WHAT IS AN ESTATE PLAN?

An estate plan is a collection of legal documents that help manage a person’s assets and medical decisions in case of incapacity or death. Depending on your wealth level and family situation, your estate plan can be very simple or more complex.

Sophisticated estate planning solutions can significantly save gift, estate, and generation-skipping transfer taxes for high-net-worth individuals and families. But estate planning is certainly not just for the very wealthy. Middle-class families can benefit from effective estate planning to facilitate the transfer of their assets during their lifetime and at death.

Several critical legal documents are a crucial part of any estate plan; these include a last will, incapacity documents, and, in most cases, a revocable living trust. Whether you are considering an estate plan for yourself or a loved one or want to ensure your current estate plan meets your needs, learning more about these essential legal documents should prove valuable.

In this article, Let’s create an estate planning checklist, the role of these joint estate planning documents, and why you want to make them part of your estate plan.

WHAT IS THE GOAL OF YOUR ESTATE PLAN?

The specific purpose of your estate plan might vary depending on the particulars of your situation and your stage in life. Your main goal might be to ensure your spouse and children are cared for after you are gone.

Amongst the most common benefits of effective estate planning are minimizing or eliminating gift and estate taxes, reducing future medical, court, and legal costs, deciding who will continue to raise your minor children if you are not able to do so, and deciding who will make medical and financial decisions on your behalf.

Additionally, estate planning can protect you and your family’s privacy, help your family members when facing difficult end-of-life decisions, and decide who receives your property and when.

In general, your estate plan should determine what will happen to your assets after you pass away and simplify the transfer process when the time comes. In addition, a well-drafted estate plan should also anticipate what should happen if you are ever incapacitated.

Your incapacity documents should name an agent who can make financial and medical decisions on your behalf in case you are ever incapacitated. That means your agent will have the authority to decide on your behalf without petitioning a court to confirm your incapacity and name an agent of their choosing.

Well-drafted incapacity documents should also include your wishes and instructions to provide your agent with much-needed guidance when faced with significantly challenging choices.

Revocable Living Trust

• Establishes a plan for the administration and distribution of assets after death.
• Names a person who will manage the trust assets in case of death or incapacity.
• Property must be transferred into the trust to take effect.
• Can provide asset protection to beneficiaries if inheritance is left in trust.

Last Will

• Names the beneficiaries who will receive any assets remaining after death.
• Determine an executor who will be responsible for the handling of the estate.
• Original document needs to be presented to the probate court.
• Probate court will oversee the handling of the estate and hear any potential claims.

Financial Power of Attorney

• Select a person who will handle financial transactions in case of incapacity.
• The principal can decide how much authority to grant the agent.
• Commonly used to pay bills on behalf of the principal, access bank accounts, and gift assets.
• Bypass the need to request the court to grant this authorization.

Medical Power of Attorney

• Select a person who will handle medical decisions in case of incapacity.
• Incapacity is often defined as the opinion of two physicians or a court order stating incapacity.
• Can work together with a living will that outlines a person’s wishes in case of incapacity.

Guardianship Designation

• If you have minor children, this document establishes who should care for them in case you are incapacitated or pass away.
• Guardianship Designation can be written into a last will or be a standalone document.

Beneficiary Designations

• Financial accounts, insurance policies, and pensions can often be transferred at death via beneficiary designations filed directly with the financial institutions.
• Accounts with valid beneficiary designations pass outside of probate.

HIPAA Release

• Allows your physician and other medical professionals to share your confidential medical information with your family, medical professionals, or others.

Living Will

• An advance care directive that contains instructions if you are critically ill.
• Some individuals may not want to be put on life support or have resuscitation measures taken if necessary.

Insurance and Financial Documents

• Create a list of financial accounts, insurance policy documents, credit cards, mortgages, and other loans.
• Allows family members or others to pay loans and avoid foreclosure, lapses in insurance coverage, etc.

Last Wishes and Funeral/Burial Directive

• Wishes for the funeral can be set out in a directive to guide people.
• Many people make decisions about whether they wish to be buried or cremated.

DOCUMENTS YOU WILL NEED

At the very least, your estate plan should include a last will and incapacity documents. A last will determines what will happen to your belongings after you pass away. When a person dies, the original will must be sent to the local probate court with a death certificate. This puts the court on notice that the person has passed away and that a legal case will likely begin soon.

The administration of the last will happens under the supervision of a probate judge in a process known as probate. The probate process is meant to protect the creditors and beneficiaries of the estate by ensuring everything happens under the watchful eyes of the court. Still, the result is a lengthy and costly process where experienced attorneys are almost always needed to help navigate the process. Since probate is a long and often expensive process, it is best avoided.

