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Estate Planning Guide
and Legal Documents
What is an estate planning guide? And what is estate planning? It is not just planning for your death, but also serious emergency situations and your end of life. If you have taken a look at our estate planning checklist, you may be really proud of yourself because you’ve completed everything and don’t need this guide. Or, you may be a bit mind-boggled and wondering what some of these items are, and where to begin. Just do begin – you do not want to leave your loved ones stuck because of poor estate planning when they are dealing with many other elderly issues as well. As mentioned before, it is one of the biggest elderly issues. So baby boomers, start now! The purpose of this estate planning guide is to give you an overview of documents and terminology. Then it is up to you to seek professional advice to finalize what you need assistance with. Our estate planning guide contains important concepts and terms that you should know. Some of them may sound similar and therefore confusing. In fact, many of these terms have several names, depending on where you live. A legal professional can more fully answer your questions about what is estate planning.
Bank Account Access
To begin our estate planning guide, you may want to include one of your adult children or loved ones as a joint name and signer on your bank account and also safety deposit box, in case of emergency. This will give them access to your money and important documents.
Letter of Instruction
You can create your own estate planning guide, of sorts, for your loved ones, as a Letter of Instruction. This is not a legal document, per se, but a written statement addressed to your spouse or designated loved one, as an overview of your estate plan and explanation of your preferences if you are incapacitated. There is no particular legal format for this letter.
Some of this information to include in your Letter of Instruction is in our
Estate Planning Checklist.
Your Letter of Instruction will contain different components. It can generally outline your Will (although it is not a substitute for a Will). Any smaller personal effects can be listed, and who they will go to. Personal effects do not include money – that is addressed in your Will. Your Letter can state whether you want a traditional funeral, memorial service or a cremation, and a description of your funeral wishes. Also include details about organ donation or autopsy. Some people even write the wording for their obituary. In addition, a summary of your financial affairs and contacts can be included, and where to find your important documents.
You may be as detailed as you wish, The more details you include, the more it will assist your family. In our estate planning guide, we recommend that you make several copies of your Letter of Instruction, keeping one with your legal documents, and one in a place easy for your family to find. If you change your Letter, make sure you always sign and date revised versions.
Power of Attorney
A good estate planning guide includes a POA. The POA is a legal document assigning what is known as your Agent, or Attorney-in-Fact, who can then carry out legal work on your behalf before you die. Without this, your family will need to seek appointment through the Court, taking time and costing money. You are able to choose the time frame in which the powers are activated, and what they are. Obviously, you will want to choose someone you can trust. It is recommended that you appoint just one person (although two may be allowed) to avoid arguments and wasting time in court.
Just because you complete a Power of Attorney document does not mean you are giving up your own rights -- unless you become legally incompetent. And a POA can be changed or canceled when you choose. It is a vital tool in an estate planning guide.
You can give your Agent very limited responsibilities to do only a few tasks, or to fully manage your estate. Keep in mind this person will then have access to your important papers and financial information. Power of Attorney will end when you die. Your Executor will then take over after you die. Your Executor (see paragraphs below) is not authorized to act before you die. Here are further guidelines for Power of Attorney:
- Durable Power of Attorney -- The time frame begins as soon as you sign the document, and remains in effect throughout your life. You can terminate the Durable POA when you choose. Durable Power of Attorney often pertains to your health care preferences. Your Agent is authorized to make medical decisions for you should you become incapacitated. The Agent can also be designated to carry out the overall stipulations in your Health Care Directive. You need to include specific wording for these responsibilities.
- Springing Power of Attorney -- This is based on a specific event, such as a medical crisis or severe accident. You must detail just what events will set this Power of Attorney in motion.
The Last Will and Testament
Simply called your Will. This is probably the most important and basic document in an estate planning guide. Your Will is your statement of intent about who (your beneficiaries) will receive the property, possessions and money of your estate when you die. Do not be misled by the word “estate.” This does not mean you must have a vast array of property and money, but is just the term used referring to what you do have, however large or small. If you own anything of even moderate value, make a Will.
The Will is then signed by the person who made it (the Testator), and witnessed by two or three non-interested parties who are not involved with your estate. The parameters for witnesses vary by state. You may also be required to have the document signed in front of a notary public, who then signs and stamps the seal. It is important that you have an attorney review your Will to assure that it is valid in your state, so that it holds up in court. If you die and do not have a valid will, you are “intestate.” The State will then decide how to distribute your estate for you.
Although these intestate laws can be complex, usually the spouse and children are the primary beneficiaries. (And you’d better hope this is what you’d wanted). If you have no blood relatives, the State can confiscate your entire estate. All this can drag out for quite some time.
