Estate Planning Top 6 Documents

Estate Planning may appear frightening and complicated. While it may not seem urgent to put an estate plan in place while you are alive or healthy, you want to protect and plan in your financial best interests. The stress of indecision could put unnecessary pressure on your family during an already difficult time. Not having an Estate Plan can ultimately be viewed as a selfish or careless act.

Having an Estate Plan is a structured process detailing the disposition of your assets and/or the guardianship of any minor children should you become incapacitated or pass away. The end goal is to have all your wishes carried out by an Executor/Executrix while minimizing taxes and ultimately making the transition for your Beneficiary as seamless as possible.

Here is a breakdown of the Top 6 Estate Planning Documents You Should Have included in your Estate Plan and How They Can Benefit You.

1. Will

A Will is a critical document that only 32% of American adults currently have! This legal document serves as a set of instructions that spells out your final wishes regarding care of your children or pets, as well as the distribution of your personal property or investable assets after your death.

In your Will, you will designate both an Executor/Executrix who is legally responsible for carrying out your wishes and the Beneficiaries/Heirs who will ultimately inherit your estate assets.

If you do not have a Will, your estate will pass through intestacy. The State Probate Court will name a personal representative or the court can require a public trustee. This can result in your assets being frozen for months or even years.

It is likely you have heard a shocking story about a loved one passing away without a Will and the possible legal feud between family members and the probate court. To avoid this trouble and ensure that your wishes are executed properly, work with your CERTIFIED FINANCIAL PLANNER™ and Estate Planning Attorney to have a basic Will drafted. Please understand this document can always be refined or amended in later years.

2. Durable Power of Attorney

A Will goes into effect after death. Should you become incapacitated, another important document titled Durable Power of Attorney (DPOA) comes into play. A Power of Attorney document allows you to appoint another person to act on your behalf regarding legal, financial, property or other matters, in the event you are unable to do so yourself.

There are four main types of powers of attorney: Limited, General, Durable, and Springing. Most powers of attorneys will end if you are no longer of sound mind. A Durable Power of Attorney continues even after you become incapacitated. The Durable Power of Attorney can be structured so it goes into effect once a specific event occurs; this is known as Springing. Working with your CFP® professional or EP attorney will help you decide which best fits your personal needs.

The powers you designate depend on the language you outline in your document. Most DPOAs are related to personal finances. Your appointee can sign checks, manage bank accounts and investments, and/or pay your bills. Your designated DPOA cannot make, amend, or revoke your Will document.

Without a standing DPOA it can be problematic for family or friends to act in your best interest should an unfortunate event leave you unable to do so yourself. In this situation a court would appoint a guardian or personal representative. The court may appoint someone you would rather not have making decisions on your behalf. Even if your first choice is appointed, there are some decisions that the personal representative would need to be granted court permission before actions could be taken.

3. Living Will

Like your Will, a Living Will is a set of instructions you decide in advance. The difference is the document is active when you are still alive but unable to voice your own wishes. Also known as a medical directive, a Living Will outlines how you would like to be treated — or not treated — in specific medical situations.

Living Wills typically include answers to uncomfortable questions you may not want to think about or discuss with your family. These questions can include:

  • Which pain management drugs are you comfortable being treated with?
  • Any religious or philosophical considerations you want followed?
  • Do you want life-sustaining treatment, such as a ventilator or feeding tubes? If so, for how long?
  • Do you want all necessary measures taken to keep you alive or a DNR (do not resuscitate)?

Without a Living Will, medical professionals are required to keep you alive with whatever measures necessary. Certain family members will legally be able to make decisions, but it can be painful to leave those difficult decisions up to them. Consider having a Living Will drafted.

4. Health Care Proxy

Often a Living Will can be confused with a Health Care Proxy. While a Living Will outlines your wishes, a Health Care Proxy is a person who can act as a medical power of attorney, answering important medical questions when/if you are deemed incapacitated. Your Health Care Proxy can use the Living Will as their guiding document for decision making.

