Four Key Elements of a Good Estate Plan

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published 14 September 2024

There are many types of estate plans, both complex and simple, revocable and irrevocable. However, all estate plans should accomplish four basic goals. First, if you are sick and unable to act, your estate plan should empower the designated person to step in to help make decisions. At death, your estate plan should:

Get your assets to the right people
Distribute your assets at the right times
Deny access to the wrong people

Each of these goals is discussed separately below.

1. A good estate plan empowers someone to act on your behalf.

If you are sick, your estate plan must empower your designated person to act on your behalf for financial matters. This person may act as the successor trustee or as the attorney-in-fact under a power of attorney. Most estate plans will require a letter from your doctor, or perhaps two doctors, confirming that they have examined you and that you are not able to handle your affairs.

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However, consider who and what doctors are most afraid of — lawyers and lawsuits. Doctors are always concerned about potential liability. More important, federal law governs and provides standards for the privacy of medical information. This federal law is known as HIPAA (Health Insurance Portability and Accountability Act of 1996). Not to be outdone, many states enact their own privacy laws. For example, California has its own privacy act known as the California Consumer Privacy Act (CCPA).

Federal and state law may prohibit your doctor from releasing medical information about you, including confirming that you lack the capacity to handle your affairs without an existing authorization to do so. If no written authorization is available, you may need to go to court to obtain the authorization to do so. This results in unnecessary delays and expenses. Your estate plan should include a written HIPAA authorization that is also compliant with your state’s privacy laws to ensure that the person you designate is actually able to act regarding financial matters without going to court.

Your estate plan should also include an advance health care directive to ensure that the designated person or people are able to make medical decisions for you if you are unable to do so. An advance health care directive form typically provides very little guidance other than whether you would like your life artificially prolonged by extreme measures. Consider also utilizing a personal directions letter with more specific guidance and discussion of your wishes. For example, do you wish to be at home? Do you want to know all the specifics regarding your medical condition? What should your condition be before treatment is stopped? Is the ability to communicate with your loved one important?

The personal directions letter is important for two reasons:

To provide guidance to your health care agent so that they know what you want. This can be very stressful for your health care agent, particularly if they are trying to figure out what you would say if they could ask you.
Hospitals and doctors are not always willing to do what the families want. Having specific written information detailing your wishes can ensure that your wishes will be followed. That information can also prevent disputes between family members.

There have been many cases in which a family’s or spouse’s wishes were denied. The one I remember most frequently involved Terri Schiavo. This is because she had the most beautiful, kind smile. At the age of 26, she suffered a cardiac event that deprived oxygen to her brain. She never recovered any meaningful mental or physical abilities. Her husband, Michael Schiavo, was certain that she did not wish to continue living without being able to interact with the world around her in any way. She could not speak, see, hear or move, and she had no brain function. Her parents, Robert and Mary Schindler, thought that her life should continue and hoped that she would recover.

They began expensive litigation as to whether Terri’s life should continue. I believe both her husband and her parents sincerely wanted to fulfill her wishes in the worst of circumstances. This created a horrible division in the family. All the court wanted to do was figure out what Terri would want in the absence of specific, written wishes. The court listened to testimony from family and friends and ultimately determined that Terri should be allowed to die. A written letter of instructions from Terri may have avoided a lot of pain.

2. A good estate plan ensures your assets go to the right people.

When you die, your assets should go to your desired beneficiaries or family members. In my case, my assets would primarily go to my children. You need to detail your desired beneficiaries in a legally enforceable manner in your trust. If you do not do so, then your actual heirs may be established under the probate code of your state of residence, which may not reflect your wishes.

Today’s modern families include unmarried partners, domestic, partners, adopted children, children from prior relationships, children going through a divorce and other relationships. Your trust or estate plan should ensure that your assets and legacy go to the right people that you designate.

We also want to protect the privacy of our family information. Probate proceedings are public information with family financial information available online through the court websites. This can put the desired beneficiaries at risk of claims.

3. A good estate plan ensures your assets are distributed at the right times.

Your estate plan should not only get your assets to the right people, but they should receive those assets at the right times. Can you trust your beneficiaries with complete control of a large amount of cash and other assets? Would they invest and spend in a way that would benefit them for their entire lives and create a legacy for their kids?

Timing is particularly important if you have any of the following types of beneficiaries:

Too young. If your children are underage and not yet financially mature, you may wish to restrict control over investments and spending until they are financially mature. The terms “want” and “need” evolve for all of us over time. When I was in my 20s, 30s and even 40s, I seemed to “need” a lot. Now that I’m older, I want a lot of things but truly understand that I do not need much.
Elderly, ill, disabled or having drug or alcohol problems. These beneficiaries may need a lifetime trust.
Not good at handling money. These beneficiaries may need a spendthrift trust.
Receiving government benefits. These beneficiaries should inherit in a special needs trust to prevent the loss of the governmental benefits while still enjoying their inheritance to the extent permitted.
Circumstances changing after your death. Any of the conditions or circumstances referred to above may occur after your death. You may wish to give your successor trustee the power of flexibility to modify or adapt a beneficiary’s trust provision after your death.

4. A good estate plan denies access to the wrong people.

If your assets are to go to your children or other named beneficiaries, then you want to be sure those assets are not lost if your child gets divorced, files for bankruptcy or faces lawsuits or other creditor claims. You want to be sure the assets are not lost to the government due to a second estate tax or for the recovery of government benefits received. We do not want your beneficiaries to incur loss due to court costs and probate fees. We want to minimize income tax owed by your beneficiaries on future income to the estate if possible. We want to avoid estate tax and we do not want your beneficiaries to pay estate tax.

Finally, many people believe that trusts are for “rich people,” and since they think they don’t have that much, trusts aren’t for them. However, you may own an array of assets, including your home and retirement accounts, such as 401(k)s or IRAs. You may also have investment accounts. All assets and accounts are typically liquidated and distributed to your beneficiaries as part of the trust administration process.

You worked a lifetime to create a legacy for your loved ones, and careful planning is needed to ensure that your legacy goes to the right people at the right times and keeps the wrong people out.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Founder of The Goralka Law Firm, John M. Goralka assists business owners, real estate owners and successful families to achieve their enlightened dreams by better protecting their assets, minimizing income and estate tax and resolving messes and transitions to preserve, protect and enhance their legacy. John is one of few California attorneys certified as a Specialist by the State Bar of California Board of Legal Specialization in both Taxation and Estate Planning, Trust and Probate. You can read more of John's articles on the Kiplinger Advisor Collective.