Estate Planning: Essential Tools
There are several estate planning tools available today. You should choose the combination of documents that best meets your needs.
Wills
One of the earliest forms of estate planning tools, a will is your opportunity to decide who will inherit your house, car, bank accounts, investments, sports memorabilia and other items. In most states, a will is the legal document whereby you nominate the backup parents for orphaned minor children. A will can be short and simple or more complex.
In your will, you should designate someone to serve as your executor. This person will gather your assets, pay your last debts, file the tax returns for you and your estate, work with the probate court and distribute your assets, according to the instructions in your will. The executor does not have to perform all the work personally. He can hire professionals, like an attorney, accountant and appraiser to do some of the tasks.
Trusts
Many people choose a revocable living trust instead of a will. Such trusts, when “funded,” are not subject to probate. Unlike a will, which is filed with the court, a trust protects your privacy. Your trust will not be a public record. It can take less time to administer an estate that has a trust document, if you put all your accounts and property into the trust. You will need to retitle your house, car, bank and brokerage accounts, and other assets into the name of the trust.
Irrevocable Trusts, known as “testamentary trusts,” when created under a will, can continue to protect the eventual inheritance from and for your heirs for many years. You can make arrangements for college educations, set up protections in case a loved one does not manage money well and address special needs and disabilities. Some trusts reduce taxes, while other types of trusts manage charitable giving.
Powers of Attorney
A well-rounded estate plan can protect you, if you become incapacitated because of an illness or injury. You can create a durable power of attorney document that selects someone to handle your financial affairs, run your business, or perform other stated functions, if you cannot do so for yourself.
If you do not have such a document and something catastrophic sidelines you, your family will have to go to court to get a guardian and conservator appointed for you. This process can cost thousands of dollars and take months. During that time, your bills go unpaid and your investments are unmanaged.
A medical power of attorney can designate someone to make medical decisions for you, if incapacitated. You should accompany a medical power of attorney with a medical records release. Without a medical records release, the Health Insurance Portability and Accountability Act (HIPAA) will prohibit your healthcare providers from talking with or showing your medical chart to the person who needs to make decisions for you.
Advance Directives
If you have strong convictions about particular types of medical care, you can prepare an advance directive. This document tells the medical personnel, for example, that you do not want to be on life support. The forms for advance directives tend to list specific kinds of life support, like food, water and ventilators. If you prefer to have someone you trust make those decisions based on the circumstances at the time, you can provide for this in your medical power of attorney.
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