No matter how many assets you own, how much is in your bank account, or your income level, every individual needs an estate plan. If you do not have a plan in place, those you leave behind are left with the cumbersome task of dealing with the courts, determining how to distribute your assets, and resolving conflict among each other regarding your possessions and assets. If you have minor children and you do not appoint a guardian in a Will and something happens to both of your children’s parents, your young children could be subject to the court system.
An estate plan is like a toolbox. There are several tools you can put in the toolbox, but there are some basic tools that every individual should have to prevent leaving the ones you love with a mess to clean up.
1. Will. Every individual needs a Will (sometimes called a “Last Will and Testament”). If you do not have a Will or a Trust, you will be considered to have died “intestate” and your estate will be handled by a probate court according to the laws of the state in which you reside at the time of your death - and you might not like those laws. A Will is the most basic estate planning document and can often be paired with a Trust (discussed below). If you do not have a Trust with a Will, your personal representative (sometimes called an “executor” or “personal representative”) must file a probate action with the court to be appointed to manage your estate, pay outstanding debts, and distribute your assets to the beneficiaries named in your Will. The Will is also the document in which you name the appointed guardians for your minor children. While having only a Will still requires a probate action, it gives you some control over how your assets and belongings are distributed upon your death.
2. Revocable Living Trust. A Revocable Living Trust is one type of trust that allows your estate to bypass the courts and the probate process, saving your estate and successor trustee time and money. Because a trust allows you to avoid the probate process and the court system, it also protects the privacy of your estate. One misconception is that a Revocable Living Trust protects your assets from creditors. Although there are estate planning tools that can help protect your assets from creditors under certain circumstances, a Revocable Living Trust will not necessarily accomplish that objective. A Revocable Living Trust is established through a document called a Trust Instrument in which a trustee is appointed to manage and administer assets placed in the Trust. As the Trust creator (often called the “Settlor” or “Grantor”), you can name any competent adult, including yourself, as the trustee. You will retain control of the assets in a Revocable Living Trust as long as you are alive. Once you die, your successor trustee will immediately assume the management and administration of the Trust without needing court approval. The Trust cannot be changed after your death, and your successor trustee must follow the guidelines in the Trust Instrument. It is important to ensure all your assets, real property, and accounts are placed in the Trust to ensure that no assets will need to be probated through a court procedure. If you want to create a Revocable Living Trust for yourself or your family, make sure you speak to an estate planning attorney.
3. Durable Power of Attorney. A Durable Power of Attorney is a document giving someone else authority to make certain decisions, such as financial and legal decisions, on your behalf while you are still alive. If you become incapacitated and are unable to vocalize or competently make certain decisions, and you do not have a Durable Power of Attorney in place, your family members may need to go to court to obtain a guardianship or conservatorship on your behalf.
4. Advance Health Care Directive. Some people may call this estate planning tool a “medical power of attorney” or “living will.” An Advance Health Care Directive is a document giving someone else authority to make medical and healthcare decisions on your behalf when you cannot make those decisions for yourself. It also lets others know your wishes regarding medical treatment. Advance Health Care Directive forms may vary state-by-state and are governed by state statute (which can change over time), so it is important to speak with an estate planning attorney to ensure your Advance Health Care Directive is up to date.
It’s important to go through your estate planning toolbox to see if you need an update every seven to ten years or when you go through a major life change such as getting married, having a child, divorcing, or losing a spouse. If you need help assessing your estate plan, feel free to contact us!