Regardless of how wealthy you are it is important to think about how you want your affairs handled in the event you become incapacitated and how you want your estate distributed upon your death. Failure to put in place some sort of plan will strip you of the ability to direct how your property is handled in the event you are unable to handle it yourself and how that property will ultimately be distributed after your death. Without a proper plan, this control and decision making authority is now vested in the state.
While some sort of estate plan should be considered, there is no one size fits all solution. The specific circumstances of each individual or family will determine what plan needs to be put into place.
At a minimum, what type of plan should I have in place?
At a minimum, each person should have a Will, a Durable Power of Attorney, a Health Care Power of Attorney, and a Living Will.
A Will is a document that can be described as a set of instructions given by you which tell your loved ones, or some other person you choose, what you want to happen to your real and personal property upon your death. A Will does not take effect until you pass away and, with the proper procedures, can be amended or revoked by you whenever you want. However, with regard to amending or revoking your Will, you should seek advice on what actions will and will not work to validly revoke or amend your Will. Finally, a Will must be probated after your death in order to carry out the instructions you leave. In the absence of a Will or some other planning document, state law will determine how your estate will be distributed.
A Durable Power of Attorney is a document that gives another person the power to act financially on your behalf in the event you are unable to do so yourself. The person who acts on your behalf is called your Attorney in Fact and should be a person who you trust immensely as this person will have the power to affect your finances by presenting the document to a third party. While this may seem risky, you must remember that your Attorney in Fact is acting in a fiduciary capacity and therefore, must act for your benefit under the terms of the Power of Attorney document. Failure to act in your best interest can subject your Attorney in Fact to legal liability for any losses which you may incur as a result of their improper actions.
A Healthcare Power of Attorney can be a separate document or can be included in your Durable Power of Attorney. This document appoints a person and authorizes that person to make medical/healthcare decisions for you if you are unable to make your own decisions. This document should also contain a HIPPA (Health Insurance Portability and Accountability Act of 1996) authorization, which allows your Healthcare Power of Attorney to request your medical records should the need arise.
Finally, a Living Will is a document that describes your wishes as to the use of artificial life support in the event you become terminally ill or permanently unconscious. You may also include information as to your desire to donate organs and tissues after your death. With this document, you take control of how long you are artificially supported and take this difficult decision out of the hands of your family.
I have heard some people talk about trusts. What is a trust and do I need one?
A trust is a legal entity that is created by a Trust Settlor. The Settlor transfers property to be held by the trust and managed by a Trustee for the benefit of specified Beneficiaries. In order for the trust to be effective, the trust must hold legal title to the property which is placed in the trust. This is called funding the trust.
Trusts come in two basic forms; testamentary and inter vivos. A testamentary trust is created after your death by a will. An inter vivos trust is a trust that is set up during your lifetime, more commonly called a “living trust.” Inter vivos or living trusts are further categorized as either irrevocable or revocable. An irrevocable trust, in its simplest form, is created when the Settlor has executed the trust document and transferred legal title of property to the trust while reserving no ability to amend or revoke the trust. A revocable trust is created when the Settlor has executed the trust document, funds the trust by transferring legal title of property to the trust, and has reserved the right to amend or revoke the trust anytime he or she wants.
Whether or not a trust is the best fit for a person depends on each person’s specific circumstances and desires. Each person will have different estate planning needs and goals but some common goals are:
Estate and gift tax avoidance
Special needs planning
The increasing need to plan for the exorbitant costs of long term care such as nursing home living
These are all extremely important things to consider in determining whether or not a trust is the right fit for your estate planning needs and the discussion should be in the company of an experienced attorney.