Barbara Sadler: What Documents Are Needed For Estate Planning?

Estate planning is the preparation of tasks that serve to manage an individual’s asset base in the event of their incapacitation or death. The planning includes the bequest of assets to heirs and the settlement of estate taxes. Most estate plans are set up with the help of an attorney experienced in estate law.

Estate planning is the systematic approach to organizing your personal and financial affairs in order to deal with the possibility of mental incapacity and certain death. Depending on your current family and financial situations, your foundational estate plan will include four or five essential legal estate planning documents. Aside from these essential documents, the laws of your state may dictate the creation of other estate planning documents. Your estate planning attorney will be able to assist you with preparing all of the estate planning documents that you will need for your situation.

Will Based Estate Planning

If your current family and financial situations do not warrant the need for a revocable living trust, then your foundational estate plan will include the following four important legal documents:
• Last Will and Testament
• Health Care Directive
• Revocable Living Trust
• Durable Power of Attorney

Trust-Based Estate Planning

If your current family or financial situations warrant the need for a more sophisticated estate plan, then your foundational estate plan will include the following five important legal documents:
• Pour Over Will
• Revocable Living Trust
• Advance Medical Directive
• Living Will
• Financial Power of Attorney

Last Will and Testament or Pour Over Will

If you have a will-based estate plan, then your Last Will and Testament will contain a detailed list of instructions as to how your property should be distributed after you die. If you have minor children, it will also contain provisions for designating a guardian for your children. If you have a trust based estate plan, then your last will and testament will only be used as a safety net to catch assets that you did not transfer into your trust prior to your death and put them in there after your death. This type of will is referred to as a “Pour Over Will’ and contains minimal instructions since your revocable trust is the main document governing your estate plan.

Revocable Living Trust

A Revocable Living Trust contains a detailed set of instructions covering three important periods of your life:
• What happens while you are alive and well?
• What happens if you become mentally incapacitated?
• What happens after your death?
In addition, assets held in the name of your revocable living trust at the time of your death will avoid probate.

Advance Medical Directive

An Advance Medical Directive, also called a ‘Medical Power of Attorney’ or ‘Designation of Health Care Surrogate’, allows you to designate a health care agent to make medical decisions for you if, for any reason, you are unable to make them for yourself. It can also be used to designate someone to serve as your guardian or conservator in the event a court determines that you have become mentally incapacitated.

Living Will

A living will contains a written set of instructions to your physician as to whether or not you want to receive life-sustaining procedures if you have been diagnosed with a terminal condition, end-stage condition, or are in a persistent vegetative state. It also gives guidelines for your family members to follow if you become terminally ill.

Financial Power of Attorney

A financial power of attorney allows you to delegate to the person of your choice the ability to manage assets that are titled in your individual name, including retirement plans, and assets titled in joint names as tenants in common. It can also be used to transfer assets into your revocable living trust if you become mentally incapacitated before the trust has been fully funded.
Financial powers of attorney come in two forms:
• A Durable Power of Attorney, which goes into effect as soon as you sign it.
• A Springing Power of Attorney, which only goes into effect after you have been declared mentally incapacitated.
Yet a well-planned estate is a wonderful legacy to leave your heirs. Even with modest amounts of money at stake, it’s important for parents to create (and maintain) a set of shared documents, account numbers, and vital contacts.

Estate Planning Documents

Parents should complete the following legal paperwork.
• Will: A legal document that ensures that your assets are passed to your designated beneficiaries, in accordance with your wishes. In the drafting process, you’ll name an executor, who is the person or institution that oversees the distribution of your assets. If you have minor children, you need to name a guardian for them.

• Power of attorney: Allows you to appoint someone to act as your agent in a variety of circumstances, like withdrawing money from a bank, responding to a tax inquiry or making a trade.

• Health care proxy: Allows you to appoint someone to make health care decisions on your behalf if you lose the ability to do so.

