If you’ve been following this blog, you’ve learned by now that you have an “estate” (no matter how small or large) and that you need a “plan.” But you’re probably wondering, what exactly goes into an estate plan?
To be clear, there are a lot of cheap “do-it-yourself” estate planning services online. But a robust estate plan isn’t just a bunch of forms you download off the internet that identify “who gets what” after you die. Rather a carefully drafted estate plan also conveys your wishes and values, effectively minimizes taxes, court costs, and professional administration fees, and includes advance directives so that your family members or loved ones can make vital decisions regarding health, personal finances, and medical care in the event you become incapacitated before your death.
Below are a few foundational documents that should be part of every estate plan.
- Last will and testament – Most people are familiar with a will. Your will accomplishes three primary objectives: It (a) names individuals (or charitable organizations) who will receive your assets after your death, either by outright gift or in a trust; (b) nominates an executor who will be appointed and supervised by the probate court to manage your estate; pay your debts, expenses and taxes; and distribute your estate according to the instructions in your will; (c) may include nominations of guardians for your minor children.
- Durable Power of Attorney – A power of attorney is a document that authorizes an individual (usually a trusted relative or friend) to act as your agent or attorney-in-fact to make certain decisions on your behalf in the event you become incapacitated. Without a properly drafted power of attorney, your family will need to go to court and ask the court to give them the authority to handle your affairs. This process, known as a guardianship or conservatorship proceeding, is needlessly expensive and time consuming, and more often than not, the court’s decision may not be what you wanted.
- Health Care Power of Attorney – Much like a durable power of attorney for financial decisions, your health care power of attorney authorizes an individual you trust to make health care decisions for you in the event you become incapacitated and unable to make decisions yourself. And since unexpected injuries or illness can occur at any age, a health care power of attorney isn’t just something for the elderly–all adults should have one in place.
- Living Will – A living will is an important legal document that expresses your wishes and instructions with respect to medical treatments you would and would not want to be used to keep you alive, as well as other decisions such as pain management or organ donation. The failure to have a living will in place may unfortunately result in an emotional dispute between loved ones regarding your treatment, or even worse, a prolonged and divisive court battle.
- Revocable Living Trust – A trust functions similar to a will, but in most cases, is far more effective. With a revocable living trust, your assets are put into the trust, administered for your benefit during your lifetime and transferred to your beneficiaries when you die — all without the need for court involvement. Thus a well-drafted and fully-funded trust avoids the need for an unnecessary probate proceeding and allows for efficient and private estate administration after your passing. In addition, a trust is a highly effective tool for incapacity planning (more on the advantages and disadvantages of a trust in a future post).
Of course, you should always consult with a qualified estate planning attorney to make sure you have the proper estate planning documents for your specific situation and needs.