A Basic Estate Plan Should Include the Following Documents:
- Advance Medical Directive (Healthcare directive)
- Durable Financial Power of Attorney
- Last Will and Testament and/or Revocable Living Trust
Advance Medical Directive (Healthcare directive)
Typically, this is a two-part document. The first part provides you the opportunity to appoint someone (health care agent) to make medical decisions you when you are unable to do so as the result of a temporary incapacity (e.g., heavily medicated) or a permanent incapacity (e.g., Alzheimer’s or dementia).
The second part of the Advance Medical Directive provides you the opportunity to give a “dying declaration” to your family and physician. This declaration tells physicians and family members whether you wish to die by natural means or whether you wish to have life-sustaining artificial assistance in the event you are in a terminal or vegetative condition. This is your opportunity to guide your health care agent into making a decision about your health care as you would do if you were able to. Although this second part of the document is optional, it is highly beneficial to your health care agent, so they feel confident in their decisions.
Durable Financial Power of Attorney
If you are unable to manage your finances and other affairs, you will need someone to perform those duties for you. It is important to have this document prepared BEFORE you become incapacitated. It is better to have one and not need it, than need one and not have it. Without this simple document, if you became incapacitated, a Guardian/Conservator action may be required before anyone can act on your behalf to manage your finances.
Most people prefer to designate a trusted person to fulfill these obligations, and they appoint that individual through a Durable Financial Power of Attorney. They name the person and identify identify any actions that person may perform. The client may give this person broad powers to manage financial matter or they may limit these powers to a particular financial matter only. You can decide the extent of the powers you assign your agent.
LAST WILL AND TESTAMENT (“WILL”)
A Will provides you with the opportunity to leave your assets to family, friends and charities of your choice. Wills are only effective upon our death and they do not control the disposition of assets when a beneficiary has already been named (i.e. life insurance, IRA’s, etc.). Most Wills contain a provision involving tangible personal property and/or specific bequests (e.g., gifts of real estate or cash). The residue provision governs the distribution of the remainder of your estate to the designated beneficiaries. Also, the Will names the Personal Representative (executor/ executrix) who settles the estate and your preferred Guardian for any minor children.
Wills can vary in complexity:
Simple Wills are basic Wills for married or unmarried individuals with relatively uncomplicated estate plans – those that pass all the probate assets to the surviving spouse or children.
Complex Wills provide individuals with many different options by including more complex planning tools for how your property is transferred or for limiting your tax exposure. For example, you may wish to hold your assets in trust for the beneficiary because of the beneficiary’s age or pre-existing medical condition (Testamentary Trust: a Will with trust provisions). Supplemental Needs Trusts can be incorporated into a Will if a beneficiary is receiving means-tested support, such as Medical Assistance (Medicaid).
Pour-over Wills are used when you have a Revocable Living Trust (“RLT”) as part of your estate plan. The Will simply “pours-over” to the RLT any asset not titled in the name of the RLT at death.
Having a Will does not necessarily allow you to avoid probate. If probate avoidance is a concern for you, consider a Revocable Living Trust.
REVOCABLE LIVING TRUSTS
Revocable Living Trusts (RLTs) are created during life and can be amended or revoked at any time. Generally, RLT’s can be useful for: (1) asset management during the creator’s (“settlor’s”) life, (2) efficient distribution of assets at the settlor’s death by avoiding probate, (3) estate tax avoidance or minimization, and (4) avoiding your estate administration from becoming public record.
The following family situations may benefit from a RLT:
- blended families where each spouse wants his/her assets to pass to his/her respective children,
- families with minor children who would receive large inheritances if both parents passed away,
- families or individuals who may be subject to estate taxes at death,
- families with disabled children,
- families with a complex or unusual bequest,
- families who want to avoid the public records associated with a probate court action, and
- families where a beneficiary may have marital, creditor, or personal problems.
Often, a RLT is created but not all assets are properly placed in the trust. Any assets not effectively in the trust prior to death or moved into trust upon death through a beneficiary designation, may cause a probate action. In order to avoid probate, the settlor must properly funded his/her trust and ensure that no probate assets remained in his/her estate at death.
There are many factors to consider when preparing your estate plan. It is important to consult with an experienced estate planning attorney to assist you with the preparation of your estate planning documents.
Ward Law serves families and businesses in Hennepin County, Ramsey County, Dakota County, Washington County, Anoka County, and the entire Twin Cities Metro Area. To begin the estate planning process, select the following link, answer some questions, then Submit the form: