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Estate Planning
Basics
Q&A
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| Q
What is estate
planning? |
| A
Arranging for the distribution of one's wealth is what estate planning
is all about. A critical part of estate planning is creating documents
that outline your wishes for distributing your assets after you die. Every
individual has an estate plan. If you do not have a formal written will or
trust, your estate plan is created out of default by your state. Every
state in America has laws governing the distribution of property when a
person dies without a will or trust. If you have not made any provisions
for the distribution of your estate before you die, your estate would be
distributed according to your state's "intestate succession"
statutes which provide for the distribution of your estate to your spouse
and relatives in an order established by your state's law. So the question
is not whether you will have an estate plan, but whether you will have an
estate plan of your own selection or one imposed upon you by law.
Unfortunately, many people have neither a will or a trust which would
identify their intent and desires after their death. They become so
involved in their daily activities that they give little thought to the
consequences of their demise. However, many do realize the importance of
estate planning documents to protect and provide for their dependents, but
people often die prematurely leaving dependents unprotected. Families
can be financially devastated and ripped apart by this procrastination. |
| Q
What is an estate plan? |
| A
An estate plan is a written
expression of how you want your assets to be owned, managed and preserved
during your lifetime and how you want them to be disposed upon your death. |
| Q
What are the basic documents I need to prepare an
estate plan? |
| A
The basic documents are a last will and testament, durable power of
attorney, health care proxy and a living will. |
| Q
What is a last will and testament? |
| A
A will is a legally binding document that addresses how your assets
will be distributed at your death and also names an executor who will
assist with the administration of your estate. Settlement of your estate
may be supervised by the probate court. This process depending on the
nature of your estate can last as quick as 6 months for a simple estate or
up to 1-2 years for more complex estates.
A will is a flexible tool that can be changed at any time as long as
you are mentally competent. In addition to naming distribution of the
estate, your will can:
- Designate a trust to be established for family members after assets
go through probate. (This type of trust is known as a testamentary
trust not to be confused with a Living Trust.)
- Nominates a guardian.
- Direct how debts, taxes and expenses are to be paid.
Some of the advantages of a will are:
- Disputes can be settled through the probate court.
- A will is traditionally cheaper to prepare than a trust ($200 to
$2,000).
- The probate process can lessen the time allowed creditors to make
claims against your estate.
- Probate estates can select a fiscal year rather than a calendar year
for income tax purposes.
Some the disadvantages of a will are:
- Lack of privacy: Your files can be accessed through the records
office.
- Time: Probate can take 6 months to 2 years or more until
distribution is administered.
- If you own property in more than one state, then probate needs to be
held in each state.
- Probate and legal fees can range anywhere from 3% to 10% of your
gross estate.
- If you should become incapacitated, a will does not make any
provisions. You need a separate Durable Power of Attorney.
By preparing a will, most people feel they have effectively safeguarded
their family's inheritance. However, this is often a false "peace of
mind". A Last Will and Testament outlines your wishes about the
distribution of your property after death, but testamentary documents such
as wills usually require probate. In preparing only a will, you may be
forcing your loved ones through months, even years, of agony in the
probate court. |
| Q
What is a durable power of attorney? |
| A
If you are incapacitated, this document gives another person full legal
authority to sign your name on your behalf and manage your finances for
all assets not owned by your trust. Your Revocable Living Trust gives your
Successor Trustee or surviving spouse Financial Powers of Attorney of
assets owned by the Trust. For tax reasons you should own certain assets
outside your Revocable Living Trust; e.g., IRA's, annuities, pension
plans. Since they are not owned by your trust, your successor trustee has
no authority to deal with them. The Financial Durable Power of Attorney
names an Attorney-in-Fact to make decisions regarding such assets. |
| Q
What is a health care proxy? |
| A
The Health Care Proxy applies in all situations in which you are unable to
make health care decisions for yourself, not just when you are terminally
ill. The Health Care Proxy you created only becomes effective upon your
incapacity. It gives broad powers of health care decisions to whomever you
have named as your Attorney-in-fact. In addition, unless you direct
otherwise, this document gives your Attorney-in-fact the power after you
die to (1) authorize an autopsy; (2) donate your body or parts thereof for
transplant or therapeutic or educational or scientific purposes; and (3)
direct the disposition of your remains. No one has the legal authority to
act for a family member if that individual is unconscious or incompetent
unless they have Power of Attorney to do so. Even parents of adult
children cannot authorize emergency treatment for them without a Power of
Attorney. If no one has been appointed as your Attorney-in-Fact, it is up
to the courts to make decisions on your behalf.
|
| Q
What is a living will? |
| A
A living will is a declaration that you desire to die a natural death.
You do not want extraordinary medical treatment or artificial nutrition or
hydration used to keep you alive if there is no reasonable hope of
recovery. A living will gives your doctor permission to withhold or
withdraw life support systems under certain conditions. |
| Q
How do insurance products impact my
estate plan? |
| A
Life insurance and annuity contracts provide the
opportunity for the owner to make beneficiary designations. Beneficiary
designations are very important because they allow for assets to to be
distributed directly from the contract provider, (eg: insurance company)
to the beneficiary without probate. Beneficiary information should be
reviewed and updated to reflect current owner wishes and for accuracy. |
| The information on this page is
designed to help explain basic estate planning concepts. Retirement
Council, Inc believes this information to be accurate. However, we
are not attorneys or legal advisors. A qualified legal advisor should be
consulted to evaluate specific needs. |
