An “estate” consists of all of the items a person owns. These can include cars, bank accounts, retirement accounts, furniture, real estate, and life insurance.
An “estate plan” is the method in which the estate is passed on to the next generation.
- Will: a will or testament is a legal document by which a person expresses their wishes as to how their property is to be distributed at death. If you do not have a will, the state will determine how your property is distributed. A will also appoints an executor to carry out your wishes and manage the estate until its final distribution. In the event of minor children, a will is especially important because it allows you to appoint a guardian for them. A will only covers probate property. Joint owned property, property in trust, life insurance proceeds and property with a named beneficiary, such as IRAs or 401K plans, all pass outside of probate and won’t be covered under a will.
- Trust: A trust is an arrangement that allows a third party (trustee) to hold assets on behalf of a beneficiary. The most common reason a trust is established is to avoid probate (a lengthy and costly process whereby the will is “proven” in a court of law). There are several types of trusts and each has different benefits. One type of trust will terminate when you die and any property in the trust passes immediately to your beneficiaries. This saves your loved ones both time and money. Other types of trust can result in tax advantages for the donor and the beneficiary. Some trusts may be used to protect property from creditors or help the donor qualify for nursing home benefits. Unlike wills, trusts are private documents and only those individuals with a direct interest in the trust need know of trust assets and distribution. Provided they are well drafter by an experienced estate planning attorney, a trust will be continuously effective even if the donor dies or becomes incapacitated.
- Power of Attorney: A power of attorney is a legal document you can use to give someone else the authority to take specific actions on your behalf, such as signing your checks to pay your bills or selling a particular piece of real estate for you. A durable power of attorney remains valid and in effect even if you become incapacitated and unable to make decisions for yourself. A durable power of attorney allows a person you appoint (attorney-in-fact) to step in and handle your financial affairs. If a power of attorney document does not explicitly say that the power is durable, it ends if you become incapacitated. In the event you don’t have a durable power of attorney, you must go through a court process whereby a conservator or guardian will be appointed. This process takes time, costs money, and the judge may not choose the person you would prefer. Under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that he or she could implement immediately under a simple durable power of attorney.
- Medical Directives: A medical directive (also known as an advanced directive) may encompass a number of different documents including a health care proxy, a durable power of attorney for health care, a living will, and medical instructions. These documents are written legal instructions regarding your preferences for medical care if you are unable to make decisions for yourself. Both a health care proxy and a durable power of attorney for health care designate someone you choose to make health care decisions for you if you are unable to do so yourself. Advance directives also guide choices for doctors and caregivers if you’re terminally ill, seriously injured, in a coma, in the late stages of dementia or near the end of life. A living will spells out medical treatments you would and would not want to be used to keep you alive, as well as other decisions such as pain management or organ donation.
- Beneficiary Designations: Most retirement plans, annuities, and life insurance policies let you decide what should become of your assets in the event of your demise. They do this by asking you to designate beneficiaries. Although not necessarily a part of your estate plan, at the same time you create or tune up your estate plan, you should make sure your retirement plan beneficiary designations are up t0 date. If you don’t name a beneficiary, the distribution of benefits may be controlled by state or federal law or according to your particular retirement plan. Some plans automatically distribute money to a spouse or children. Your financial institution’s inability to identify could result in a delay in your intended beneficiary receiving the assets and could also cost your beneficiary legal fees if it becomes necessary for the courts to decide who the beneficiary is. The only way to control where the money goes is to name a beneficiary.
If you need help in planning your estate please call Alexander at 508-660-0331 today and get started. Or call for a free consultation. But don’t delay.