Four Estate Planning Must Haves

While not the most fun topic, estate planning is crucial to protecting your estate and beneficiaries. A good estate plan allows You to plan for what will happen to your house, investments, retirement accounts, life insurance, and personal belongings (ex. jewelry, furniture, collectibles, etc.).

We consider the following to be must haves for your estate plan: a Will, Durable Power of Attorney, Power of Attorney for Health Care, and a Living Will.

A Last Will and Testament conveys your final wishes for the administration and division of your estate after your passing. This is the only document acknowledged by the probate courts. A Will is also extremely versatile, allowing you (the “testator”) to arrange for the guardianship and care of minor children, appoint a trustee to manage a Testamentary (i.e. created by the Will) Trust, and disperse the estate’s income to beneficiaries or plan for your surviving family needs.

A Durable Power of Attorney (POA) is another important document that gives broader powers to a person to act on your behalf during your life.  The legal document has no power after death. The powers given to another can include handling financial and business transactions, buying life insurance, settling claims, or operating business interests. A General Power of Attorney is an effective tool if you will be out of the country and need someone to handle certain matters, or when you are physically or mentally incapable of managing your affairs. A POA is often included in an estate plan to make sure someone can handle financial matters if you are unable to do so.

Depending upon how it is worded, a POA can either become effective immediately, or upon the occurrence of a future event. If the POA is effective immediately, your agent may act on your behalf even if you are available and not incapacitated. Most people generally do not want to give someone authority while they can act for themselves, so an estate attorney can add “Springing” language, which means the POA only becomes effective if you are medically or mentally incapacitated as determined by one or more physicians.

Through a Power of Attorney for Health Care, you appoint someone to make any necessary health care decisions for you if you are unconscious, mentally incompetent, or otherwise unable to make decisions on your own.  This ensures that your doctors and other health care providers give you the type of care that you wish to receive, if you are unable to make those decisions on your own.

A Living Will is a document that lets you state your wishes for end-of-life medical care, in case you become unable to communicate your wishes. It has no power after death. It can give invaluable guidance to family members and healthcare professionals if you cannot express your wishes. Without a document expressing those wishes, family members and doctors are left to guess what a seriously ill person would prefer in terms of treatment and end of life care.

Do I need a Living Trust?

A Living Trust (also called a Revocable Trust) is a written legal document through which your assets are placed into a trust, with you as the trustee, for your benefit during your lifetime. At your death, everything in the trust is transferred to designated beneficiaries by your chosen successor trustee. Your assets must be titled to the Living Trust during your life for the terms of the trust to be effective.  Additionally, your Will should include a “pour over” provision to address those assets that may not have been titled to the trust at your passing.

An attractive benefit of a Living Trust is the privacy that it provides. A Living Trust is not made public upon your death, so your estate will be distributed privately. A Will, on the other hand, is public record, so your assets, debts and beneficiaries can be discovered by anyone.

Here are the top 4 reasons for you to consider having a Living Trust:

  1. Avoidance of probate:  This could mean a faster and easier distribution of assets to your heirs.
  2. Privacy: A Will is public record so all the transactions you determine in your Will are available for public view. A Living Trust is not made public upon your passing.
  3. Ancillary Probate: If you own property in another state, the executor will need to go through that state’s probate process to transfer the property to your heirs. If the property is titled to your Revocable Living Trust, you will avoid “ancillary” probate.
  4. Control: You remain in control of the trust during your lifetime. The trust keeps your Social Security number, and you can make changes to the terms of the trust at any time. On the other hand, you cannot make changes to an “Irrevocable Trust” once created, and you cannot serve as the trustee of an Irrevocable Trust.

Does a Will cover all of my assets?

No. While a Will is a great starting place to address basic estate planning needs, there are many types of assets that “pass outside” of the Will, meaning they cannot be passed to beneficiaries through the Will. These assets do not go through probate when you die, but automatically pass to beneficiaries. If “pass over” assets are included in your Will, the probate court will simply ignore them.

Common examples of such assets are:

  • Property you own as joint tenants with right of survivorship (JTWROS) with someone else: In this case, 100% of the property (ex. investments such as stocks and bonds or real estate) is automatically transferred to the co-owner upon your death.
  • Life insurance proceeds: Beneficiaries automatically receive the death benefit when you pass away, unless you name your estate as the beneficiary, in which case probate would be necessary.
  • Account values of retirement plans (IRAs, 401k’s) that have beneficiary designations on file.
  • Bank accounts and individually titled investment accounts that have Transfer on Death (TOD) instructions on file.
  • Assets you have placed in a Living Trust (see above).

There is no “one-size-fits-all” estate plan, so we advise you discuss your estate with an estate attorney to ensure that your wishes will be carried out correctly. However, the four documents listed above are a great starting point. Remember, estate planning is a gift to your heirs, as they will have peace of mind with clear instructions on how you want your assets divided.