Do I Really Need an Estate Plan?
Table of Contents:
- What is an Estate and Do I Have One?
- What is an Estate Plan?
- What is a Will?
- What is Power of Attorney?
- What is a Trust?
- Are There Any Other Components to an Estate Plan?
In the context of “estate planning,” though each person is unique, our ultimate needs are generally very similar, and much of the terminology can get lost in the shuffle. Because nearly every person has an estate, and therefore needs an estate plan, I want to take a few moments to break down the components of an estate plan and what they can mean for you.
What is an Estate and Do I Have One?
Everyone has an estate! An estate is comprised of anything that you own today that you can/will direct to be given to anyone else should you leave here today… and the directions for those transfers is your estate plan.
What is an Estate Plan?
An estate plan is a collection of documents that lays out who should be responsible for the management of your affairs. Management of your affairs could be temporary, such as during a time of disability, or could become permanent, where you need to name an executor to carry out your final wishes following your ultimate demise.
An estate plan usually includes a Will, Durable Power of Attorney, and Healthcare Power of Attorney with Advanced Directive. Collectively, your plan outlines how you would like your money, property, and other assets to be distributed, provisions for whom can speak on your behalf in the form of a power of attorney, and advisement for your family about what to do in the event of an end-stage illness with a healthcare directive and living will.
What is a Will?
A will is a document that will determine what happens with your real property, monetary assets, and other possessions following your passing. By specifically outlining who gets what, a will obviates the need for conflict within families, and also provides a measure of security for the drafter, called a testator, who knows that their final wishes will be followed.
An important tip to know: Each state has its own rules for the validity of wills. As a baseline, to be properly executed, a will must be signed and dated by the testator, and either notarized, witnessed, and signed by two independent people, or both, to be valid.
What is Power of Attorney?
A Power of Attorney document is most commonly found in one of two forms: (1) Durable Power of Attorney and (2) Healthcare Power of Attorney and Advanced Directive.
A Durable Power of Attorney is what one may call a “business” Power of Attorney. The person granting the power is the principal, and the person receiving is an agent. A Durable POA allows an agent to have broad powers to speak and act on behalf of a principal with little to no oversight, and is most commonly referenced in the context of real estate, banking, and insurance transactions. In the context of an estate plan, a Durable Power of Attorney can be tailored to your specific situation, including provisions for future guardianship of the principal and/or the principal’s minor children, or restrictions on the agent’s authority. Working with counsel for a Durable Power of Attorney will ensure that the document is properly suited for your personal needs.
A Healthcare Power of Attorney and Advanced Directive is a document that provides direction for healthcare providers about who is authorized to speak about your health, medications, and medical procedures. A Healthcare Power of Attorney is only applicable when the principal is unable to speak for him or herself, on either a temporary or permanent basis. A Healthcare Power of Attorney is specifically tailored to allow the agent to access information that would otherwise be protected by HIPAA and other privacy laws, and allows the agent the authority to admit a principal for treatment, authorize or decline procedures or medications, and hire health aides to assist the Principal.
An Advanced Directive is what is commonly referred to as a “Living Will.” It is a document that outlines your wishes in the event there you have an end-stage illness and is used to guide your agent in making final decisions. Although commonly misunderstood as a Last Will and Testament, a living will includes guidance regarding the principal’s preferences for life-saving measures, life-prolonging treatment, and organ donation.
What is a Trust?
A trust is a powerful tool for asset protection. When utilized correctly, it can be structured to provide financial security to the grantor and integral support to the beneficiaries. Trusts can be utilized for purposes such as collecting life insurance proceeds and managing large assets for the benefit of minors or people with special needs, and it can be essential in long-term healthcare planning.
Are There Any Other Components to an Estate Plan?
A comprehensive estate plan includes, but is not limited to: Life Insurance, Trusts, Guardianship Protections, and even Prenuptial Agreements. Using these tools will help you to shield your assets during your lifetime, minimize inheritance and estate tax liability, provide specific parameters and protections for beneficiaries, and any other purpose that your situation demands.
So, now that we’ve worked through the parts of an estate plan, and understand why they’re important, it’s time for you to get yours started.
Shabrei M. Parker is a partner at Mincey Fitzpatrick Ross, LLC, where she specializes in estate planning and administration. You can reach her online at: Mincey Fitzpatrick Ross, LLC