By Anissa B. Morse
Planned Giving Officer and Legal Counsel
Pepperdine University

Two things are certain in life: death and taxes… and possibly the fact that a Starbucks will eventually be built on the land where your home currently sits. Unfortunately, most young people today give more thought to that third certainty than the first two. Will they give me a discount on my grande mocha Frappaccino if I tell them I used to live here? This is probably because dreaming of a free coffee drink is much less stressful than thinking about parting with your assets and life.

Anyone with assets, loved family members, and/or a desire to achieve a greater good needs to think about death and taxes and explore “estate planning.” You may think I don’t have an “estate.” I can barely afford to fill up my car at the gas station. This may be true, but consider this scenario: You crash your car into the median of the freeway on your way home from your less than estate-size paying job and end up on life support. Your mom cries to the doctors, “Keep him alive by all means necessary,” while your older brother Dave mutters under his breath, “Nah, pull the plug… I owed him money anyway.” You’re unable to make your desires known and can only lie and wonder Isn’t there a better way? There is a better way. It is an estate plan.

An estate plan is much more than an attempt to get out of paying estate taxes. It incorporates several elements that can help a person – young or old, rich or poor – live and leave a better life. They include a will, a springing or immediate power of attorney and an advance health care directive (commonly referred to as a “living will”). For some people, a trust may also make sense, but let’s keep it simple to begin.

First, a will tells everyone exactly what, why, how and to whom you want your assets distributed when you pass away. You can give your assets to your favorite Aunt Betty, to the neighbor three doors down, or to your alma mater (see my byline). A will also states who you want to be in charge of divvying up your assets and seeing that those assets are transferred to the correct people (perhaps not older brother Dave who wanted to pull the plug on you). It’s also the best place to name someone to take care of your children (a.k.a. “a guardian”) when you die. If you don’t have a will, “the Man” will decide who gets your assets without regard to need or want. And nobody needs or wants that to happen.

Second, you need to execute a power of attorney just in case you become incapacitated and are unable to manage your financial affairs, i.e., one day you find yourself thinking Lincoln is President and a carton of milk costs about $1,000. Through a power of attorney, you appoint an agent to act on your behalf and make decisions in your best financial interest at all times. Basically your agent can sign checks that will pay for your medical care, living expenses, or other necessary items (the $4.00 gallon of milk, not the $1,000 one). There are two types of powers of attorney: springing and immediate. The springing power of attorney only goes into effect under circumstances that you specify. This sounds like a good way to keep control, but it really just creates a hassle for your agent because he or she cannot act until he or she provides some proof (usually from a doctor or a court) that those circumstances have occurred. An alternative is the immediate or “durable” power of attorney. It goes into effect immediately, so your agent can sign your name without having to prove your incapacity. It all comes down to whether you think your agent can and should make a rational determination about your incapacity.

Third, an advance healthcare directive (“AHCD”) is one of the best ways to have a say in your medical care when you can’t speak for yourself. This device allows you to appoint another person to be your health care agent – the person who tells the doctor in the car accident scenario to continue life support or not. You can also designate how you wish for your remains to be handled, i.e., you’d like your body to go to your alma mater for research or you’d like it to go into the ocean for one last swim.

Additionally, you may want to consider placing your property in some form of a trust. Many different types of trusts exist to accommodate a myriad of estate planning situations. The popular reason for implementing a trust is that it avoids probate. That is true. Nevertheless, while probate fees are avoided tomorrow, you will have to pay for an attorney to set up a trust for you today. Trusts are also touted for their tax-saving options. However, the federal estate tax, a tax imposed on assets left at death, now affects a very small percentage of U.S. residents – those with a taxable estate of more than $2 million in 2008 ($3.5 million in 2009). It’s scheduled for full repeal in 2010, but Congress will likely change it after the election. So, should you do a trust? The classic legal answer is: It depends. Start by implementing the other three estate planning devices and then discuss your individual financial outlook with your attorney or other adviser and see if a trust might work for you.

I would be remiss if I didn’t include a bit on incorporating charitable giving into your estate plan. Again, you may recoil at the thought of giving away money when it seems to hard to save it, but this is a great way to support the causes you love and leave a small (or not so small) legacy after you die. Charitable estate planning options include: charitable bequests, charitable remainder trusts, charitable lead trusts, charitable gift annuities, and donor-advised funds. A charitable bequest is probably the simplest method for making a gift in that you simply name the charity and the amount you want given to it in your will or trust as if it was another beneficiary of your estate. The other options involve drafting other documents that can be discussed with the particular charity or charities with which you desire to work. They involve a bit more effort, but believe me, if you are willing to give some of your assets to a charity, that charity will be more than happy to make the process as effortless as possible for you. You might even get a plaque, a free lunch, or at least a thank you note and a tax deduction for your efforts.

Finally, whatever elements you decide to incorporate into your estate plan, discuss them with the people affected – the people you include and even the people you exclude. It’s a tough but important conversation to have so your intentions are understood as well as your plans. Do it simply. Do it now. Do it over coffee. After all, there must be a Starbucks around here somewhere.

This article is intended for informational purposes only. Nothing contained in this article is intended to be legal, tax, or financial advice or is intended or written to be used, and cannot be used, for the purpose of avoiding tax-related penalties. If you are unsure whether your particular situation requires that a document be drafted or changed, you should consult an attorney in your specific jurisdiction.

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