Whether you have $100 or $1,000,000, you have an estate. Simply put, an estate is the interest you have in “lands or any other object of property.” By definition Estate Plans are your instructions for estate asset disbursement to heirs at your death. This includes drawing up a will, setting up trusts and gifting property. Estate planning can be motivated by taxes, avoiding probate, ensuring your wishes are carried out correctly, protecting assets, or incentivizing your heirs to do well and be productive.
There should not be a “one size fits all” estate plan that works for everyone. Internet based plans often fail because they don’t have the key player’s interests in mind. The following documents are just some of the essential items that a proper estate plan should have:
- Powers of Attorney: This is a legal document giving another person authority to act on the behalf of another. The powers can be very broad or very limited. A power of attorney terminates upon the death of the maker or when the principal becomes incapacitated. A Durable Power of Attorney however, stays valid even after incapacity.
- Health Care Directive: an advance health care directive names an agent you want to act in your behalf should you become unable to communicate. It specifies how much medical care you do or don’t want and who will work with the doctors to determine your care. Your directive will cover your wishes on organ donation and medical research. Your agent may also be allowed access to your medical records.
- Last Will & Testament: a will is a binding legal document that names an executor to administer your estate and also names to whom and in what manner your beneficiaries will receive property. You should know the following about wills:
- A will has no legal authority until after death. It does nothing regarding a person’s affairs when they become incapacitated.
- A will does not help an estate avoid probate, instead a will essentially guarantees probate if assets are held in the testators name only. A will must be submitted to the probate court to allow the appointment of the executor.
- A will is a good place to name guardians of minor children. If you have or expect to have minor children, you need to have a nomination of guardians or you leave the placement of your children to the court’s full discretion subject to possible intense family litigation.
- Trusts: Trusts come in many different flavors including the simple and complex. Essentially a trust is a legal entity with at least three parties: a trust maker, a trustee (manager) and a trust beneficiary. A trust can be revocable or subject to change. A revocable living trust is commonly created by an individual or couple whereby they are the trust maker, trustee and beneficiary all at once. If incapacity or death occurs, then successors step in to carry out the trust terms. A trust can also be irrevocable whereby the terms cannot be changed without the full consent of all beneficiaries. Also, special needs trusts and discretionary trusts can be established to protect trust principal from creditors and to preserve public benefits.