• Trusts (if applicable): Depending on your family needs and tax situations, you may have either revocable (changeable) or irrevocable (not-changeable) trusts. One factor is the size of your estate: For 2016, the first $5.45 million of an estate is exempt from federal estate taxes. If an estate is above the threshold (or twice that for married couples), a revocable trust may be suitable.

• “DNR” order (if applicable): You may need to complete a “do not resuscitate” order each time you enter a hospital or nursing home.

Reasons You Need an Estate Plan

• Avoiding Probate: Avoiding probate is by far the most common reason why people seek out the advice of an estate planning attorney. While many have never even dealt with probate, they still know one thing they want to avoid it at all costs. This stems from probate horror stories covered by the media or told by neighbors, friends or business associates. Suffice it to say that for the vast majority of people, avoiding probate is a very good reason for creating an estate plan and can be easily achieved.
• Reducing Estate Taxes: The significant loss of one’s estate to the payment of state and/or federal estate taxes or state inheritance taxes is a great motivator for many people to put an estate plan together. Through the most basic planning, married couples can reduce or even possibly eliminate estate taxes altogether by setting up AB Trusts or ABC Trusts as part of their wills or revocable living trusts. In addition, a variety of advanced estate planning techniques can be used by both married couples and individuals to make the estate or inheritance tax bill less burdensome or completely go away.
• Avoiding a Mess: Many clients seek the advice of an estate planning attorney after personally experiencing, or seeing a close friend or business associate experience, a significant waste of time and money due to a loved one’s failure to make an estate plan. Choosing someone to be in charge if you become mentally incapacitated and after you die and deciding who will get what, when they will get it, and how they will get it after you’re gone will go a long way towards avoiding family fights and costly probate court proceedings.
• Protecting Beneficiaries: There are generally two main reasons why people put together an estate plan in order to protect their beneficiaries:
(a) Protecting minor beneficiaries, and/or
(b) Protecting adult beneficiaries from bad decisions, outside influences, creditor problems and divorcing spouses. If the beneficiary is a minor, all 50 states have laws that require a guardian or conservator to be appointed to oversee the minor’s needs and finances until the minor becomes a legal adult (at age 18 or 21, depending upon the laws of the state where the minor lives). You can prevent family discord and costly legal expenses by taking the time to designate a guardian and trustee for your minor beneficiaries. Or, if the beneficiary is already an adult but is bad at managing money or has an overbearing spouse or partner who you fear will squander the beneficiary’s inheritance or take it in a divorce, then you can create an estate plan that will protect the beneficiary from their own bad decisions as well as those of others.
• Protecting Assets: Lately, asset protection planning has become a very important reason why many people, including those who already have an estate plan, are meeting with their estate planning attorney. Once you know or even just suspect that a lawsuit is on the horizon, it’s too late to put a plan in place to protect your assets. Instead, you need to start with a sound financial plan and couple that with a comprehensive estate plan that will, in turn, protect your assets for the benefit of both you during your lifetime and your beneficiaries after your death. You can also provide asset protection for your spouse through the use of AB Trusts or ABC Trusts and your other beneficiaries through the use of lifetime trusts. This can also include electronic assets. One of the key reasons many people make an estate plan is to transfer assets outside of probate. Probate is a process in which estates are settled. After almost any death, assets have to pass through probate unless the deceased had a very small estate or unless the deceased made plans to transfer assets outside of probate. When assets are passed through probate, the executor of the estate or a personal representative appointed by the court needs to file lots of paperwork with the court. An accounting of estate assets needs to be made. An opportunity is given for creditors to make claims. All potential heirs or beneficiaries have to be notified. The executor has to keep careful accounting of estate assets. The will needs to be presented for probate, and there’s an opportunity for it to be contested. The entire probate process can take months to complete and can lead to costly legal fees. And because it happens in court, court records are created that can become public record. Plainly, there are many reasons to avoid probate at all cost. That means you can’t simply transfer assets through a will. You’ll have to use other tools, such as joint ownership, pay-on-death accounts, and living trusts that allow assets to be passed through trust administration.