Estate Planning Essentials
Many people mistakenly believe that estate planning is one of those things “other people” need to do. They may believe that only “rich” people need an estate plan. Sound familiar? In reality, every adult needs an estate plan.
When a person dies without a valid last will or living trust, that person is said to have died intestate. As a result, any of the decedent’s assets subject to probate will be distributed according to state “intestate succession” law. For example, even though the decedent would have intended otherwise, an antique pocket watch inherited from a cherished grandfather or a valuable guitar collection may be ordered sold, so the cash proceeds may be distributed equally to the statutory heirs.
Think for a moment about the assets you treasure the most. Now consider how you would want them distributed after you pass. Unless you memorialize your wishes for those treasured assets in a last will or living trust, those assets will not be distributed according to your specific wishes.
Estate Plans Are for the Living
What people seldom realize is that an estate plan is for the benefit of the individual making the plan while he or she is alive, as well as to provide for and protect their loved ones after they are gone. Here are some common documents that should be part of every estate plan:
General Durable Power of Attorney
Through this document you designate someone to act on your financial behalf, if you cannot or no longer want to act for yourself. Imagine for a moment that you decide to travel around the United States in an RV, or are hospitalized for an extended period of time. You will not always have access to a telephone or the internet. You could ask someone to deposit your checks, pay your bills and file your tax returns while you are away. However, unless you appoint them as your Agent under a General Durable Power of Attorney, they will not have the legal authority to take care of things for you.
This document is an estate planning essential if you were severely injured or ill and could not make or communicate your wishes. Without a General Durable Power of Attorney that legally appoints someone as your Agent, your family will have to go to court to have a court-supervised guardian appointed. The expense of doing so and potential conflicts about who should serve as your Agent can damage relationships among your loved ones.
Power of Attorney for Healthcare and Directive to Physicians
As with a General Durable Power of Attorney for financial decisions, you can appoint someone you know and trust through a Power of Attorney for Healthcare, to make your medical decisions, if you cannot. Your health care Agent will have no decision-making authority unless your doctor determines that you can’t act for yourself.
To guide your Agent in their medical decision-making, it is an estate planning essential to complete a Directive to Physicians (also known as a Living Will). Through this document you may indicate medical treatments you would or would not want under a variety of scenarios. You should also consider signing a HIPAA medical records release so your doctors can talk to your Agent, and the hospital can share your records. You do not want your Agent making any decisions without full access to your doctors and your essential medical information.
A Will or a Living Trust?
One of the most significant estate planning essentials is to decide whether you will have a last will, a living trust, or both. Each document has advantages and disadvantages.
A last will may initialy cost less to create, but your estate will encure more expenses as the will is probated . Last wills can only control assets that are subject to probate (i.e., have no surviving joint owner or designated beneficiary). The probate court process required to administer a last will can tie up your estate longer than a living trust. In addition, a last will must be filed with the probate court and becomes a matter of public record.
A living trust is a tool that can be used to manage assets during your lifetime and will immediately transfer to a new Trustee and/or new beneficiaries upon your death. A living trust can protect assets for and from beneficiaries experiencing addiction or mental health conditions as well divorce, lawsuits, and other risks.
In summary, whether you choose a last will or a living trust, both roads eventually lead to Rome. The former is easier to create, costs less now and more later when administered. The latter is more involved to create, costs more now and less later when administered.
Life Insurance as Part of Your Estate Plan
You can designate people or a trust as your beneficiary or beneficiaries. Life insurance payouts can create an “instant estate” for your loved ones, if you died before having time to create that estate for them. If you have created a sizeable estate, then life insurance can provide needed liquidity to pay death taxes and even equalize the overall inheritance among your loved ones. For example, if you leave your business to your daughter who has helped you build the business, then life insurance proceeds can help provide a “fair” inheritance to your son who has his own employment.
Pulling all of the elements together, the general durable power of attorney, advance health care directives, last will, living trust and life insurance are all “estate planning essentials” that can spare your family legal and financial hardship, when they are grieving after losing you. Your loved ones will know you were thinking of them and their future. Make sure you are “good to go,” by creating an estate plan appropriate for your unique personal, family and financial circumstances. Then, once your estate plan is created, be sure to review it from time to time when “life happens” and changes need to be made.
Share Your Estate Plan with Your Loved Ones
It can be difficult to talk about estate planning essentials with those closest to us. A helpful resource is The Conversation Project which is a non-profit organization that provides Conversation Starter Workbooks to help you clarify your wishes and communicate them to others. If you are in the Dallas-Fort Worth Metroplex, you may want to also check out Conversation Ready NTX for more local resources.
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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, McNair Dallas Law can help you protect everything you love — family, friends and favorite charities. For more information be sure to visit our web site where you will have access to our blog, events schedule and a complimentary newsletter subscription!
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