Q: What is estate planning?
Estate planning describes the process of preparing a plan or arrangement for the distribution of a person’s assets following their death. An estate plan is perhaps one of the most important steps a person can take to ensure that their final property wishes are respected and fulfilled. An estate is the personal and real property that an individual owns–held in their name alone or jointly–and controls. Real property includes real estate ownership, such as a home, building, barn, etc. Personal property may include: cars, bank accounts, life insurance, investments, bonds, furniture, and cash. Contrary to popular belief, estate planning involves more than just a Will. An estate plan may also involve business, financial, tax and health planning. Therefore, several components are necessary for the creation of a successful estate plan. Some of the most important elements in an estate plan are: wills, trusts, gifts, and power of attorney.
Q: Why is it important to establish an estate plan?
An estate plan can be highly beneficial to an individual, regardless of age. A well-structured estate plan can vastly reduce the legal obstacles and difficulties an individual’s beneficiaries will have to face once the individual has passed. A comprehensive estate plan can resolve numerous financial problems. Moreover, estate planning can greatly reduce real estate taxes and settlement costs when transferring property. Living trusts and “payable on death” bank accounts can also help decrease the time and costs associated with the probate process.
Furthermore, should you be unable to make your wishes known because of illness or disability, an estate plan will be able to dictate the type of life-prolonging medical care you’d wish to receive. Planning ahead of time may help diminish the hardship and conflicting difficulty a spouse or family member must endure when forced to make life or death decisions, such as the removal of life support. An estate plan also grants you the opportunity to plan your funeral arrangements and the way related expenses will be paid.
Unfortunately, many people fail to establish an estate plan and as a result, their estate undergoes probate process. Probate is a court-supervised proceeding that involves the transferring of assets to the beneficiaries stated on a deceased person’s will. There are several disadvantages to the probate process. Probates are public proceedings, which means that the value of your assets and their worth all become public record. Furthermore, the probate process can take significantly longer and be far more costly than the use of a living trust. Although probate takes places with or without the presence of a will, not having enacted a will may result in the state designating who will receive your estate and assets.
Q: What does my estate include?
An estate includes all of the property that you hold ownership of–under your name alone or jointly with others–prior to your death. This may also include all other monies that may result at the time of a person’s death, such as a life insurance.
An individual’s estate also includes real property and personal property such as:
- Real estate–your home, a building you may own, etc.
- Personal property–an automobile, bank accounts, bonds, mutual funds, cash, furniture, collectibles, etc.
- Business property and business interests–partnerships, corporations, inventory
- Life insurance and pension benefits (IRAs, 401k)
- All existing claims you have against others, such a car accident claim
- Property owned by a trust
Q: How do I name a guardian for my children?
It is imperative that you designate a guardian if you have children who are under the age of eighteen. If you fail to include guardianship in your Will or Testament prior to your death, your family will not know what your wishes are and the judge and/or your spouse will have to make the decision for you. Although a child’s natural parent seems like the best choice when deciding the guardianship for your child, this may not always be true. As the number of blended families continues to grow, you may decide to designate an alternate parent for your child. However, if a child’s surviving parent has custody over the child, he/she will automatically receive guardianship despite what your estate planning documents state.
Q: What estate planning documents should I have?
A well-structured estate plan is built on a strong foundation that includes various essential documents that cover all aspects of your life even those prior to your death. An experienced estate planning attorney can provide you with the best advice and create a plan that takes your individual financial and family situation. The most important estate planning documents include:
Living trust–A living trust is an imperative document that states one person has legal title to the property of another person (also known as a beneficiary). During your lifetime, you and your spouse are the Trustees and beneficiaries of your property. In a trust, you may designate successor Trustees to carry out your wishes after your death. Although similar in certain aspects, a living trust differs from a Will, a living trust is effective immediately after an individual has passed. Furthermore, a living trust can be altered and if you should choose to, it may also be revoked. Using a Living Trust can greatly reduce the legal difficulties that are associated with probate, such as expenses and delays.
Upon choosing to incorporate a Living Trust into your estate plan, you should also be advised of your need for a Pour-Over Will. This is especially critical for individuals who are parents of children under the age of eighteen. Your guardianship decision will be dictated in your Will. This will greatly affect who will become your child’s legal guardian when you are deceased. Furthermore, the Pour-Over Will will decree that the property in your estate should be distributed to the Trustee of your trust.
Last Will and Testament–The primary purpose of this document is to ensure that all of your assets are transferred according to your wishes. When you design a Will, you will have to elect an Executor who will be in charge of making sure that your instructions are followed accordingly. In addition to naming someone an executor, you must also designate a guardian for your children, especially if they are minors. You must keep in mind that unlike a Living Trust, a Will must first undergo probate, and be approved, prior to taking effect.
Durable Power of Attorney–The purpose of a Durable Power of Attorney is to allow you to plan for the unfortunate event that you may be incapacitated and can no longer make your own decisions. With a Durable Power of Attorney you can appoint an agent to make decisions which include: health care decisions, financial planning, or to conduct other business during the time that you are incapacitated.
Choosing an agent is one of the most important parts of a Durable Power of Attorney. It is this person’s responsibility to follow your instructions, as outlined in your Durable Power of Attorney. Therefore, it is of high importance that you choose a person whom you trust and know will not take advantage of you.
A Durable Power of Attorney differs from a traditional power of attorney because it continues the agency relationship even after the incapacity of an individual has taken place. There are two important types of Durable Power of Attorney: “springing” and immediate. As the word itself states, the immediate Durable Power of Attorney takes place as soon as the Power of Attorney is executed. The latter type, called “springing” is dependent on an event taking place, such as the disability of the principal. This means that the “springing” Power of Attorney may only go into effect once you become incapacitated for instance.
Financial Power of Attorney–This document allows you to designate an individual who will manage your assets, including retirement plans and other assets that may be titled to your individual name or those that you may own jointly with others.
David F. Anderson attorney at law located in Miami, Florida specializes in long term care, Condominium law, Medicaid planning, Corporate structures, Residential real estate, Asset protection, Commercial real estate, Family law, Title insurance, Bankruptcy, Mortgage law, Association Law throughout Dade County, FL and the surrounding area