Do I Need an Estate Plan?

An estate plan manages your estate while you are alive and distributes it according to your wishes after your death.  Should you become disabled, an estate plan also directs others to manage your estate for you. Your estate plan should protect you, your family and your property from unnecessary and expensive court intervention, and it should eliminate or minimize costs and taxes.

Here are the three most important documents any person should have.  Think of them as a basic legal survival kit.

  1. Durable Power of Attorney
  2. Advance Directive for Health Care
  3. Will

What is a Durable Power of Attorney?

A durable power of attorney names an agent to act on your behalf with regard to your financial matters if you are absent or mentally incapacitated. You may grant limited authority or very broad general authority to make contracts, sign your checks, negotiate loans, real estate transactions and more.  A well drafted power of attorney can save you and your family lots of trouble and expense when important transactions or financial decisions need to be made for you.  This is the single most important document you should have in your basic legal survival kit.

What is an advance directive for health care?

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An advance directive for health care names a health care representative to make end of life decisions for you if you can’t speak for yourself.  It also gives your specific directions to the physician about whether to provide life support or tube feeding if you are not expected to survive.  This document is popularly called a “living will.”

What is a Will?

A will is your written instructions to the probate court judge directing how your property will be distributed of upon your death.  A will must go through probate in order for your assets to be distributed to your beneficiaries according to your wishes.

What is a living trust?

A Living Trust is a private legal contract which allows you to control your property during your life and to determine distribution of your property upon your death. A living trust is used to avoid going through probate.

Which type of estate plan is right for me?

Every person should have at least a financial durable power of attorney and an advance directive for health care.  Depending on the size of your estate and the type of assets you own, either a will or a living trust might work best for you.

Advantages of a Will

  • Even if you have a small estate, you should nominate a guardian for your minor children.  A will is the tool you use to name a guardian.
  • A modest estate may be best distributed through a simple will.  It lets your family members know what to do with your assets.
  • A simple will is generally not expensive to prepare.

Disadvantages of a Will

  • A will does not avoid probate for property that is in your name alone at the time of your death. Remember, a will is really just a letter to the judge and doesn’t take effect until a judge approves it.
  • Unfortunately, your will doesn’t become effective until you die; it offers you no protection during your life.  A will only controls property that is in your name.  A will  has absolutely no effect on jointly held property, life insurance, pension and profit sharing benefits and IRA benefits that pass outside the will.
  • A will does not avoid a conservatorship.  If you become disabled while you are alive and cannot  manage your affairs, your estate can be placed  under the control of a conservatorship, even if you have a will.
  • Complex wills with trust provisions can save death taxes for married couples, but they must be very carefully drafted. Complex wills are more expensive than simple wills. Wills with trust provisions to save death taxes for married couples are ineffective unless they change the titles on their properties and accounts and carefully maintain their separate property until death.

Advantages of a Living Trust

  • If you become disabled and cannot manage your affairs, your Living Trust avoids a conservatorship.  The living trust includes detailed instructions how your property is to be managed for your benefit during disability.  You can name a successor trustee, including your spouse, to manage your property in the event of disability.
  • A Living Trust avoids a death probate.  This means that your family avoids the expense, time delays, publicity and emotional distress of a probate.
  • A Living Trust can be designed to save death taxes.  A married couple, for instance, can distribute through their Living Trust, up to $5,340,000 in 2014 totally death tax free, with proper tax planning.
  • A Living Trust can even be designed to protect your child’s inheritance from divorce, lawsuits, claims of creditors and IRS or other tax problems.  You can even protect the share of your trust estate for your spouse from a subsequent remarriage and lawsuits.

Disadvantages of a Living Trust

  • Although it saves your family lots of time and money in the end, a Living Trust may be more expensive to prepare than a will.
  • After setting up a Living Trust, some forget to put newly acquired assets in the name of the trust, inadvertently leaving that asset out of the trust plan. The trust only works if it is properly funded. It should be reviewed with your attorney every few years.

What happens if I do nothing?

A majority of people do nothing.  According to the American Bar Association, 70 percent of all Americans have no estate plan.  If you do not have a will, the state, by law, determines how your property will be distributed upon your death.  The failure to plan can result in substantial costs, delays and conflicts between surviving family members.

Call us today about how we can help you achieve your estate planning goals for you and your family.