Estate planning without heirs may need special attention
- Estate & Giving
- Article
The topic of estate planning is often couched in themes of family, which may lead one to think that having an estate plan is more important when someone has familial heirs. That isn’t the case.
For those whose lives center on found families, communities and causes close to their hearts, estate planning may be even more important to ensure that their wishes are honored. They also face a distinct challenge in selecting advocates to carry their plans forward in their stead.
If you don’t have a comprehensive estate plan, you leave important decisions about your well-being, healthcare and financial legacy to others, whether they be social workers empowered by the state or estranged family members with the best claim under state law.
Estate plans in a nutshell
An estate plan is a collection of legal documents that spell out your decisions regarding healthcare, legal surrogacy and asset management in the event of incapacitation or upon your passing. Estate plans often include:
- A will
- A durable power of attorney (financial and medical)
- Advance medical directives
- A living trust
A special focus on follow-through
One’s family relationships make little functional difference in the creation of an estate plan. However, for those without direct heirs, selecting the successive trustee of the living trust, executor of the will and agent of a power of attorney often come with special considerations.
The trustee’s role
A living trust is usually designed to keep one’s financial matters out of probate – a judicial administrative process that settles matters of an estate – saving time and preserving privacy. Probate proceedings are open to the public; may be costly with court, attorney and executor fees; and regularly take months to over a year to close.
Trusts require a trustee. A trustee has a fiduciary responsibility to perform the duties described in the trust faithfully, under penalty of law. Typically, an individual will name themselves as the trustee of the living trust, and couples will name themselves co-trustees. They will also name a successor trustee who would step in in the event of their incapacitation or upon their passing.
Depending on the trust, a trustee may be required to manage a number of issues including investing, real estate, taxes and financial reporting.
The executor’s role
Wills are adjudicated in a public, legal process called probate. The person entrusted to carry out the will is called an executor. By using a living trust, instead of a will, to deal with one’s financial matters, the settlement process is simplified, and more private, but can still take about six months on the short end as it takes time to locate, appraise, move, sell, pay taxes and distribute assets. If a will is contested by an estranged family member, for example, it can take much longer, which is a less likely eventuality when using a trust.
The power of attorney’s role
A power of attorney is a document that names an agent to act on financial or medical matters on your behalf. Typically, people will assign a financial power of attorney and a medical power of attorney. Without a medical power of attorney as part of your advance medical directives, medical practitioners will make decisions consistent with state law and institutional policy, which may prolong care beyond what you would wish.
An agent empowered by a financial power of attorney would make decisions about assets and incomes not included in the living trust.
Selecting the right advocates
An adult child is often chosen for these roles by those with familial heirs. Trust, knowledge of the landscape and, frankly, age tend to make them more suitable than other potentials advocates like siblings or friends.
The job comes with significant legal and ethical responsibilities, making your potential advocates’ capacity an important consideration. As people tend to be around the same age as their friends and go through similar issues around the same time – such is the human condition – your preferred trustee may not want to take on the responsibility at that stage of their life. A conversation between your chosen advocate and your attorney can help communicate the details and expectations of these roles so they’re prepared and informed when the time comes.
For each of these roles, you can also hire a professional. It’s not uncommon for people with significant financial holdings to hire a professional trustee or corporate trustee even if they have a capable family member. Attorneys may offer professional trustee services, as will large financial institutions and trust companies. The latter are known as corporate trustees. When hiring a professional executor, power of attorney or trustee, it’s a good idea to seek recommendations from people you trust who know the landscape. It’s worth noting, too, that professional trustees, unlike non-professional trustees, operate under state and federal regulatory scrutiny.
Trust companies that offer services to trustees can be a middle ground between these two approaches. The trust company can be contracted to pay bills, issue checks and file reports, reducing the administrative burden on a trustee while leaving them with the big strategic decisions.
Philanthropy
Charity is another way to leave a legacy, and luckily, the strategic questions here tend to be fairly straightforward. Some of the most common philanthropic vehicles include:
- Private foundations: An organization created to invest tax-deductible donor contributions and disburse holdings to charitable causes. Typically, foundations are used by people with the means to run an organization, want to give directly to individuals or want to use investment vehicles that can’t be held in other types of charitable accounts.
- Donor advised funds (DAFs): A charitable investment fund managed by a charitable organization and its board of directors. DAFs allow donors to hold their assets in a named investment account – similar to a private foundation – take tax deductions at the time of donating into the fund and recommend how the money is granted out.
- Charitable remainder trusts (CRTs): A trust that pays regular income to a beneficiary, typically the trust creator, then gives the remainder to charity (which may be a DAF) after a set period of time less than 20 years or at the passing of the creator.
Everyone should have an estate plan
At first glance, estate planning can seem overwhelming. However, done step-by-step, with the support of an estate planning attorney and financial advisor, it only needs to be revisited lightly once put in place, mostly to ensure beneficiaries, named agents and assets are still correct.
Some wonder why it matters – and that’s a personal decision – but our lives have long echoes, and an estate plan is about ensuring that echo honors your goals now and into the future.
Raymond James Trust, N.A. is a subsidiary of Raymond James Financial, Inc. Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. are affiliated with Raymond James Trust.
Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.
To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.
Please be aware that there may be substantial fees, charges and costs associated with establishing a charitable remainder trust.
