How well are you prepared for the certainties of death and taxes and the potential for incapacity? Preparation requires implementing a plan now, while you are active, to guide the disposition of your assets and to protect yourself and your loved ones. The following is a brief summary of the key documents everyone should have as part of their estate planning.
A WILL provides instructions for distributing assets to your family and others upon your death. A will allows you to designate your choice of a personal representative who will be responsible for distributing your assets. If you have minor children or grandchildren under your care, you should designate a guardian for them in your will.
To be effective, a will must be filed for probate. Probate is the judicial process for managing assets during incapacity and for overseeing payment of debts and the distribution of assets after death.
A DURABLE POWER OF ATTORNEY is a legal document granting another person authority to act on your behalf. Called your agent or your attorney-in-fact, you can give your appointed agent broad powers extending over nearly all of your affairs or limited management powers for a specific matter or subject. You should choose this person carefully because he or she will generally be able to sell, invest and spend your assets.
A traditional power of attorney terminates upon your disability or death. However, a durable power of attorney will continue during incapacity to provide a financial management safety net. All powers of attorney terminate upon your death.
HEALTHCARE POWER OF ATTORNEY is a durable power of attorney for healthcare or healthcare proxy authorizes someone to make medical decisions for you if you are unable to do so. If you become unable to make healthcare decisions, this document and a living will can be invaluable for avoiding family conflicts and possible court intervention. In your healthcare power of attorney or in a separate document, you should authorize release of protected health information as required by the Health Insurance Portability and Accountability Act (HIPAA) so your agent has access to medical information necessary to make informed decisions.
A LIVING WILL expresses your intentions regarding the use of life-sustaining measures in the event of a terminal illness. It expresses what you want but does not give anyone the authority to speak for you. Your living will backs up your Healthcare Power of Attorney and serves to inform doctors what medical measures you want or don’t want
A REVOCABLE LIVING TRUST is one of the many different types of trusts, each accomplishing different goals. A revocable living trust is often used in an estate plan. By transferring assets into a revocable trust, you can provide for continued management of your financial affairs during your lifetime (if you are incapacitated, for example), at your death and even for future generations. Your revocable living trust lets trust assets avoid probate and reduces the chance of personal information becoming public record.
Every revocable trust has three important components. You, as the grantor (or settlor), create the trust and transfer assets to it. The beneficiary(ies), often you and your family, receive the income and/or principal according to your trust’s terms. The third component, a trustee, who could be you, a family member or a corporate trustee, manages the trust assets. You can change a revocable trust’s provisions at any time during your life. If you act as your own trustee, you continue to manage your investment and financial affairs. Because this legal entity exists beyond your death, property titled in the trust does not need to pass through probate. If you have mineral interests or assets, such as a time share in another state, you should definitely consider a revocable trust.
Once you have executed the appropriate documents for your planning needs, you should review them periodically to ensure they stay current for any significant changes (births, deaths, divorces, etc.) in your life. While having these documents is important, there is more to the estate planning process. For example, you will need to coordinate with your estate plan, your primary and contingent beneficiary designations on all retirement plans (IRA, employer-sponsored plan annuities) and life insurance policies. You also may have estate tax issues to consider.
Creating your estate plan may not be the overwhelming task you imagine. Work with a team of experienced professionals, including your attorney, CPA, financial advisor and insurance agent. Together, your team can create an estate plan that can bring you comfort and ensure that your desires and goals are clearly set forth.
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Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.