Even with a Will, your property will not automatically transfer to your beneficiaries. It must first go through probate. There is a court procedure called probate, before a judge, who must validate your Will and ensure it is legal. This can take time; sometimes months and even years depending on how complex. It can also cost money when attorneys are involved, which is almost always. After the judge approves your Will and signs an official court order, then your property can transfer to your beneficiaries. This may be bypassed if your estate is small. Instead, a special Affidavit is used.
In our estate planning guide, we recommend you consult a professional if you have a large estate, to learn if there are alternate ways to transfer your assets to your beneficiaries other than through a Will. With a Will your spouse may also be responsible for estate taxes, depending on the size of your estate.
Certain assets, however, do not go through probate. Jointly owned property, for instance. A life insurance policy and retirement plans have you state your beneficiaries when you complete the application. (Make sure you review and update these as appropriate -- you may not want your ex-spouse to receive assets!)
The list below summarizes property and assets that cannot be passed down through a conventional Will. They go directly to the beneficiaries.
- Jointly owned property
- Life insurance benefits
- IRA and 401k
- Pension Plans
- Profit Sharing Plans
- Assets and property contained in a Living Trust
The Executor
An important person in the estate planning guide is the Executor. When you have a Will, you are able to appoint your own Executor to serve as your representative. The Executor assures that your estate expenses and debts are paid, and your Will is carried out in accordance with your wishes. Consider carefully who you appoint. If your estate is large and complex, a legal or financial professional may be best. If your Executor feels he or she is “in over their head,” they can seek and pay for this professional assistance anyway. If you do not appoint an Executor, the Court will assign an Administrator, usually a stranger, to assume the responsibility.
The Executor will gather your property, make an inventory, and distribute it. A spouse, a trusted adult family member, friend, or an attorney or banker (who will charge fees) are usually appointed. Whoever is chosen must be made aware of your Will and the appointment. Share all aspects of the estate planning guide with this person. Additionally, the Executor must live in the same jurisdiction that you do.
Revocable Living Trust
This has become a very popular document, and so is included in our estate planning guide. As stated previously, a Will needs a court order to put it into effect after you die. However, with a Revocable Living Trust, the court does not get involved. While you are still alive, you sign the title of your assets over to a Trust, which is used for your own benefit while you are living. You are the Trustee of your Trust while you are alive, and all property is in your name as its Trustee. You can name a Conservator to oversee your estate should you be become incapacitated, instead of waiting for a crisis hit and having the Court assign someone for you.
During the course of your life, you can easily add or subtract property, possessions and money to your Trust. After your death it does not go through probate, saving much money and time. Instead, assets go directly to your beneficiaries. If the estate is under $4 million dollars (the amount is adjusted by the federal government), then your spouse does not pay estate taxes.
A Guardian
If you have minor or dependent children, you must name a Guardian in your Will. The Guardian is responsibility for the care of your children should you die. Obviously, this is usually designated to the surviving spouse. What if you do not have a spouse? Or what if both you and your spouse die? If you have not made a provision for Guardianship, the Court will appoint a Guardian. And they may be a stranger.
A Trust and Trustee
If you are leaving an inheritance for your children, please pay attention to this estate planning guide information. It is your prerogative to decide at what age your children should receive said property. A Trust is established, and a Trustee appointed to administer their financial affairs until they reach the age you have designated. Again, if you have not done this, the Court will appoint a Trustee. There are laws in your jurisdiction that govern a child’s “age of majority” – coming of age. At that age the Court will revert control of the assets to the child. And if that age is, say, 18, would you necessarily find it wise that your child control the given property and money? By establishing a Trust and Trustee, you decide what age you believe is most prudent for your children to control their inheritance.
A Living Will, a.k.a. Health Care Directive
This document is a very important piece of an estate planning guide. It can also be referred to by other names depending on the jurisdiction, such as Declaration or Advance Directive. It is concerned with your preference for health care and who should be in charge, in the event you are incapacitated either physically, mentally, or are unable to speak. You can obtain one from your doctor or hospital. This document will state, for instance, whether you want to be kept on life support systems if in a coma, and if so, for how long. If you do not complete this directive, the medical professionals may keep you “hooked up” for a very long period of time, which you may not wish. This is also stressful to your loved ones and financially draining. You can also state your preference for doctors, hospitals and other medical treatment centers. Make sure you have both a Health Care Directive and a Durable Power of Attorney in place. This estate planning guide will assist you in determining which type of estate planning and Will is best for you. So just begin – don’t fall into the pit of poor estate planning. Take a look at our Estate Planning Checklist to help you stay organized. Make sure you store all documents in a safe or safety deposit box. Inform everyone involved. And make sure you keep everything up to date.
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