Essential Elements of Estate Planning
Each estate plan should be carefully constructed based on the individual’s circumstances and goals. No two clients are alike. While the estate plan varies from person to person, there are certain elements that all good estate plans should consider.
Will or Trust
A will or trust is the instrument through which a large portion of your assets will pass upon your death. Both a will and a trust designate beneficiaries who will receive tangible personal property and real property. Assets can be given to a specific individual, divided among a class of individuals, or given to individuals to share in ownership. Each instrument should be well thought out and provide for contingencies such as a predeceasing beneficiary.
A will takes effect upon death and usually gifts assets without further control over the assets. A trust can take effect during the life of the person creating the trust and can gift property to a beneficiary immediately or upon death. Through a trust, you can place limitations on how and when that property can be used. A trust can provide for a surviving spouse during his or her lifetime, with the trust property to be distributed to other beneficiaries chosen by the creator of the trust upon the death of the surviving spouse. Trusts can also be created to manage property until a beneficiary reaches a certain age or for a fiscally irresponsible beneficiary.
Health Care Power of Attorney
A health care power of attorney designates a representative, or agent, to make important health care decisions for you in the event of incapacitation. Like a durable power of attorney, the authority granted under the health care power of attorney is very broad and, given this agent will have authority to make life changing health care decisions on your behalf, perhaps more important. Your health care power of attorney agent should be chosen wisely, and it is a good idea to have a successor agent if your first designation is unavailable.
Advance Directive for a Natural Death
An advance directive for a natural death, often referred to as a “living will,” allows you to predetermine certain health care decisions as they relate to life prolonging measures. Artificial hydration, artificial nutrition, pain management measures, and other health care decisions are covered in this instrument. The terms of the living will articulate at what point the instrument and your decisions therein become effective. this instrument is used in conjunction with a health care power of attorney. Under the terms of the living will, the decisions of your health care agent may supersede your living will if you specifically grant them that authority.
Beneficiary Designations
Some of your assets may not pass through a will or trust, but are an important part of your estate plan nonetheless. A life insurance policy or a retirement plan will pass significant value to the beneficiary of your choosing. Thus, primary beneficiary designations should be reviewed regularly to ensure they are consistent with your overall estate plan. Just as it is important to plan for contingencies in your will or trust, a life insurance policy or retirement plan should have contingent beneficiaries in the event something happens to the primary beneficiary before your death. You may be able to designate a trust you created as the primary beneficiary, allowing the assets to fund the trust and then be distributed under the terms of the trust.
Guardianship designations
If you leave behind a minor child and have no surviving spouse, a guardian must be appointed by the court. You have the ability to designate the guardian you would choose through your will or trust. While it is not mandatory that the court follow the guardianship recommendation, the courts give your designation great deference and often follow your wishes. If no guardianship designation is made, the court chooses a guardian without your guidance, which may or may not be who you want caring for your minor child. A separate but related issue is to make sure the will or trust provides for the management of assets given to the minor until the minor reaches the age of majority or a certain age above 18.
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Written by Landon White.
