Estate planning is the umbrella term assigned to the documents that protect your decisions and distribute your assets in the event of death or incapacitation.
Having an estate plan is greatly beneficial to you and your family—a good plan can ensure that your wishes are carried out fully and your interests are protected.
For most people, an estate plan includes an advance health care directive, a will, a durable power of attorney and a living trust.
Advance Health Care Directives
Wills & Trusts
Trusts and wills are frequently discussed as estate planning documents, and with good reason. Though similar, they protect your interests in different situations and different ways.
A will establishes your wishes for your property and assets after death. A will can appoint guardians for minors and distribute assets, but is subject to probate, the process in which the court oversees the payment of debts and distribution of property.
Like a will, a trust is a method of protecting assets and property for distribution to beneficiaries after the death of the settlor (the person who made the trust).
A trust also enables you to avoid probate, and plan for the administration and management of assets in the event of incapacitation. Both trusts and wills protect your decisions when you can no longer enforce them.
An advance health care directive is a document that outlines your specific wishes for health care in the event that you cannot express them yourself, and defines who is permitted to make decisions on your behalf.
An advance health care directive can define your health care preferences, any specific treatments that you do or do not want, desire for diagnostic testing or surgical procedures, resuscitation, and organ donation.
An advance healthcare directive protects the decisions that you have made prior to incapacitation, and defines who is permitted to make decisions about your treatment and care beyond what is specified.
Appointing guardians for any minor children in the event of both parents’ death is one of the most important aspects of estate planning.
By naming a guardian and alternate guardians in their will, parents have influence over who will care for their children in their absence, and by extension, influence over how their children will be raised.
A variety of elements factor into this decision: is the guardian physically and financially fit to care for a child? Do they share the personal or religious values of the parents? Can they provide an environment in which your children will thrive?
Although appointing guardians is a difficult task, it is an essential one. If no guardian is appointed in the will, then the court will act in the best interest of the child and assign one—the guardian chosen by the court may not have been the guardian the parents would have chosen. Because of this, it is especially important for the parents to include guardianship provisions in their will.
Durable power of attorney is a method of planning for incapacity. You name a person (such as a spouse or child) as your agent and authorize them to make decisions on your behalf regarding finances and property.
The agent is subject to any restrictions to their power that you choose to make.
Appointing an agent for durable power of attorney is especially important for people who expect they may become incapacitated and unable to make financial decisions.
Trust & Probate Administration
Trust administration is the process of assessing the trust and its assets, paying outstanding debts of the settler, and distributing the remaining assets to the beneficiaries. While simple in theory, the practice is more complicated, and often takes time.
The trustee is responsible for notifying the beneficiaries of the trust and heirs of the decedent, notifying a number of other entities (including Social Security, the decedent’s insurance policies, utilities, etc.), filing tax returns for the decedent and the trust, and managing the assets of the trust, among other duties.
Furthermore, the trustee can become personally liable for any damages to the trust and real or perceived misconduct.
Because trust administration can be such a complicated process, it is generally advised that trustees retain the services of an attorney, as well as any other professionals (CPAs, financial advisors, etc.) required for the proper management of the trust.