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Four Essential Estate Planning Documents

February 18, 2016


“The trouble is, you think you have time.”

- Buddha


Although it is difficult for many people to confront issues pertaining to their own mortality, it is nevertheless imperative that individuals formulate an estate plan.  Without an effective estate plan, individuals place themselves, their assets and their families at risk and, instead, may invite unnecessary heartache, family strife and financial distress at the time of their incapacity or death.  


Advance planning allows you to retain the greatest degree of control over your life and your assets.  If you neglect to create a Will, appoint a guardian for your minor children, designate a person to care for your finances or execute a healthcare directive, decisions regarding your estate, your children's guardians, your finances and your medical care will be made by the government and the courts, without regard to your personal wishes.  An estate plan offers you peace of mind, knowing that your long term needs will be met, that your assets will be protected for the benefit of the person or persons whom you choose and, most importantly, your family will be protected in the event of your incapacity or death.  Once incapacity strikes, it is usually too late to implement these mechanisms and your only option is a court proceeding.  You can never be too young, be too old, or have too few assets to put together an estate plan.


Estate planning strategies involve more than just creating a Will.  You can plan for the accumulation and handling of your assets while you are alive and upon your death; draft trusts that will operate during your life and after your death to manage your assets in order to support your children until they are of age and to shelter your estate from taxes; protect your heirs from creditors and divorce; utilize gifts to individuals or charities to reduce taxes; incorporate life insurance in your plan to provide liquidity; and more.  


As part of the basics of estate planning, every individual should have a Will, power of attorney, health care proxy and living will.  Below is a brief description of each of these essential documents, which together provide a foundation for any estate plan.  If you already have an estate plan, you should review your documents periodically to ensure that they continue to meet your goals and comply with changes in the federal and state estate tax laws, and whenever a significant life event occurs (e.g., birth of a child, death of a spouse, divorce, serious illness or purchase of a new home).  


Last Will and Testament.  One of the most effective ways to direct the distribution of your assets upon your death is to make a Will.  Some Wills can be straightforward, while others can be very intricate, depending upon the wishes and goals of your estate plan.  The primary reason for executing a Will is to provide written instructions regarding how your assets are to be distributed among your beneficiaries.  A properly drafted Will accomplishes the following:


• instructs how your assets are to be distributed, including specific gifts of tangible personal property, such as jewelry, clothing and furniture;

• designates an Executor who is responsible for taking inventory of your property; preserving your estate; paying creditors, administrative expenses and death taxes; and disposing of the remainder of your property among your beneficiaries;

• appoints Guardians for your minor children in the event of the death of both parents; and

• establishes trusts to protect assets.


It is important to note that a Will only controls the disposition of probate assets, which are those assets owned in your own name that do not have a named beneficiary (e.g., bank accounts or real estate in your name alone).  On the other hand, non-probate assets pass outside of the Will and transfer automatically to another person or designated beneficiary upon your death.  Non-probate assets include:


• assets held in a revocable living trust;

• assets held jointly with your surviving spouse, or with another person as joint tenants with a right of survivorship;

• proceeds of an insurance policy where beneficiaries are named other than your estate; and

• balances of retirement plans, IRAs, Keogh accounts and tax deferred annuities, which may be payable to designated persons rather than your estate.


When designing your estate plan, it is important to consider your non-probate assets and to revisit your beneficiary designations on life insurance and retirement plans to ensure your assets pass to your intended beneficiaries.  All too often, individuals update a Will, but neglect to update beneficiary designations and inadvertently leave assets to former spouses, predeceased or unintended family members.  It is also not advisable to name minors as beneficiaries, as these assets will pass directly to them. 


An essential part of creating an estate plan is appointing individuals to act on your behalf in the event of your incapacity.  The documents used to appoint these fiduciaries are the power of attorney and health care proxy/living will.


Power of Attorney.  A power of attorney allows you to appoint another individual to transact business in your name.  A power of attorney gives an agent (called your attorney-in-fact) the authority to make banking, real estate and all other financial transactions on your behalf.  There are two primary types of powers of attorney: the durable power of attorney and the springing power of attorney.  With a durable power of attorney, the authority you grant to your attorney-in-fact becomes effective as soon as you sign the document, and continues to be effective upon any disability or incompetence you may suffer.  Thus, if those events do occur, you have an individual in place to manage your financial affairs.  By contrast, a springing power of attorney is so called because it “springs” into action if you become incapacitated.  


A power of attorney is particularly important, as it may allow you to avoid the costly and complicated Guardianship procedure which is otherwise required when an individual becomes incapacitated for any reason, including accident, disease or age.  In addition, it can prevent any difficulties involved with the management of your financial affairs while a Guardianship proceeding is pending and before a Guardian has been appointed by the court.


Health Care Proxy.  The health care proxy is used to appoint an individual (or individuals) to make health care decisions for you in the event that you are unable to do so yourself.  In the event of your incapacity or incompetence, as determined by your physician, your health care agent would be authorized to make any decisions regarding your healthcare treatment which you could have made yourself if competent.  For instance, if you wish to have artificial life support terminated in the event that you are unconscious and there is no reasonable hope for your recovery, you may authorize your agent to direct medical personnel to discontinue any treatments which would unnecessarily prolong your life.  


Living Will.  A living will is used to express your wishes regarding your healthcare, and may be used to evidence your intention to have artificial life support terminated. 


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