Question: Growing up, my family did not have much in terms of material wealth so when my parents passed on, it was simple. We closed their bank accounts and split up the personal property. My husband and I have worked really hard and are “comfortable.” We have a home, 401(k) plans through work and some nice art and antiques. We want to give most of what we have to charities and some to a niece. Do we need a trust or is a will sufficient? I talked with an attorney and she said we need both a will and a trust and many other documents, too. She recommends we do “estate planning.” I wouldn’t call what we have an estate. The plans seem complex for just our few assets not to mention the cost. What is the simplest way to make sure things go the way we want them to go when we die? Should we do a trust to reduce taxes on our death?
Answer: Congratulations on attaining a “comfortable” financial position and for asking great questions about estate planning. Yes, you do have an “estate.” Our estate is what we own whether it is a bank account and a car, or a mansion on the beach, investments and commercial properties. It is just how the legal community refers to what we own so, congratulations, you have an estate!
When we do estate planning, it is important to address two things: What happens to our assets when we die and, just as importantly, what happens if we were to become incapacitated and unable to make financial and medical decisions for ourselves. The many documents that your estate planning attorney is recommending will, most likely, address both these important issues.
A general rule of thumb is that if you own real estate, you should probably consider having a trust in order to avoid probate. While there are ways to avoid probate when you have real estate and no trust, for many reasons beyond the scope of this column, it is just cleaner if the real estate and your other assets are titled in a trust.
In an estate plan that includes a trust, you still have wills – you and your partner would have a will and your trust would, usually, be a joint trust. The wills in this kind of plan are called “pour-over” wills and are there to address any assets that may not have been retitled to your trust. So, if you die and have forgotten to retitle an investment account to your trust, your will makes sure that asset gets into your trust and go to the charities and loved ones as you intended.
The other documents your attorney recommended probably include an Advance Health Care Directive and a power of attorney for finances. The health directive will give someone, usually your partner first and then a close friend or loved one, the authority to speak with hospitals and doctors on your behalf. We all need an advocate when it comes to medical care so the AHCD is a document all of us should have in place whether or not we have a full estate plan.
The financial power of attorney makes it possible for someone to help you address finances in the event you are incapable of doing so yourself. So, these two documents address loss of capacity and also end of life issues.
Your 401(k) plans are tax deferred and have named beneficiaries. They do not get retitled to the trust. Normally, you name your partner or spouse as the beneficiary and, if they do not survive you, these tax deferred assets are great to pass on to your charitable beneficiaries.
Finally, the tax question: Trusts are often used by wealthy people for estate tax purposes but, since the estate tax exclusion allows each of us to pass almost $14 million estate tax free (in 2026 a full $15 million), most of us do not use a trust for tax purposes. Trusts just ease the administration of our estates after we are gone.
A will, trust and the other legal documents your attorney is recommending address both incapacity and death. Putting together a strong estate plan can be time consuming and appear expensive and, moreover, it is rather “un-fun” to contemplate death or incapacity! But, once it’s done, you will feel relieved and truly comforted knowing all the planning is in place.
Liza Horvath has over 30 years of experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust Management Company. This is not intended to be legal or tax advice. If you have a question call (831) 646-5262 or email liza@montereytrust.com
