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Estate Planning

OVERVIEW:
When one thinks of an “estate plan”, one often thinks of legal documents such as a will or a trust. While a will or a trust is often the primary document when creating an estate plan, a complete estate plan should include other supporting legal documents, incorporate retirement planning and one’s financial situation. By incorporating other legal documents such as a power of attorney and health care decision-making documents and reviewing current financial situation and retirement plan, not only can one ensure assets will pass on to loved ones without conflict, but also that one will be financially secure during the retirement years; even if you become permanently disabled for a significant period.

PRIMARY ESTATE PLANNING DOCUMENTS LEGAL DOCUMENTS:
The primary documents when creating an estate plan are a will or trust. In both a will and a trust, one directs the distribution of assets upon passing. A key distinction is that a will becomes effective while a trust becomes effective when the trust agreement is executed. Because a trust is effective when the trust is executed and controls the assets transferred to the trust, a trust can handle situations in which you become disabled or mentally incapacitated.

Will:
A will is a legal document which takes effect when you pass away. In a will in which you direct a person (your “executor”), to pass your assets to your beneficiaries in a specified way. Among other will requirements, state law sets forth the criteria that must be followed during execution to ensure the will is valid. When a person passes away with or without a will, the administering of the deceased estate and distribution of assets is a legal process overseen by the court called probate. Intestate is when a person passes away without a will. When a person passes intestate, the person’s assets are distributed through intestate succession as set forth in state law. Intestate succession rules vary state to state. Because a will takes affect when you pass, it cannot address situations prior to your passing such as how to oversee your assets if you become disabled or otherwise incapacitated.

Trust:
A trust is governed by a trust agreement setting forth the managing of assets by a third part for the benefit of a beneficiary. At the most basic level, trusts are divided into revocable and irrevocable trusts. As the name indicates, a revocable trust can be changed, and an irrevocable trust cannot be changed. One characteristic all trusts have in common is that a trust can transfer assets to beneficiaries without going through probate. Trusts can also address situations when a beneficiary becomes disabled. IMPORTANT: There are two steps to a creating a trust. First one executes the trust then the trust must be funded. Funding a trust is transferring ownership of assets to the trust. 

Revocable Trust: 
A revocable trust is a trust that can be modified or terminated while one is alive. One can name him or herself as both the trustee and beneficiary. In doing so, one retains control of assets while living and having capacity. Should one become incapacitated, a named successor trustee will step in to manage assets for one’s benefit. A revocable trust becomes irrevocable upon incapacitation or death.

Irrevocable Trust:
Unlike a revocable trust, an irrevocable trust cannot be modified once executed. Additionally, the grantor (you/the one creating the trust) cannot be the trustee. Because the person forming the trust cannot be the trustee, once the trust is funded, one gives up control of the assets in the trust. However, by giving up control of the assets transferred to the irrevocable trust establishes creditor protection from personal creditors and can reduce or avoid estate taxes.

SUPPORTING LEGAL DOCUMENTS
Other legal documents are needed for decisions on your behalf if you become incapacitated or disabled. A power of attorney is needed for financial decisions and a healthcare power of attorney and advanced medical directive (living will) is needed for healthcare decisions and guidance. Power of Attorney (Financial) In a power of attorney, you identify an agent who can make financial and business decisions on your behalf such as signing a lease agreement or signing a personal check. A power of attorney can become effective upon execution or upon a designated time such as incapacitation. The term “durable” in a durable power of attorney means the power of attorney will remain in effect even if one becomes incapacitated.

Health Care Power of Attorney:
Where in a Durable Power of Attorrney is for financial, business, or other legal decisions, a health care power of attorney identifies someone to make health care decisions, such as an operation if you are unconscious or other healthcare treatment if you are incapacitated.

Living Will (Advanced Medical Directive):
While an appointed health care agent makes health care decisions, direct life or death decisions are made by in a living will, often called an advanced medical directive. A living will, provides physicians one’s wishes and directions regarding life-or-death decisions such as life support and resuscitation. It is not uncommon for a living will and health care power of attorney to be combined into one document.

COMPLETE ESTATE PLAN:
When developing an estate plan, attorneys at Harry J Brown, Attorney at Law, work in conjunction with financial planners and CPAs. A complete estate plan will incorporate aspects financial goals and tax situations.

Financial Planning:
While estate planning attorneys ensure assets are protected during a person’s lifetime, protected and managed properly in the event of incapacitation, and distributed efficiently to beneficiaries upon one’s passing, financial planners help establish and implement strategies to achieve a person’s financial goals ensuring financial security during retirement and maximizing passed to a beneficiary.

Tax Planning:
While a financial advisor knows and understands the financial situation, a tax professional understands the tax situation and can anticipate and plan for financial growth and minimize tax consequences upon death. A tax professional also has a personal connection, often establishing an annual plan to minimize and offset annual tax obligations. While an attorney develops your estate plan and has a basic understanding decisions have with regard to taxation, a tax professional can explain the tax implications of every decision made within an estate plan. Working together, a tax professional and attorney will ensure that an estate plan minimizes taxes and maximizes the assets to be passed down to your beneficiaries.

Involving an attorney, financial planner and tax professional provides a well-rounded estate plan, greater peace of mind and security.