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Estate Plans Explained

One of our biggest jobs as estate planning lawyers is to help our clients, potential clients, friends, family, and acquaintances understand what an estate plan is and why having one is important.

By and large, estate plans are misunderstood. We’re not sure where the misconceptions about estate plans come from. Lack of resources? Movies? Charles Dickens? The source of the misunderstanding doesn’t really matter. What does matter to us is to clear them up. So, we’re going to address some of the most comments that we are asked…and some others that we think should be.

1) What does an estate plan do?

Most commonly, we think of an estate plan as the means through which we distribute our assets and possessions once we die. We think of movies with scenes where a Will is read and some poor sap is disinherited while someone else inherits the family fortune. And, while distribution of wealth is a big part of what an estate plan does, it is only one part.

The basic purpose of an estate plan is to provide an official and binding place for you to make and memorialize your plans for your future. Of course, that includes bequests and distribution of your possessions. But it also includes your medical preferences, your choice of guardian for your minor children, your funeral arrangements, and financial planning in the event of your incapacitation. Your estate plan speaks for you when you are unable to speak for yourself and appoints people to act on your behalf when you can’t.

2) What documents does an estate plan include and what do they do?

An estate plan includes any of the following documents:

· A Will. Wills direct what will happen with your assets once you pass away, state who should inherit what, and appoint an Executor of your estate. Or, if you have a Trust, then your will would transfer any residual property into your Trust, or more simply stated, your Will would be designed to transfer (or pour over) into your Trust. This is called a Pour-Over Will.

· A Trust. A Trust protects your assets from the moment it is created (and those assets are properly transferred into the Trust) and determines where those assets will go once you are gone. A basic Trust involves three different parties: the Trustor (the person giving the money or property), the Trustee (the person who is in charge of managing the Trust’s assets), and the Beneficiary (the person receiving the benefit of the Trust). Depending on your particular circumstance, you can either have a Revocable Trust (a Trust that can be altered or canceled by the Trustor), or an Irrevocable Trust (a Trust whose terms cannot be modified or amended). There are different advantages inherent in both, which we have discussed in other blog articles.

· A Financial Power of Attorney. This legal document grants an Attorney-in-Fact (someone you trust) the authority to act on your behalf in financial matters. It is wise to grant someone financial power of attorney in case of unforeseen incapacity.

· An Advance Health Care Directive. This is a written document informing others of your health care wishes in the event of your incapacity. It allows you to name an agent to make decisions for your health care if you are unable to. It gives those who survive you certainty and peace regarding your wishes.

3) Is an estate plan beneficial even if I’m not rich?

As we discussed above, we commonly think of an estate plan as a link to our financial assets. We also commonly believe that we only need one, especially a trust, if our financial assets are significant. But that’s simply not true.

Estate plans, even trusts, are beneficial for everyone. The most commonly discussed advantages are:

1) By transferring ownership away from you as an individual, an estate plan can prevent certain assets from being seized by creditors or the courts.

2) Having certain kinds of trusts also qualifies you for certain tax breaks and minimizes the taxes that will be taken out of your assets once you pass away.

3) A well thought out estate plan also makes probate (or the legal process that a will or estate has to pass through in order to be distributed) as simple as possible, or allows it to be bypassed altogether.

Each of these is monetarily advantageous. But the benefits also include minimizing strife and confusion for your friends and family when you pass. Because an estate plan records your wishes, it takes any guesswork out of the process of finalizing your affairs for those you have left behind.

4) Other than financially, how does an estate plan benefit my children?

One of the most important things an estate plan enables you to do is appoint a guardian for your minor children in the event that you pass away or become incapacitated.

The thought of dying and leaving your children behind is unbearable. But what is more important than planning for that eventuality by identifying who you would entrust your children to if the worst did happen, and memorializing your decision in a binding document?

When considering a guardian for your kids, choose someone who:

- Will love and care for them like their own;

- Will bring them up in a manner you agree with and trust;

- Knows you, your priorities, your beliefs, and will take them into account as they raise your children;

- Is in good health and likely to be around until your children reach the age of majority (at the very least); and

- Has the financial means to provide for them.

5) Did you know that an estate plan is as applicable to you in life as it is in death?

It is! No one likes to think about circumstances that would take away your capacity to act for yourself. But they do need to be prepared for, and an estate plan is where make those preparations.

As we’ve stated, a healthcare directive memorializes what you want done in medical situations when you are unable to make your wishes known. It also gives someone the power to speak for you, to advocate on your behalf, and ensure that your instructions are followed. Similarly, in a power-of-attorney, you give someone the power to act for you in financial and business spheres.

Have answered your questions about estate plans? Do you have others? We’re more than happy to answer. Contact us today for a free consultation.


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