Last time we went through the basics of what estate planning is:
- Planning for you (and not just what happens to your family)
- Planning for your incapacity (which most people skip over)
- Planning for your death
If you don’t have a plan that addresses these things, then the state of Oklahoma has one for you. For incapacity, that process is called guardianship. For death, that plan is called probate.
In my opinion, the cornerstone of estate planning in Oklahoma is avoiding those processes, and you have several different routes you can take to do that.
Here are the basic options:
Powers of Attorney
Powers of attorney (or “POA”) are some of the most basic building blocks for an estate plan, but they are also widely misunderstood.
So, what are they? Here’s the short version.
A Power of Attorney is a document where you (the “Principal”) authorize someone else (an “Agent”) to act as if they are you.
You can have a POA for finances, and you can have one that covers healthcare decisions. Right now, we’ll just talk about a Financial Power of Attorney
You can let that person do anything you’re able to do, or you can make the Agent’s powers very specific. You can leave it open ended, or you can make it a very specific time frame.
Sometimes a Power of Attorney is instantly effective, meaning your Agent can act as soon as the POA is signed. Sometimes, even if a POA has been signed, it will only be effective when some triggering event happens.
A power of attorney can automatically lapse if you become incapacitated, unless the terms in the document say it nevertheless stays in effect. If your POA does contain these provisions, it’s called a “Durable” POA.
A couple examples:
- A husband and wife name each other as Agents in their Powers of Attorney. They want to fix up their house to get it sold, but they’re so busy they’re having trouble both getting to the bank. Their POA has banking powers listed in it, so the wife can go to the bank and close for both of them. She can sign as if she is her husband.
- An elderly couple who are parents are having trouble getting around, and appoint their son as Agent in their Powers of Attorney. The son can pay bills and run any other financial errands his they need. This was a Durable POA, so even when mom or dad becomes incapacitated, their son can keep managing their finances.
Powers of Attorney for Healthcare are more straightforward. It can only be used if you are not able to make your own healthcare decisions.
There’s enough involved in POAs to have their own long article, but we’ll leave it with those basics for now.
Let’s talk about wills
Wills are probably the best-known estate planning tool.
Most people thing that wills are the beginning and end of estate planning. There’s good reason for this.
After all, an entire Disney movie revolved around a benevolent cat owner willing all her assets to her adorable, jazz-loving, anthropomorphized furry friends.
But, to really understand them, let’s talk about what wills need, and what they control:
1. What do wills control?
Only property in your own name individually, and that doesn’t have a beneficiary designation. So if you own a house jointly with someone, your will won’t control it. If you named a beneficiary on your life insurance policy, your will won’t control it.
2. What do wills need?
First, to be a bit blunt, they need a death. In other words, your will won’t be able to do anything until you die.
Second, and maybe most importantly, they need a court order. A will is completely useless without an order from a judge declaring that the will is enforceable.
So if wills don’t help you until you’re dead, what process do they not avoid?
If your will needs a court order for anyone to be able to do what it says, what else does it not avoid?
We’ve already talked about how avoiding guardianship and probate are the cornerstone of Oklahoma estate planning. If a will can’t help us with either of those, then by itself,
A WILL IS NOT A PLAN.
Most people are under the impression that “if I’m an adult, I need a will, and if I have a will, I’m done with my estate plan.”
I think we all now know that it isn’t that simple!
Let’s talk trusts
The internet (and maybe your friends) are filled with opinions and information about trusts. What do they do? Who are they for?
And almost all of that information and opinion revolves around assets. Property. “Stuff”.
If you’ve been reading along through this whole first series, then you hopefully we’ve said clearly enough by now that a good estate plan doesn’t start with stuff, and it doesn’t even start with other people. A good plan starts with you.
So how does a trust address that?
A trust is like a constitution for your life.
In the US Constitution, the Framers named a Congress, an Executive, and the Supreme Court.
Imagine if, instead of naming the President as a position, it had just named George Washington as an individual.
What happens when George Washington dies, or his term expires?
The document would be useless. We’d have to go back and change it every time a
President died or their term expired.
Fortunately, the Constitution provides a seamless way for that role to be filled, over and over again. And it’s worked for hundreds of years!
A trust plan works on the same principle: people have roles to fill, and then we write down how those roles get filled in a transition.
Remember, your estate isn’t just money. It’s a set of relationships: you have the right to make your healthcare decisions and control your property, and the responsibility to take care of your loved ones.
Those relationships change over time. You lose the ability to make those decisions and fill those roles, and leave what can be devastating gaps in your life. Probate and guardianship are the State’s way to fill those gaps.
But the better way is to change those relationships before the crisis. You create a constitution for your life, that gives an order of succession for all those important relationships.
A trust plan is about changing those relationships before a crisis, and giving a clear path for the roles to keep getting filled for years or even decades to come.
Right now, I’m a trustee of my trust along with my wife. If something happens to either of us, the other one takes over. If something happens to both of us, a successor easily steps in. We even have backups for thatsuccessor.
We even have contingencies for if none of the people we’ve named are able to serve.
Redundancy on redundancy on redundancy.
One planning tool, decades of protection and provision.
(To learn about some of the most common misunderstandings in estate planning, and how you can avoid them, click here to download our short guide, The Four Biggest Estate Planning Myths).