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Market Reflections: Basic Estate Planning
By Donna Walton, Wealth Strategist
Basic Estate Planning Documents
Having an estate plan is an important part of your overall financial plan. It is important to make sure the assets you’ve worked so hard to accumulate during your lifetime go to the people or organizations you care about. Proper planning is even more important when special legal considerations exist: blended families, owning a business, having minor children or a special needs family member. Estate planning doesn’t just concern what happens upon your death, it also includes circumstances during your lifetime when you may no longer be able to make financial decisions. While everyone's estate plan should reflect individual needs, desires, and circumstances, there are several essential documents everyone should include when creating an estate plan.
Will
The most common estate planning document is a will. A will is a formal legal document that you should prepare with a reputable estate attorney. A will directs the probate or surrogate court to act in accordance with your directions under the will instrument: (1) who will manage your individual assets after you die and (2) how those assets must be distributed, to whom, and under what circumstances. If you die without a will, your estate will be distributed according to the laws of intestacy of the state in which you resided. The individuals who receive your assets under the intestacy laws may not be the same individuals you would have chosen if you had prepared a will.
A will may also include testamentary trusts for one or more individuals or charities. It may also name the person or persons who will care for minor or dependent children.
Some of the individuals or professionals named in a will are:
- Executor - (Personal Representative) the person or professional fiduciary designated in a will to execute your instructions regarding the distribution of your assets. Collects debts owed to the estate, pays debts owed by estate, and distributes proceeds of the estate.
- Guardians - Person to be responsible for caring for any minor or dependent children.
- Trustee - The person named to manage any testamentary trusts created under your will on behalf of the individual beneficiaries or charities.
Power of Attorney
A power of attorney instrument allows you to appoint one or more individuals (agents) to act on your behalf if you are unavailable or can no longer make financial decisions—whether temporarily or permanently. Powers of attorney are material legal documents that must be drafted by an estate attorney while you—the "principal"—are still of full capacity. Powers of attorney instruments can be drafted to grant broad or narrow power, but they must conform to State law requirements.
Generally, you can grant an agent the authority to pay your bills, manage your financial assets, manage your retirement assets, engage in real estate transactions, and make financial decisions on your behalf, including filing your taxes. You should select your agents very carefully as durable powers of attorney survive your incapacity.
Power of attorney instruments can be either "general durable" or “springing”. A general durable power of attorney takes effect as soon as it is executed and acknowledged and survives your incapacity. A springing power of attorney generally becomes effective only after an explicit physical or mental incapacity standard is met that is drafted into the power of attorney instrument.
You should also name one or more successor agents in case your original agents are no longer able to serve. The authority given in a power of attorney ends at your death.
Health Care Power of Attorney
A Health Care Power of Attorney is also known as a Health Care Proxy and allows you to appoint someone to make medical decisions on your behalf if you become incapacitated. The scope of that authority can be large or small, depending on how the document is drafted. You need to name an alternate agent in case the person you named is not available or can no longer act on your behalf.
Living Will
A living will inform your physician about the kind of life support treatment you would want in case of a terminal illness or injury. It allows you to clarify what types of life-prolonging medical treatment you do or do not want in the event you are unable to communicate your wishes. It is very limited. It only applies to life support in terminal situations. Livings wills are not recognized in all states. You should consult with your attorney to determine whether a living will is valid in your state of residence.
Letters of Intent /Instruction
A letter of intent can be a beneficial estate planning document. It is an informal document that will give your family important information about personal and financial matters after your death. It can also relay any thoughts and wishes that you want your loved ones to know. Work with your attorney to ensure that your letter of intent does not contradict any directions in your will.
Letters of intent are not legally binding and do not replace your need for a will but can act as a complement to those documents. The informal nature allows you to create the letter on your own and change it whenever necessary. It is important to keep the letter up to date, as life circumstances change over time. Items to consider are:
- Funeral and Burial Arrangements
- Location of legal documents and other important documents
- Information regarding financial accounts, account numbers and which institutions, life insurance and safe deposit box location
- The names and contact information of tax, legal and financial professionals as well as family and friends who should be notified
- Directions regarding pets and their care
- Personal Items – preferred distribution of sentimental item or heirloom
Other Estate Planning options to consider:
Revocable Trusts
Revocable trusts, also known as living trusts, are an increasingly popular estate planning tool. They are created during the grantor’s lifetime and can generally be changed or revoked at any time while the grantor is still living. When the grantor dies, however, the trust becomes irrevocable. The grantor often serves as trustee during his or her lifetime. They can be used to help avoid probate and in disability planning.
Transfer on Death Addendum
A Transfer on Death Addendum (TOD) is an endorsement that can be added to existing individual and/or Tenants in Common with Rights of Survivorship bank and investment accounts. A TOD allows you to name one or more legal beneficiaries who will receive your assets after your death outside of probate. Most financial services firms can provide you with a standard form of TOD, but you should consult with your estate plan attorney before you complete a TOD or alternatively, your estate attorney can draft a TOD for you.
Conclusion
Everyone needs an estate plan. Your plan should be as unique as you are. Having a comprehensive estate plan in place can help you feel more confident about the future and that your loved ones will be taken care of. You should review your estate plan regularly with your trust and estate attorney and update it as life circumstances change. This article is for informational purposes only and is not intended as legal or estate planning advice for any individual client or client situation.
TD Wealth does not provide legal, tax or accounting advice to its clients.
