Many people aren’t quite sure what estate planning is. They’ve heard their friends or family talk about it. They know it’s important. They know it’s something every adult (especially parents) need to get done. But no one has ever taken the time to explain what an estate plan actually accomplishes for them.

In it’s simplest form, an estate plan makes sure you and your family are legally covered if something happens to you. If you become incapacitated or if you die, your estate plan creates a legal roadmap that allows your wishes to be followed (and enforced) to protect what matters most to you.

In practical terms, a big part of estate planning covers asset distribution (who gets your stuff), but there is a lot of nuance (approximately 40-70 pages of nuance for most people) depending on the complexity of your family and financial situation.

To better understand what I mean, it would probably be helpful for you to know the primary documents that make up your estate plan.

What goes into an estate plan?

In Massachusetts, your typical estate plan consists of four items:

Your Revocable Trust (sometimes referred to as a family trust or living trust)
Your Pour-Over Will (specifically designed with your revocable trust)
Your Durable Power of Attorney (for finances)
Your Health Care Proxy (for medical)

Let’s dive into each document to give you a better idea of the role they play in your overall estate plan.

The purpose of your Trust.

Your trust has three primary objectives:

Avoid probate - a public court process
Minimize estate taxes - the taxes that your estate might owe the government after you die
Protect your children’s inheritance - make sure the right stuff goes to the right people at the right time (under the right supervision).

Avoiding probate

Probate is a public court process that can occur after you die in order to sort out who gets what property and in what manner. There are a few issues with probate:

It’s public - although the inventory isn’t always publicized, documents submitted through probate are available for all to see.
It’s expensive - just to have an attorney file the standard forms is usually $3,000 to $6,000 and that’s assuming there isn’t a single hiccup. If one person acts up then that cost will easily balloon into the tens of thousands of dollars (I’ve had clients who’ve paid hundreds of thousands in probate litigation related to their parent’s estate).
It can take a while. There are 3 common types of probate in Massachusetts and each one varies in time. Which county you are in and how busy that county is can also be a factor, but generally you’ll be waiting months to get anything done.

So where does the revocable trust come in?

Assets placed in trust have the luxury of avoiding all that probate nonsense (listed above). There is no court process. There are no filings. In fact, you don’t really need an attorney if the trust is drafted well-enough. Best of all, there is no waiting for someone to be appointed or granted legal authority. The trust will state the successor trustee (the person to step into the shoes of the grantor/trust creator) immediately upon that person’s death or incapacity.

Once the person accepts the role of successor trustee, he or she can go ahead and follow the trust creator’s instructions accordingly.

How do you place assets in trust?

It varies by type of asset, but generally you can either re-title the asset into the name of the trust - so instead of the title on the property saying your name individually, it would say your name, as trustee of the XYZ trust - or, with certain financial accounts / life insurance, etc. you can update the beneficiary designation (sometimes referred to as pay on death / transfer on death) to name the trust as the immediate beneficiary of the account upon your death.

While re-titling takes additional paperwork and time, updating beneficiary designations is usually a straightforward process. Simply reach out to your bank or custodian and let them know what you want to do. The good ones (most investment companies like Fidelity) will know exactly what you are talking about as long as you use the right phrases, but if in doubt, just give me a call and I can walk you through the process.

Real estate requires updating your deed, which an attorney should do for you (you don’t want to mess that up), but that procedure is straightforward as well assuming you have no title issues with your real estate (for example, I once had a client who wanted to transfer his home to his trust, but it turns out his mother had a life estate on the deed - whoops). Assuming there are no issues with the title, I often do this for my existing clients within a 5-7 business day time frame.

If you have a revocable trust, then what does your Will do?

When you have a trust, the Will is merely a safeguard in most circumstances. This means that the Will is only there to catch assets that fall through the cracks - the assets that you forgot or never got around to placing in the trust.

The Will is also necessary if you want to nominate a guardian for your minor children.

If you don’t have a trust, then the Will determines how your assets are to be distributed. The personal representative (used to be called “executor” in Massachusetts) will also be appointed by your Will to administer the estate.

A lot of people think that Wills allow you to avoid probate, but that isn’t true. A Will is designed to instruct the court on what you wanted to be done with respect to any assets that pass through probate. In other words, your Will is only intended for use in probate. Without probate, your Will has virtually no purpose. For more information on this see Your Will does not avoid probate - clarifying a common misconception.

So how does the health care proxy and durable power of attorney come into play?

Health Care Proxy:

Your health care proxy is for medical decision making purposes only. You list a person (usually your spouse) as the primary and then should have at least one backup person in case your spouse or primary contact isn’t available for whatever reason.

A lot of people think that if you are married, then you don’t have to do this type of planning. While states can vary on this, you do not want to be in a situation where there is disagreement among family members (for example, spouse parents or siblings want to do one thing and you want to do something different) and there is no legal document to say who has authority to choose.

The health care proxy makes sure you don’t find yourself in that situation. See The 3 Most Common Mistakes in a Health Care Proxy for more information on health care proxies.

Durable Power of Attorney:

Your durable power of attorney is intended to be used to make sure someone has the legal authority to manage your finances for you if you become incapacitated. That’s what the durable part means - it persists regardless of your mental capacity (so long as you are still living).

There is some confusion around whether to do a springing power of attorney (effective only after incapacity is determined) vs. an immediate power of attorney, meaning it’s effective immediately upon signing the document.

In theory, springing power of attorney sounds great. After all, you really only want someone to have broad financial powers over all your stuff only in the event that your are unable to handle it yourself. The problem with the springing power of attorney approach in practice is that it makes third-parties (banks, government, benefit providers) extremely hesitant and much more difficult to work with because they need confirmation that you are in fact incapacitated.

If you don’t fully trust your agent appointed under your durable power of attorney, then that may sound like a good safeguard. But if you don’t trust someone to manage your finances or pay your bill then you shouldn’t name them as your financial agent. It’s really that simple.

For that reason, virtually all the durable power of attorneys that I’ve completed in Massachusetts for my clients have been effective immediately. I do insert certain language regarding backup agents (who maybe you trust slightly less than the primary agent), but overall we can adjust the document to a point where you get peace of mind in knowing someone is authorized to handle certain items, but limited in other ways so you are not then worrying about the fact that they have such authorization.

In case you’re curious, here are the 4 mistakes you don’t want to make in your power of attorney.