Many people believe that if they have a will, their estate planning is complete, but there is much more to a solid estate plan. A good plan should be designed to save on estate taxes, protect assets if you need to move into a nursing home, appoint someone to act for you if you become incapacitated, and avoid probate.
All estate plans should include a durable power of attorney if you have at least one person you would trust to handle your financial affairs and a last will and testament. A trust can also be useful to avoid probate and to protect assets from the costs of long-term care such as a nursing home. In addition, medical directives allow you to appoint someone to make medical decisions on your behalf.
Will
A will is a document directing who will receive your property at your death. If you do not have a will, the state will determine how your property is distributed. A will also appoints a legal representative (called an executor or a personal representative) to carry out your wishes. A well-drafted will allows you to leave assets to your beneficiaries in a protected fashion and keep the assets within your bloodline for multiple generations. If you have minor children, a will allows you to name a guardian for the children and a trustee to manage their inheritance. Some types of property or forms of ownership may pass outside of a will. Jointly-owned property, property in trust, life insurance proceeds and property with a named beneficiary, such as IRAs or 401(k) plans, may pass outside of a will.
Trust
A trust is a legal arrangement through which one person (or an institution, such as a bank), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” Trusts have one set of beneficiaries during those beneficiaries’ lives and another set — often their children — who begin to benefit only after the first group has died. There are several different reasons for setting up a trust. The most common reasons are to save estate taxes, protect assets from the costs of long-term care, and avoid probate. If you establish a trust during your lifetime that terminates when you die, any property in the trust passes immediately to the beneficiaries. This can save time and money. Unlike wills, trusts are private documents and only those individuals with a direct interest in the trust need to know about trust assets and distribution. Provided they are well-drafted, another advantage of trusts is their continuing effectiveness even if the donor dies or becomes incapacitated.
Power of Attorney
A power of attorney allows a person you appoint — your “attorney-in-fact” — to act in your place for financial purposes when and if you would like assistance and/or ever become incapacitated. In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney, no one can represent you unless a court appoints a guardian. That court process takes time, costs significant money, and the judge may not choose the person you would prefer. In addition, under a guardianship, your representative may have to seek court permission to take certain actions on your behalf.
Medical Directives
A medical directive may encompass a number of different documents, including a health care proxy and living will. The exact document or documents depend on state law and the choices you make.
A health care proxy allows you to designate someone to make health care decisions for you if you are unable to do so yourself. A living will instructs your health care provider to withdraw life support if you are terminally ill or in a vegetative state.
Beneficiary Designations
As part of your estate plan, you should make sure your retirement plan beneficiary designations are up to date and are coordinated with your overall estate plan. 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. Although others may leave it to the retirement plan holder’s estate, this could have negative tax consequences. The only way to control where the money goes is to name a beneficiary.
The attorneys at Kurre Schneps LLP are highly skilled at putting together estate plans and are available to meet to discuss your specific situation.