On the other hand, if you do not have a last will, the court will still need to probate your estate, a process known as intestate probate. The government decides who gets the property when an estate goes through an intestate probate proceeding.

The default laws of the state you live in at the time of your passing will govern the distribution of your estate. Unsurprisingly, these default state laws often do not reflect peoples’ wishes. Instead of having the power to name the executor of your estate, during intestate probate, the court will require that a Personal Representative is determined from the surviving family members according to a priority spelled out in your state’s laws.

This process can turn contentious if more than one person wants to take on the responsibility. If probate proceedings seem inevitable, whether you have a valid last will or not, how do you avoid probate? The answer is using a revocable living trust.

WHY YOU SHOULD CONSIDER A TRUST

In most cases, you will want to use a revocable living trust to manage the bulk of your estate instead of relying on a last will. A revocable living trust is a legal contract that can be used to hold title to numerous assets and can be amended or revoked by the trustor during their lifetime.

Trusts can be used to hold real estate, bank accounts, shares of businesses, cryptocurrencies, and other financial instruments. A trust can be settled by an individual or together by a couple, known as a Joint Revocable Trusts.

While a last will is an important document, having a revocable living trust can give you more control over what happens to your assets after passing away. It can also provide the beneficiaries with asset protection if their inheritance remains in trust.

It is common for trusts to state that beneficiaries will receive their inheritance in staggered sums after age of thirty to protect children from potential mishaps during their youth, although there are compelling reasons to keep assets in trust for a child's entire lifetime.

A well-drafted trust also helps prepare your family or other trusted contact persons to manage the trust assets in the event of incapacity. The terms of the trust include naming a successor trustee who will administer the trust after you are incapacitated or pass away.

The successor trustee can be a responsible family member or a professional fiduciary. This means you will know who will be in charge of the trust assets.

More importantly, assets transferred through a trust pass outside of probate and without the involvement of a court. This makes revocable living trusts robust estate planning solutions that can benefit almost all families.

ESTATE PLANNING AND ASSET PROTECTION

During the grantor's lifetime, a revocable living trust can be amended almost at any point and for any reason, as it is considered a mere extension of the person who created the trust. Because of this, revocable living trusts do not provide any asset protection until they become irrevocable. When the grantor passes away, a revocable living trust automatically becomes irrevocable.

A revocable living trust can also become irrevocable if the trustor decides to amend the trust to make it so. At that point, it becomes a more rigid structure that is considered an independent legal entity, and it is harder to amend the terms of the trust.

When assets are kept in an irrevocable trust, the beneficiaries can enjoy asset protection on their trust assets. If an independent third party manages the trust, the beneficiaries have no direct control of the trust assets and thus cannot be forced to distribute assets out of the trust in case of a lawsuit. Your estate plan can gain additional benefits for your future heirs through revocable and irrevocable trusts.

MAKING A LIST OF YOUR ASSETS AND LIABILITIES

In addition to your signed estate planning documents, having a list of your assets can let your beneficiaries know the extent and details of your estate after you pass away. Property titles and deeds can make it easier for your trustee or executor to administer your estate.

Bank and financial statements can help beneficiaries locate where funds are held and determine if any accounts were held individually, in trust, or if accounts had transfer-on-death instructions. Financial institutions are often reluctant to share any information with third parties until they have received a death certificate, which can take time.

If you created a revocable living trust, the property documents allow the trustee to verify the assets transferred to the trust. The mortgage and other loan documents can help clarify what payments should be paid on your behalf or behalf of your estate and avoid having to deal with impending foreclosure proceedings, repossessed assets, or unpaid property tax bills. If the estate needs to go through probate, statements can help identify potential creditors.

You should store these documents safely accessible to your loved ones. If you plan on using a safe deposit box, ensure someone else knows of it and can access it without you being present. Similarly, if you are using a safe in your home, ensure someone knows where it is and how to open it.

In short, while not technically part of your estate plan, these documents can undoubtedly make a significant difference to your beneficiaries, but only if they can access and locate them when the time comes.

WHY SHOULD YOU GET AN ATTORNEY?

While there are numerous resources you can rely on to draft your estate plan, there is no substitute for working with an experienced estate planning law firm. The estate planning process requires knowledge of your assets, retirement plans, family situation, personal goals, etc.

Too often, estate planning professionals face common mistakes people make when drafting their documents. People often fail to remember that estate planning documents need to be easily understood by the surviving family members and should also be unambiguous to the judges and attorneys who might be responsible for interpreting them in the future.

An experienced estate planning attorney can work with you to develop a strategy and identify potential gaps in your estate plan. As your situation changes over the years, having an attorney you can consult can help you make informed decisions regarding whether your estate plan needs any changes or updates.

Finally, an estate planning attorney can keep you updated if any legal changes in the relevant legislation might alter your plans.