What is estate planning?

Estate planning is the process of planning how one will accumulate, maintain or preserve, and then distribute an estate in the manner that most efficiently and effectively accomplishes a person’s objectives. Through action or inaction, every estate is planned whether it’s by the person or by the state and federal government.

What should an estate plan include?

A basic estate plan should, at a minimum, include a will or trust, a financial power of attorney, a healthcare power of attorney, and a Living Will or advanced medical directive. More complex situations will require additional documents and planning tools, but these documents are the foundation of all estate plans.

When should an estate plan be reviewed?

Once completed, an estate plan should not be considered permanent because conditions, circumstances, and personal desires frequently change. As a general rule, an estate plan should be reviewed about every two to three years. However, changes to a person or a beneficiary’s life due to events such as:

• a marriage
• divorce
• a birth
• a death
• significant change in health
• change in the amount/type of assets owned or the overall net worth
• the purchase or sale of a business
• a significant change in employment or income
• the purchase or sale of a primary residence, or a significant change in the tax or other relevant area of law may cause an immediate need for review of one’s estate plan.

What is a Will?

A will is a legal declaration of one’s wishes as to the disposition of their property after death. A Will may be changed during one’s lifetime and does not function legally until one’s death. The most important function of a Will is to control the disposition of one’s property upon death and to name an executor to oversee the administration of the estate.

What is a trust?

A trust is created when a person (the grantor or settlor) transfers money or property (the principle or corpus of the trust) to its trustee (the person who is considered the legal owner of the property and the one who is responsible for its management) for the benefit of a person or group of people (the beneficiaries). The trustee is generally governed by a trust document or agreement and certain state laws. The trust is a tool used to separate the legal ownership of property from the beneficial ownership of the property to achieve certain legal, financial and tax objectives.

It is possible, depending upon the desired goals, for the grantor to also be the trustee or the beneficiary. It is also possible for a beneficiary to be a trustee. The only thing that is usually not possible in a trust setting is for a sole trustee to be a sole beneficiary.

What is a power of attorney?

A power of attorney is a legal document that allows one, generally called “the principle” to choose another person, called the “attorney-in-fact” to act on their behalf. The attorney-in-fact can be given broad powers or they could be limited to a single act or right.

A durable power of attorney is a power of attorney that is not affected or terminated if the principle suffers a disability or becomes incapacitated.

A power of attorney only functions during one’s lifetime; it terminates upon the death of the principle.

A power of attorney is often used to ensure that financial and/or healthcare decisions can be made in the event the principal becomes physically or mentally unable to make decisions on their own behalf.

What is a Living Will or advance healthcare directive?

A Living Will, or advance healthcare directive, is a legal document allowing one to express their wishes regarding the type and extent of medical treatment they want in the event a catastrophic health event leaves them in a state where they are unable to communicate their wishes.

What happens if I don’t have a Will or trust?

If one dies without a Will they are considered to be intestate (without “testament”) meaning without a Will.

In that case, a court will appoint a person named an administrator (this person has the same role and responsibilities as an executor named in a Will) to administer the estate. The decedent’s property will be distributed according to that state’s intestate succession laws. The state uses these rules to distribute property to the people that state believes the decedent would have chosen if the decedent had created a Will. Sometimes the states’ rules work and achieve what the decedent would have wanted, and sometimes the state rules do not work. In addition, there could be significant legal and tax impacts and costs incurred if a Will or estate planning is not considered.

What taxes impact the estate planning process?

There are both federal and state taxes that should be taken into account when planning an estate. In addition to the different jurisdictions, there are several different types of taxes that must be considered. Federal and state personal income taxes, federal and state estate taxes, state inheritance taxes, state transfer taxes, federal gift taxes, federal generation skipping taxes, all should be considered when planning one’s estate.

Do I need to use a lawyer to prepare my estate planning documents?

There are a number of books, software packages, and Internet sites that can be used to prepare estate planning documents and many advertise the low-cost associated with their products. Potential clients should consider what they are buying – they are buying an attorney’s advice, experience, and ability to answer specific questions, not just paper forms. So one should be careful of using a product touted as “valid in all fifty states” and remember the old saying, you get what you pay for.