By Rebecca Alicea, Esq.
Having a well-crafted, up-to-date estate plan in place is a good idea regardless of what life stage you’re in. Having thought through the needs of the heirs you’ll leave behind and worked with an advisor to put that plan in place can help ease the burdens on your family during a difficult time. Two important components of your plan are wills and living trusts.
A will is a legal document that arranges for the distribution of your property after you die and allows you to designate a guardian for minor children or other dependents. It should name the executor or personal representative who’ll be responsible for overseeing your estate if it goes through probate. (Probate is the court-supervised process of paying any debts and taxes and distributing your property after you die.) To be valid, a will must meet the legal requirements in your state.
If you die without a will (that is, “intestate”), the state will appoint an administrator to determine how to distribute your property based on state law. The administrator will also decide who will assume guardianship of any minor children or other dependents. This can slow the process of distributing your assets considerably. Additionally, your assets may be distributed — and your dependents provided for — in ways that differ from what you would have wanted. Because many people intend to put a will into place but fail to focus on following through, this is a surprisingly common situation families find themselves in. With a little pre-planning and a few meetings with your accounting and legal consultants, you can easily prevent this scenario from becoming your family’s reality.
The Living Trust
Because probate can be time-consuming, expensive and public, you may prefer to avoid it. A living trust can help. It’s a legal entity to which you, as the grantor, transfer title to your property. During your life, you can act as the trustee, maintaining control over the property in the trust. Upon your death, the person (such as a family member or advisor) or institution (such as a bank or trust company) you’ve named as the successor trustee distributes the trust assets to the beneficiaries you’ve named.
Assets held in a living trust avoid probate — with very limited exceptions. Another benefit is that the successor trustee can take over management of the trust assets should you become incapacitated.
However, it’s important to be aware that having a living trust doesn’t eliminate the need for a will. For example, you can’t name a guardian for minor children or other dependents in a trust. However, a “pour over” will can direct that assets you own outside the living trust be transferred to it upon your death.
There are other documents that can complement a will or living trust. A “letter of instruction,” for example, provides information that your family will need after your death. In it, you can express your desires for the memorial service, as well as the contact information for your employer, accountant, attorney, banker, broker, and any other important advisors. It’s important to note, however, that the letter of instruction is not considered a legal document.
Also consider powers of attorney. A durable power of attorney for property allows you to appoint someone to act on your behalf in regards to financial matters, should you become incapacitated. A power of attorney for health care covers any medical decisions that would need to happen should you become incapacitated. The person to whom you’ve transferred this power — your health care agent —would be in a position to make medical decisions on your behalf, should this situation arise.
One final document that’s often helpful to think about in advance and have prepared is a living will. Living wills are legal documents which detail the actions you would like to be taken by the healthcare proxy you name in the document should your health become compromised and you find yourself unable to make decisions for yourself or express what you would like to be done. The living will is applied for end-of-life medical care.
A complete estate plan may comprise more than just wills, living trusts, letters of instruction, powers of attorney, and living wills. To discuss what your comprehensive estate plan should include and the tax implications of that plan, please contact your Untracht Early advisor.