It’s true that a good estate plan starts with a properly funded trust, but that is just the starting point for a complete estate plan. Even transferring assets upon your death is only one part of an estate plan. Surprised? Many people are, but better to be surprised now then to have your heirs surprised later!
Investopedia’s recent article, “6 Estate Planning Must-Haves,” provides a list of items that every estate plan should have. This should include a fully funded trust and a will, a durable power of attorney, up-to-date beneficiary designations, a letter of intent, a healthcare power of attorney, and guardianship designations.
Let's take a look at each item on the list to see if you’ve left any decisions to chance.
Trusts and Wills. This should be one of the main elements of every estate plan—even if you don't have substantial assets. The wording of these documents is extremely critical: a trust or will should be written in a way that’s consistent with the way you've bequeathed the assets. In addition, make sure your assets are aligned with your trust (i.e. ownership changed or beneficiary designations changed to the trust when appropriate).
We have found that trusts are the best way to pass assets when you have children, want to avoid probate and/or want to save estate taxes. You should also have a will to appoint guardians and pour over assets into the trust in the event some assets are nor aligned with the trust.
Durable Power Of Attorney. A durable POA authorizes an agent of your own choosing to act on your behalf when you’re unable to do so for yourself. A POA will control assets not aligned with your trust. The best practice is to have all you assets aligned with your trust. Please note however, when you cannot do so, with assets such as IRAs, 401(k)s, stock options or stock in professional corporations, the POA will authorize your assent to act on your behalf regarding these assets.
One more thing to be aware of is that each institution has their own rules as to when and how they will accept power of attorneys. Some of their “rules” are not based in law and are oftentimes arbitrary. The best practice is to consolidate assets with institutions that have reasonable rules and procedures, and get your POA pre-approved in writing before you need to use it.
Without a power of attorney, a judge may have to decide what happens to your assets if you’re found to be mentally incompetent. That ruling may not be what you wanted. A POA can give your agent the power to transact business, enter into financial transactions and make other legal decisions in your stead (as if he or she were you).
Beneficiary Designations. Some assets owned in your name alone can pass directly to your heirs without going through probate. Therefore, it is important to have an up-to-date beneficiary, as well as a contingent beneficiary, on these types of accounts. If you fail to designate a beneficiary, or if the beneficiary has passed away or is unable to serve, a judge may decide what to do with your funds. This again may not be what you wanted. Oftentimes the best practice is to name your trust as the beneficiary, but check with your estate planning attorney.
Letter of Intent. This is a document left to your trustee, executor or a beneficiary that defines what you want done with a particular asset after your death or incapacitation. It can also provide funeral details or other special requests. It’s not a legal document, but it helps inform a probate judge of your intentions and may help in the distribution of your assets, if the will is deemed invalid.
Healthcare Power of Attorney. This appoints another individual (usually a spouse or family member) to make important healthcare decisions on your behalf, in the event of incapacity. If you’re thinking about creating such a document, you should select someone you trust, who shares your views, and who would likely recommend a course of action with which you’d agree. A backup agent should also be named if your initial pick is unavailable or unable to act at the time needed.
Guardianship Designations. If you have minor children or are considering having kids, choosing a guardian is very important and many times is overlooked. Be sure the individual or couple you choose shares your views, is financially sound and is willing to raise your children. You should also add a contingent guardian as well. Without these designations, a judge could rule that your kids should live with a family member you wouldn't have wanted, and in some cases, the court could require that your children become wards of the state.
It takes all of these documents to make up an estate plan that protects you and your loved ones in the event of many different situations.
To learn more about estate planning items you can’t live without, how to properly align assets with your trust, and how best to plan in the event of your disability, visit our website today to schedule your consultation!
Reference: Investopedia (April 18, 2018) “6 Estate Planning Must-Haves”