When it comes to estate planning, you might put it off because you think you’re too young or because you don’t have expensive property. Maybe you just haven’t gotten around to it. The problem is that without a proper estate plan, a court may decide what to do with your assets and who should be the guardian of your child.
If you should die without an estate plan in place, your loved ones may not know what your intentions were or various heirs could fight about your estate. Your state has laws that determine who inherits your property, and the laws may not be how you want your estate divided. You also won’t have healthcare directives without an estate plan, which is important if serious healthcare decisions need to be made.
Likewise, if you want to disinherit someone, choose guardians for your children or leave some personal items to a special friend, having an estate plan is essential. A comprehensive estate plan should include most if not all of the items below.
1. A Last Will and Testament
Even if you don’t have a lot of money in your estate, having a will is necessary. In a will, you can name the executor of your estate—the person who is going to administer the estate after your death. You can pick someone of your choice, which a court would do if there’s no will.
You should choose someone you trust to administer the estate in a manner consistent with your intentions. It could be your attorney, a spouse or an adult child. An executor takes care of paying funeral expenses, paying taxes, and selling property if needed to pay creditors.
With a will, you also can choose guardians and successor guardians for your children. You can choose beneficiaries—people who will inherit your property, and you can disinherit heirs. Having a will is part of a good estate plan, whether you own millions or whether you have only a handful of property.
Make sure you never put your estate documents in a safe deposit box. Some states seal a safe deposit box until after the will goes to probate. It is best to have your will at your attorney’s office or at home where your loved ones can find it.
2. A Living Trust
A living trust is often used in addition to a will. A living trust, also called a revocable trust, is another way to dispose of your property. You can use a living trust when you don’t want certain things to go through probate in court. With a living trust, your beneficiaries can get the property more quickly than if they were to receive it in the will. A living trust keeps the property that is in it out of probate court and reduces legal fees.
There are other types of trusts which can save estate taxes but this is something you need to discuss with your attorney. Other types of trusts can be created in the will itself. These trusts often have the purpose of holding property or money for children until they reach a certain age.
When you have a living trust, you put the title of the property into the trust. If the property isn’t titled, you can list the property that is in the trust and attach that list to the trust document. Anything you acquire after the trust is made can be transferred into the trust. You can still use the property during your lifetime. You also can cancel a revocable trust anytime.
The distribution of property from the trust is private, unlike a will, where the public is privy to its contents. The distribution from a trust is much quicker than distribution from a will. A will could be in probate court for months or even a year or more. Property can be distributed from a trust within a matter of months or even weeks. Have your attorney prepare the living trust for you. Be mindful that there’s more work to set up a trust than a will because you have to transfer property into the trust, but it will save your beneficiaries the aggravation of probate later on.
3. A Durable Power of Attorney
A durable power of attorney allows you to appoint someone to act in your behalf if you are incapacitated or out of the country for a while. The POA is revocable at any time unless you are incapacitated. At that time, the person you designated as your power of attorney will make financial and legal decisions for you. Make sure you give the POA to someone you trust.
Alternatively, you can have a springing power of attorney. Under this type of POA, the POA does not take effect until a doctor declares that you are incompetent. An attorney can prepare either document for you.
4. A Medical or Healthcare Power of Attorney
A healthcare power of attorney is a limited POA for medical purposes. This POA allows the person you designate to make important medical decisions for you in the event you are incapacitated. You should pick someone you trust to make decisions about your health.
Because of HIPAA, you should include a HIPAA provision in your medical POA so the medical provider or doctors can disclose your medical information.
5. A Living Will
A living will is an important document that should be given to your doctor and to nearby hospitals. It tells medical personnel whether to use life-sustaining equipment or treatment in the event you are incapacitated. Without it, there could be family battles about whether to keep you alive.
A well-known case involving the lack of a living will involved Terri Schiavo, a Florida woman who did not have a living will. Despite her being in a vegetative state, her parents believed she should be kept alive by artificial means and her husband argued to have her feeding tube removed. Her husband and parents litigated this for fifteen years. A living will would have prevented this.
You also can include a DNR (Do Not Resuscitate) order in the event you stop breathing or if your heart stops beating. Whether to include a DNR order is up to you.
6. Other documents
If you own a business, you and your attorney should discuss what you want to happen to your business upon your death. The attorney can provide for that in the will or in a separate business succession plan.
Likewise, make sure you have sufficient life insurance to protect your family.
Another document is a letter of intention. It explains to the executor what you want carried out. It could explain what you want to do with some of your personal property but it cannot be contrary to what is in the will. If it’s at odds with the will, the will controls.
Make sure to see an attorney who specializes in wills and trusts to get your estate plan in order. A little preparation now will bring peace of mind. To read more about estate planning, read Enodare’s book entitled Estate Planning Essentials.