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22 November, 2021

Estate Planning 101

Estate Planning is all about setting up a plan that establishes who will eventually receive your assets once you pass on or are incapacitated.  It lays out in detail the way you want your affairs to be taken care of in case you are not able to handle them on your own for any reason.

The typical definition of Estate Planning is “the process of making plans for the management and transfer of your estate after your death, using a Will, Trust, insurance policies and/or other devices.”

Who Should Have an Estate Plan?

If you are 18 years of age or older, you should at some point put together an Estate Plan. It doesn’t matter if you are wealthy or if you have minimal assets.  Even if you have not amassed much money over the years, it is advised to have an Estate Plan in place before you reach retirement age. 

In essence, your Estate Plan ensures everyone important to you will know what your wishes are. Examples of this are important roles at your passing such as your Durable Power of Attorney and your Health Care Proxy. If you become incapacitated and could not make your wishes known, your Estate Plan will be your voice for how your personal matters should be handled. This way, your loved ones are not put in awkward positions as to who should be responsible for carrying out various vital functions in the event of your death or incapacitation. 

Conducting a Review of Your Estate Assets

While there are many facets to Estate Planning, one of the first tasks you should accomplish is conducting a comprehensive review of your estate assets.  Your estate is comprised of all the property you own including the following: 

  • Clothes
  • Cash
  • Cars
  • Jewelry
  • Houses/Land
  • Savings
  • Investments
  • Retirement Accounts
  • Land
  • Furniture
  • Art

Documents Included in an Estate Plan

The following is a list of documents that could affect your Estate Plan: 

  1. Financial Power of Attorney
  2. Will/Revocable Trust
  3. Beneficiary Designation forms, such as an IRA, life insurance, 401(k)
  4. Health Care Proxy and Living Will
  5. Real Estate Title documents
  6. Trusts created and funded during your life, such as an Irrevocable Life Insurance Trust

Purposes of Estate Planning Documents

Health Care Proxy:  The Health Care Proxy appoints an agent to make healthcare decisions for you if you are not able to do so.  If you are not incapacitated, you will be legally responsible for your own health-related decisions. 

Durable Power of Attorney:  The Durable Power of Attorney is responsible for appointing an agent to act on your behalf during your lifetime.  It permits the agent to act on a broad range of matters encompassing finances and real estate.  You sign this legal document and it takes effect right away and remains in effect if you become incapacitated. A Durable Power of Attorney terminates on death.   

Living Will:  A Living Will provides written instructions that reflect your wishes if you become incapacitated.  An example of this directive is the Living Will would make clear if you would want to refuse medical measures being taken to pro-long your life in the event you had an incurable or irreversible condition leaving you incapacitated.

Will/Revocable Trust:  The assets owned by you when you die not passed through beneficiary designation or operation of law will normally pass under the terms of your Will. A Will designates who you would prefer to serve as guardian of any minor children, as well as executor of your estate. 

A Will is typically structured in a way to dispose of your tangible personal property to a particular individual or individuals, while the remainder of your estate passes to a trust, or trusts, for one or more individuals, or outright.

If your Will creates a trust upon your death, the Will would also name a person to serve as trustee of the trust.  A trust created under a Will is referred to as a “testamentary trust.” If your Will includes testamentary trusts, those trusts would not come into existence until your passing.  In certain instances, it may be a good idea to also have a Revocable Trust. A Revocable Trust is a separate document that functions along the lines of a Will. 

Your Will directs your estate to “pour over” into a Revocable Trust at your death and be governed by the terms contained in the Revocable Trust. A Will/Revocable Trust structure does not have any tax advantages, however, it can offer some clear advantages when it comes to asset management during a period of incapacity and with respect to estate and trust administration after death. 

Beneficiary Designations/Joint Property:  A beneficiary designation for “non-probate” property, such as an IRA or a life insurance policy, provides instruction regarding who will receive the property remaining at your passing.  These types of assets are “non-probate” property because they pass separate from your Will, and are not affected by the terms of your Will.  As mentioned earlier, at your death, the property passes automatically to the designated beneficiary.

Also, if you happen to own property, like real estate or brokerage accounts jointly with another person, the remaining assets will pass automatically to the joint owner at your passing.

Essential Decisions to Establish an Estate Plan

Your specific circumstances will determine some of the questions that need to be answered, but the following general questions are likely to pertain to your Estate Planning: 

  • Who should inherit my assets at my death?
  • Who would inherit my assets at the death of the primary beneficiary, or if the primary beneficiary passes before me?
  • If I become ill, who will make health care or financial decisions on my behalf?
  • Who should I name as executor, trustee or guardian, if applicable?
  • Would I like to incorporate charitable giving into my estate planning?
  • Should any of my assets pass to trusts for the benefit of individuals, rather than outright?

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Note: The material and contents provided in this article are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.