I have found that many people are unaware of the estate planning opportunities available to them. The eight categories outlined below can give you insight into things to consider so you can identify your goals and build the team you will need to assist you in creating a comprehensive estate plan.
1. Probate. This is the court-supervised process of “proving” and administering a will. Probate is often time-consuming and can be expensive, depending on the size and complexity of your estate. When a will is probated, its terms generally become public record, thus exposing these assets to public scrutiny.
2. A Simple Will. A will is a legal document that allows you to direct how your probated estate will be administered and distributed. Without a will, you forfeit your right to designate who will receive the assets of your estate. Those who die without a will are said to have died “intestate.” The intestacy laws of the state in which you reside will determine who will inherit your property, regardless of any desires you may have expressed while living. Also, your local probate court will choose an administrator for your estate and, if necessary, a guardian for any minor children. You can avoid all of this, however, by maintaining an up-to-date will that reflects your current wishes.
3. Durable Power of Attorney. This allows you to designate a representative to perform certain actions for you should you become ill, incapacitated, or otherwise unable to manage your affairs. The representative could, for example, pay bills, sell securities, or make major financial decisions on your behalf, depending on how broadly or narrowly you limit the powers. Without a power of attorney, your spouse or other loved ones would have to go through the delay and expense of seeking approval from the court to carry out needed financial transactions.
4. The Living Will. This is a written declaration of what life-sustaining medical treatments an individual will or will not allow in the event he or she becomes incapacitated. For example, a person may request that a critical nourishment be withheld or not be withheld if he or she is terminally ill.
5. Medical Durable Power of Attorney (aka: Health Care Proxy). This document authorizes a person to make medical decisions on your behalf, ideally to carry out what you’ve specified in your living will. Talk to the person before appointing them, and be sure they understand and are comfortable with your wishes, and will be strong enough to carry them out even though some family members may object.
6. Trusts. Many estates require more sophisticated planning, which involves the use of trusts. A trust is a legally created relationship between three parties. It is created by the grantor (the person establishing the trust) through a trust agreement in which one party (the trustee) holds and manages property for the benefit of the others (the beneficiaries). Trusts can be created during one’s lifetime or upon death. The complexity of your estate and the extent to which you would feel uncomfortable leaving assets outright to certain heirs will determine if the formation of a trust is necessary.
7. Titling of Assets. The appropriate titling of assets is essential when dividing your assets. Property owned as Joint Tenants with Rights of Survivorship (JTWROS), or as Tenants by the Entireties, passes directly to the joint owner or surviving spouse. Assets also pass outside of probate by matter of contract law. A beneficiary designation passes assets outside of probate. Assets that typically pass through beneficiary designation include insurance proceeds, qualified retirement accounts, annuities, and individual retirement accounts. These are only a few examples of titling assets, and with the help of an attorney, many individuals develop well-thought-out estate plans. However, many individuals frequently do not take the extra step of re-titling assets. Unfortunately, upon death, their wishes might not be fulfilled if the titling of estate assets does not coordinate with provisions made in their overall estate plan.
8. Building Your Team. Who will help develop your estate plan? Your team should consist of:
• An estate planning attorney
• Your trusted financial adviser
• An accountant (depending on how complex your planning is)
• Your insurance agent (depending on how complex your planning is)
Attorneys and financial advisers who focus on estate planning counseling will spend time asking questions, listening carefully to your responses, and helping you feel more comfortable addressing the elephant in the room.
Be sure to ask your advisers to take you through “what if” scenarios to help you define your estate and financial goals.