also be used during a settlor’s lifetime for complex tax planning.  


A will is a document that states what you want to happen to your property at your death. Your will nominates an executor to handle the distribution. People who have a trust typically have a Pourover Will, which states that all property not included in the trust will be distributed at the time of death to the trustee of the trust.  This means that most, if not all, of your assets will be handled and managed in your trust instead of your will.  If you have minor children, you can also nominate guardians for them in your will. 

Durable Financial Power of Attorney

A durable financial power of attorney (sometimes called a general durable power of attorney or just a durable power of attorney) designates a person called an attorney-in-fact to handle financial rights and obligations that are personal to you. This designation may include financial matters such as paying taxes, managing credits cards, buying/selling real estate, operating a small business, or managing assets not held in a trust. This document supplements a revocable trust and allows your attorney-in-fact to manage your personal affairs if you are unable to do so yourself.

The creator of this document is called the principal.  Generally, people designate the same person both as attorney-in-fact and as successor trustee to facilitate an efficient management of their assets, so that one person is handling assets included and excluded from the trust.

Advance Health Care Directive

An advance health care directive is a document that allows you (the principal) to appoint a person you trust, called an agent or an attorney-in-fact, to make health care decisions on your behalf if you are unable to do so yourself.  This is also the document where you can set forth your wishes regarding medical treatment, end-of-life care, and funeral arrangements.

Much of estate planning is about providing for the orderly management of a person’s assets upon his or her incapacity or death.  A solid plan is invaluable in such circumstances, and will make it easier for your loved ones to handle your affairs at an otherwise difficult time.