A Health Care Proxy goes into effect when you are unable to make medical decisions for yourself. If you recover and are deemed coherent you can keep, revoke, or appoint a new Health Care Proxy.

If you do not have a Health Care Proxy, depending on your jurisdiction of record, decisions about medical care would fall to your spouse and then your children. If you do not have either, then your parents could be next in line.

To ensure that your medical decisions are handled appropriately, consider designating more than one Health Care Proxy. For example, you could designate your sister to be your Health Care Proxy in the event you and your wife are both incapacitated, and your children are still legal minors.

Even with a Living Will and/or designated Health Care Proxy, you should communicate your final wishes to your entire family to help avoid conflict should you become incapacitated.

Many people usually associate trusts with the ultra-high net worth. However, they are simply another useful tool in estate planning for anyone to leverage.

5. Trusts

A trust document is a legal arrangement that allows a third party to hold your assets on behalf of your designated beneficiary. Trusts typically help avoid State Probate Court and can reduce fees, time/paperwork, and taxes involved when transferring your assets to designated Beneficiaries/Heirs.

There are several types of trusts that will fall into two distinct categories: Revocable or Irrevocable.

Revocable: Also called a living trust, allows you to keep control of your assets and continue to decide how your property, money, and other assets are handled while you are alive. The trust can be amended or revoked at any time. After death, those assets can be transferred to the designated beneficiaries and estate taxes will usually still apply.

Revocable trust becomes “irrevocable” at death of the grantor (person who created the trust). When a trust becomes irrevocable, it can no longer be changed, amended, or revoked. Once the trust becomes irrevocable it needs to obtain its own EIN (Employer Identification Number). The Trust becomes its own entity and needs a tax identification number for tax return filings.

Irrevocable: An irrevocable trust is a type of trust where its structure typically cannot be modified, amended, or terminated without the permission of the grantor’s named beneficiary or beneficiaries. The grantor transfers ownership control of assets to the trust and legally removes all rights of ownership effectively removing these assets from the grantor’s taxable estate. Once property is transferred to the trust, it is owned by the trust for the benefit of its named beneficiaries.

Irrevocable trusts can have many advantages in financial planning for the preservation and distribution of an estate, as well as reduce any estate taxes due. Property transferred to an Irrevocable Trust does not count towards the total gross value of your estate. To prevent beneficiaries from misusing trust assets, the grantor can set detailed distribution requirements.

An Irrevocable Trust can be used to:

  • Gift a principal residence to children under more favorable tax rules.
  • Hold a life insurance policy (ILIT) that would effectively remove death insurance proceeds from the estate.
  • Deplete one’s property value to ensure eligibility for government benefits, such as Social Security Income (SSI) and/or Medicaid (Nursing home care).
  • Secure government benefits for a special needs child (SNT) by preventing the disqualification of eligibility.
  • Protect valuable family property to be shielded from the poor decisions of a sibling.
  • Protect your assets from legal judgments as a professional and/or creditors.
  • Provide family privacy and help avoid a contested estate. Remember that contents included in a basic Will document are part of public records.

Since an Irrevocable Trust is a more complex legal arrangement than a Revocable Trust, it is important to understand that not all trusts are created equal. Because there could be income and/or gift tax implications when using an Irrevocable Trust, please work with your CFP® professional and/or EP attorney to ensure proper guidance.

6. Beneficiary Review

It may seem as if the previous five documents would cover everything regarding your estate plan; many people can forget about completing a review of their Beneficiary Designations. Several accounts (i.e., 401K, 403B, IRA) sometimes even clients largest accounts, are not covered by your Will or Trust document. If left unchanged from a deceased spouse, family member, or just left blank, your account moves to probate court. If left unclaimed for a period of time, the escheatment process goes into effect.

Your Next Step

As the saying goes, you can’t take it with you when you go. Using estate planning can make things easier for your family during an already difficult time. Part of our comprehensive wealth management services at Aventine Financial Group LLC includes helping our clients put an estate plan in place. Because life can change in an instant, it is never too early to protect your family and your assets.

Always, Frank

Frank J. Fiumecaldo, CFP

Founder & President


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