Estate Planning: More than Gift Giving.
Why Estate Planning is More than Just Gift Giving.
Estate planning is often depicted as a way for a person to decide who-gets-what after their death. When people begin the process of estate planning, their thoughts naturally turn to the difficult task of deciding which of their friends, family members, and charitable institutions are deserving of a windfall. And unfortunately, the drama and politics of deciding how to carve up a lifetime of accumulated wealth causes many people to declare their estate plan complete after they describe how assets should be divvied up between beneficiaries.
While deciding who will be a beneficiary of an estate is the purpose of an estate plan, narrowly focusing on the final payout will create costly legal headaches for your descendants after you pass away. A properly constructed estate plan will not only describe how your wealth should be divided between beneficiaries, but it will also identify and empower a core group of trusted individuals to carry out your wishes and deal with any financial, legal, and healthcare issues that arise after your death or incapacity. It is the appointment and empowerment of these trusted individuals that will transform your end-of-life wishes into a concrete and legally binding plan of action.
A properly constructed estate plan empowers these individuals to act on your behalf through five documents: a trust document, trust-funding letters, a pour-over will, a durable power of attorney, and an advanced healthcare directive. A brief description of these legal documents, and how they work together to carry out your wishes, follows below.
Trusts and Trust Funding Letters
A trust is the bedrock of an estate plan. When properly constructed, a trust document identifies individuals to serve as trustees, and empowers them to manage and distribute any property held by the trust after you become incapacitated or die. While all trust documents give trustees a certain amount of decision-making discretion, you can limit or expand their discretion to suit the needs of your beneficiaries and your estate planning goals.
Trusts can hold all manner of assets, including business entities, real estate, bank accounts, retirement accounts, and personal property, but this property doesn’t transfer to the trust automatically upon the trust’s formation. In order to transfer these assets to the trust, you must execute letters to the various legal and financial institutions that hold your assets, and transfer ownership of the assets to the trust. These letters are referred to as trust-funding documents.
Pour-Over Will
A pour-over will is a document that identifies personal representatives to manage your estate throughout probate proceedings, and authorizes the personal representative to transfer assets to the trust. A pour-over will also provides instructions for distributing the estate in the event that the trust document fails.
Durable Power of Attorney
A durable power of attorney is an estate planning tool that allows you to identify and empower trusted individuals to access and manage your estate up until the point of death. The individuals listed as agents in the power of attorney will have access to bank accounts and legal documents, and are often authorized to pay bills and hire professionals to perform services that benefit you and your estate.
Advanced Healthcare Directive
An advanced healthcare directive is similar to a durable power of attorney, but the powers granted to the individual acting on your behalf are limited to those related to your health. The appointed individual receives access to medical records, and will be able to make important medical decisions for you if you are physically or mentally unable to make those decisions by yourself. This document also gives instruction to medical providers about when, and how, to extend your life in extreme circumstances.
Conclusion
As you can see, a properly constructed estate plan grants vast powers to a few key individuals who will manage your affairs on your behalf. While generic versions of these estate planning documents are available for free online, I recommend hiring an estate planning attorney to prepare your estate plan. In recent years, statutory innovations and advances in legal technology have streamlined the estate planning process. Thanks to these innovations, estate planning attorneys are now able to consult, prepare, and execute estate plans quickly and inexpensively. Please reach out to my office to begin preparing your estate plan today.
