As we begin the last year of the decade, I thought it might be a good time to review just why estate planning is so important.
Estate planning is something most Americans avoid and often never get around to. The excuses range from “estate planning is too confusing” to “I don’t have anything to leave behind” to “I will get around to it next year.” Having an estate plan, however, offers one’s family members peace of mind during a difficult period.
The four main documents in an estate plan are: Will, Trust, Durable Power of Attorney for Finances, and Advance Directive for Health Care.
A Will is a legal instrument permitting a person to make decisions on how their estate will be distributed after death. With no Will, the person dies intestate and State laws dictate distribution of the estate. Wills do not avoid probate; however, they will ensure your assets are distributed to the people and in the manner you desire.
One of the simplest ways to avoid probate is through a Trust. In a conventional Trust, the three main “players” (Settlor, Beneficiary, and Trustee) are initially the same person. The Settlor never changes and is the only person who can change the Trust document. If the Settlor becomes unable to handle their own financial affairs the successor Trustee (chosen by the Settlor) takes over management of the Trust for the benefit of the Settlor, with the remainder beneficiaries receiving an interest in the Trust only after the Settlor’s death (the same way that a person’s estate passes to their beneficiaries under a Will).
The Durable Power of Attorney for Finances (DPA) names the person responsible for managing your personal finances in the event you are unable to manage them yourself. Even in a Trust-centered plan, the DPA plays an important role, governing the assets held outside the Trust.
An Advance Directive for Health Care combines a power of attorney for health care and a living will into one document. It allows you to name an agent to speak with the doctors and make health care decisions for you if you are unable to make them on your own.
Estate plans are designed to grow and develop with us and should be reviewed periodically. I recommend reviewing plans annually – changes may not be needed each year but reviewing the plan will help keep it fresh in your mind, as well as help ensure any necessary changes are caught and addressed quickly.
When properly drafted, an estate plan is a powerful tool not only in the event of a person’s death, but also during one’s life. Engaging the services of a professional who specializes in this area of law to assist you in drawing up your estate plan will help ensure your plan works effectively under any circumstances.