There are many misconceptions about estate planning. Some think that it is something reserved for wealthy people, others may think it is just about having a will, and still others may think that it is only relevant for people who have passed away.
Contrary to these many and varied misconceptions, estate planning is for the living, and it doesn’t start and stop with a will. It is a way to structure one’s assets, and it is a process that evolves with you as your life changes.
Estate planning is also varied and nuanced, depending on the specific circumstances and needs of each individual. A married person with children will have very different needs than a single person just starting out on their career, or from a person approaching retirement.
It would be ambitious to provide a comprehensive overview of estate planning in a single article, but we can take a look at some of the constants. For instance:
- Who will make decisions for you if you are not able to?
- How will your assets be managed during your lifetime?
- Who will get your assets after you pass away – and how?
Most estate plans are built around four core components that most people include in estate planning:
Incapacity
Estate planning does involve asking ourselves some hard questions. For example, if we got sick or were in an accident, and we did not have the capacity to make our own decisions, who do we trust to make those decisions for us?
There are two tools typically used in incapacity planning, and they address the realms of healthcare and finances.
Financial Durable Power of Attorney
This is a crucial document that allows you to appoint someone you trust to manage your financial affairs should it ever come to pass that you are unable to do so. This may include paying bills, managing investments, or handling real estate transactions – crucial transactions that should not be put off for long, despite our possible incapacity.
Without a POA, your family members may need to step in and pick up the slack – and even then, only after obtaining court authority to do so. Getting court authority for this type of situation can take time, and will certainly be more costly than a previously prepared POA where you have selected your representative with care, and with whom you may have left specific instructions on what and what not to do.
Advance Health Care Directive
This is also sometimes called a Durable Power of Attorney for Healthcare, and is used for what the name implies. If you ever become incompetent, and require medical or health-related decisions made on your behalf, medical professionals may require someone to make decisions for you. Appointing someone to take on this responsibility can simplify the process and allow the medical professionals to focus on doing their job, rather than getting caught up in the dilemma of what they legally are able to do.
This is a crucial document especially for those who are very particular about their medical procedures and health care such as end-of-life choices, life support, and organ donation. Choosing someone you trust, and who will carry out your intentions at a time when you are not capable of making those decisions yourself, is also important.
Wills and Trusts
Wills and trusts are perhaps the legal concepts most people associate with estate planning. When people think about what happens after their death, they think about wills, in particular, in which they set out their decisions on how their assets will be distributed. Not everyone is familiar with trusts, which is another way to facilitate this distribution
Last Will and Testament
The will is the traditional and possibly the most familiar document to people that is used in distributing assets after their death. In their will, people can specify their preferences for distribution, and also nominate the person who would act as their executor.
Wills generally go through probate. Probate is a court-supervised process for managing and administering the estate, where the assets are ultimately distributed according to the testator’s will, after all qualified debts and liabilities have been settled.
The Revocable Living Trust
One of the primary benefits of a revocable living trust is the fact that the decedent’s assets can be transferred to heirs outside of probate. During a person’s lifetime, they transfer assets to a trust that administers those assets for the benefit of the person and his beneficiaries. Should the trustor pass away, it is the trust, through the trustee, that facilitates the distribution of the assets to the beneficiaries.
Trust assets are typically not included in probate proceedings because the trust assets belong to the trust, not the decedent. It is a method of probate avoidance that also safeguards and preserves the trust assets for the named beneficiaries of the trust.
Guardianship
Guardianship would be of particular importance to parents of minor children. The accepted and traditional understanding is that if something should happen to one parent, custody and parental control remains with the other parent.
But what happens if both parents, for whatever reason, are suddenly gone? What will happen to their surviving children who are not quite ready to take care of themselves?
One of the things that a good estate plan includes is a plan for the children who may be left behind.
How will the children fare financially?
How will they be able to access funds that will belong to them if they are still minors?
Even if they could access funds, who will be the adult in their lives to guide and care for them?
The choice of who will be the guardian of your minor children, should anything happen to you, is a deeply personal choice and really should be made by parents in advance. Consider the alternatives otherwise.
Defining Estate and Asset Ownership
One of the things that most personal representatives stumble over during probate proceedings is simply this: identifying and consolidating a decedent’s properties. If you are the only person who knows about certain real estate you own, or if you operate a digital asset such as a website that generates income but you are the only one who has access to it, or perhaps bank accounts no one else is aware of, the responsibility of your personal representative is that much harder.
While we are living, it is a good idea to identify your assets, to figure out who will gain access to them and how (e.g., keywords or passwords), to ensure that your beneficiaries and successors will gain the full value of your estate.
Conclusion
Each of these four components work together as a coordinated whole. Estate planning is more than just disparate documents cobbled together as you feel the need to include. The best estate plans work when each component works together with the rest to capture your true intentions.
It is good practice to review your estate plan once every few years to update it – life changes and estate plans must evolve too. Children grow up, build families of their own, some family members pass away in the meantime, you acquire some properties and you lose some properties, or you change your mind about people you trust to manage your affairs and how your end-of-life is to be handled.
A good estate plan is not just for the wealthy, and it is certainly not simply about writing a one-and-done will. It is a plan for your children, for yourself if you become incapacitated, and a plan for all the assets you have accumulated during your lifetime.
Estate planning is not a checklist—it is an ongoing system of decision-making. And because estate planning is highly personal, working with a qualified attorney can help ensure these pieces come together in a way that reflects your goals.