What is Estate Planning?
It’s never too early to start estate planning. You can save your loved ones time, money and frustration by having a will and planning for the management of your health care and property for if you become incapacitated. It’s important to make sure your family is cared for and to assess your estate properly.
Your estate consists of your real and personal property. Real property includes land and improvements located on the land as well as oil, gas, and other mineral interests. Personal property is all other property, including cash, bank accounts, clothing and personal effects, household furnishings, motor vehicles, stocks and bonds, life insurance policies, and government, retirement, or employee benefits. Some of this property will pass through probate, a legal process when someone dies. This process is always necessary even when you have a will; a judge will validate the will as necessary and an executor will carry out the responsibilities as directed in the will. Types of probate property include property you solely own, investment property that is held as “tenants in common” and certain types of inheritance.
Certain items will not pass through the probate process. When you name a beneficiary, or when you hold joint property that has survivor’s rights, you are identifying property which will not go through probate.
A good estate plan will take care of many issues that may arise later, and should include:
- Instructions for your care and financial affairs if you become inpacitated before you die
- Provide for your business in case you are not able to function
- Include arrangements for your disability income, life insurance and government benefits
- Name guardians for minors and incapacitated or special needs family members
- Minimize taxes, court costs and probate issues
Knowing that you have a well-designed plan in mind, prepared in advance, will give you and your family peace of mind. We can help you design that plan.
Wills
If you die without a will, the law disposes of your property and it may pass to heirs you might not have chosen. A will allows you to leave your property to the persons you desire and not the persons chosen by law. In addition, you can designate the person or persons who will care for your minor children or set up a trust that becomes effective when you die. A will means that your wishes are honored and that the issues in your life that need closure (such as debts) will be taken care of efficiently.
Additionally, a will allows you to avoid problems and delays in probate court. Wills move through probate relatively quickly and allows your beneficiaries to get their assets in a timely fashion. Furthermore, a will can help you and your heirs avoid excessive state taxes at both the federal and state levels.
Durable Powers of Attorney
A durable power of attorney is a written instrument by which you appoint and grant an attorney-in-fact or agent powers with respect to your property and financial matters. If you are incapacitated and no longer able to make decision about your financial assets, a court can appoint a legal guardian to manage your estate, which can be a time consuming an expensive process. However, if your estate plan includes a durable power of attorney, you will have already outlined who is in charge of your property and financial matters and a legal guardianship may not be necessary. If you don’t appoint someone to have a durable power of attorney, a court might appoint one when you become incapacitated. It’s important to be proactive and find someone you trust yourself.
A durable power of attorney can be given to a family member or trusted friend. IT can help you avoid many probate issues. You must create a durable power of attorney before you become mentally incapacitated; if not, a conservator might be appointed by the court. There must be specific language in your will that needs to be included in order for your power of attorney to be a durable one.
Trust
A trust is a relationship where property is held by one party (the trustee) for the benefit of another (the beneficiary). Placing property in the trust transfers it from your person ownership to the trustee; the trustee has legal title to the property. Whether you have a trust depends on your circumstances including the size of your estate and the purpose of your trust. A trust can provide tax planning opportunities depending on what state you are in as state estate taxes can vary greatly.
The most common trusts are living trusts which can consolidate assets and avoid the probate process. A revocable or living trusts will hold your assets during your life and can substitute for a will upon your death. A testamentary trust is actually created by the will and is often used for tax planning or protection from a creditor.
Medical Power of Attorney
Who makes important decisions about your medical treatment if you are no longer able to? You can, if you include a medical power of attorney and directive to physicians (commonly referred to as a “living will”) in your estate plan. A medical power of attorney allows you to designate a person (your agent) to make your health care decisions for you when you are no longer capable of making them yourself. A directive to physicians allows you to designate, before the need arises, instructions on the use or withholding of life sustaining procedures.
A medical power of attorney only really goes into effect after a doctor has determined that you are unable to make your medical decisions yourself. Giving the medical power of attorney to someone allows them to speak for you and have full rights to the information about your medical condition. The scope of this authority can vary depending on how you designate it and what state you are in. You should someone who is able to discuss medical issues and can be trusted to adhere to your wishes about medical options and end of life care.