There are six components to a comprehensive estate plan. Now understand the six components are just tools, documents, what is truly important is what are your goals regarding your estate planning.
The first important document, is a trust. There are different types of trusts there are revocable trusts as well as irrevocable trusts. Deciding upon which the trust involves reviewing what is the purpose of the trust. For example, if your goal is to avoid probate and control the distribution upon death then you may want a revocable living trust. However, if you want to avoid probate, control the distribution, as well as built-in asset protection against long-term care costs and lawsuits, then you may want an irrevocable trust like a Castle Trust.
In addition to a trust, you still need to do what's called a pour over will. A pour over will is a last will and testament that instructs the probate court that if any assets under probate they get knocked into the trust and follow the distribution terms of the trust. So, even though you have a trust-based estate plan you would still do a last will and testament.
The next key document is a financial power of attorney document, financial power of attorney document is a document that gives instructions and power to someone you trust to make financial decisions if you're unable to make your own financial decisions. For example, will pay your bills if you get knock on your head?
Along those same lines, you also need to appoint someone to make medical decisions if you're unable to. This document is called a medical power of attorney, in Michigan, we call this a patient advocate designation. This document gives instructions with regards to life-support as well and end of life decision-making.
The next important estate planning documents is a personal care plan. A personal care plan is a document that gives instructions to your financial and medical power of attorney on how best to care for you if you are unable to care for herself. This document is extremely important as we go through the eldercare journey of needing more and more help as we begin to age.
To round out the six key components of the estate plan, the last document that we need is a deed if we own real estate. There are different types of deeds but depending on the trust we use we would either use a Lady Bird deed or we would deed the property directly to the Castle Trust.
Trusts play an important role in estate planning. There are variety of different types of trusts other from basic revocable trusts, the legacy trusts, to Castle Trusts. Trusts by himself or just a tool it's important to understand the differences between the different types of trusts that you can understand what is the best trust for your situation your family.
The easiest type of trust understand is a basic revocable living trust. A revocable living trust is a type of trust that can avoid probate and upon death control the distribution to the beneficiaries.
Typically a basic revocable living trust is set up when you have minor children at home and you don't want them to inherit property outright. Instead you want them to inherit the property at a certain age, for example 25, 30 or 35. Until the child reaches that age a successor trustee would manage that money for their benefit. For example the successor trustee would pay for food, shelter, braces, or college education.
Generally a revocable living trust is the starting point for most families when it comes to estate planning. When they have their first trip when they're leaving their children at home, often times families will put together their first estate plan with a basic revocable living trust and appoint someone to manage the money for the young children as well as a last will and testament that gives instructions and appoints guardians for the minor children.
The biggest issue we see with basic revocable living trusts are that they are not funded properly. Meaning the assets are not entitled to trust properly. For example you may have a life insurance policy but the trust needs to be named as a beneficiary of the life insurance policy.
The basic revocable living trust is great for families with young children, but as you begin at age so to the needs of your estate plan. As you start to accumulate more wealth and basic living trust probably does not make sense anymore, in which case it may be time to look at a Legacy Inheritance Trust (LIT) or a Castle Trust.
A legacy inheritance trust is a form of revocable living trust that avoids probate and controls the distribution upon death. What a legacy inheritance trust does that a basic revocable living trust does not do is that they can provide a lifetime of asset protection for the children.
This is very different than a basic revocable trust that takes the pillowcase of money approach by distributing the assets at certain periods of time. Instead with the legacy inheritance trust, the assets are held in trust as long as a beneficiary chooses to keep the assets inside the trust. This gives the beneficiaries the opportunity to receive the money so is protected from lawsuits, divorces, creditors and the money remains in the bloodline versus going to a potential inlaw.
the Castle trust is a form of asset protection trust that can protect against long-term care costs and nursing home costs, plus protect against lawsuits. In addition to these benefits while you're alive, the Castle trust can also protect your loved ones upon death by offering asset protection to them as well in the form of a legacy inheritance trust.
In other words, with a castle trust have all the advantages of the basic revocable living trust, a legacy inheritance trust, and now you add in asset protection during your lifetime.
A Trust is like a suitcase. If the assets are not titled in the trust, then all you are doing is passing an empty suitcase to the next generation and now your assets will end up going into probate, which is what most people want to avoid.