ESTATE PLANNING—Part 3: Document Suite

This article is the final installment in a three-part series on estate financial planning. In part one, we touched on the basics of estate planning – why we all need to put an estate plan in place. We also discussed the attributes of the will and the trust, the two most foundational documents in an estate plan. In part two, we walked through the history of estate and gift taxes from antiquity to present day. Taxes due at death were often used to raise revenue to pay down debt from one-time expenses like wars, but over time they became more ingrained in the tax code. Simply put, governments recognized the inevitable death of each of its citizens as a regular and predictable opportunity to tax the transfer of property from the decedent to his or her beneficiaries.

In part one, I explained that each of us should establish an estate plan for several reasons. First, a well-drafted estate plan brings peace of mind. The planning process allows you the chance to assess your estate property and plan how your property should pass to your intended beneficiaries in a clear and orderly manner. Secondly, you need to put together an estate plan to replace the one you already have, but may not know about. It’s the plan put in place for you on your behalf by your state’s government – the legal provisions for your state’s residents dying intestate (without a will). I explained that these provisions are almost certainly not how you would want your property to pass if you had a say in the matter. There are several other reasons to put an estate plan in place as well. While establishing an estate plan typically means incurring some upfront costs, good estate plan management usually saves the estate money in the long run. Good estate plans transfer property smoothly, with less time and expense having to be doled out to the lawyers and the legal system to come in and “clean up the mess” after the fact. Good estate plan management also accounts for multiple contingencies, and thus can be flexible. It also can be drafted to insure a desired level of privacy, as trusts can be used to transfer property outside of the your state’s probate system, which is open and accessible to the public.

We also discussed why the will is the foundational document to any estate plan and how the trust can be used as a flexible, efficient and inexpensive tool to complement it.  While a well-drafted will and trust are usually essential components of a good estate plan, a good plan also includes provisions to make sure your family members, if necessary, can access your assets should you become disabled. It’s important to make certain the people you care about are provided for, and have access to your assets upon your temporary or permanent incapacity.

A Durable Power Of Attorney should be a component of your “basic set” of estate financial planning documents, along with the will and the trust. A power of attorney allows you to designate an agent or a person to act on your behalf in the event of your disability. If you are found to be mentally incompetent without a power of attorney in place, a court may be the arbiter of what happens to your assets, and often its decisions are not what you would have opted for. The power of attorney is your way of giving another person the power to get things done on your behalf, while you are unable to do so. Usually, it is revocable by the principal at a time of his or her choosing. Typically a time when the principal is deemed to be physically able, deemed mentally competent, or upon death. A good estate financial planning technique is for spouses to set up reciprocal powers of attorney for each other.

Similar to a Durable Power of Attorney, a Healthcare Power Of Attorney, allows you to designate another individual to make important healthcare decisions on your behalf in the event of incapacity. Sometimes, this document is called a Medical Power of Attorney, a Healthcare Proxy, or a Medical Directive. More important than the title of the document is the very important powers it gives to the designee, so be careful and pick someone who shares your views as your designee could literally have your life in his or her hands someday.

You should also consider including a Living Will in your suite of estate planning documents. A living will gives your exact instructions for doctors and family regarding the continuation of your life by artificial means. In cases where there is little certainty of the desires of a person in a vegetative state, a Healthcare Power of Attorney and Living Will can help mitigate disputes and second-guessing between family members about what measures of care a loved one wished to have performed on their behalf.

With any type of Power Of Attorney, you can make the power effective immediately or have a springing power, applying only when a certain event takes place, such as incapacitation from an injury or illness.

Another document frequently used by estate plan management attorneys is the Letter of Intent. Just as the name implies, the purpose of a letter of intent is to further clarify what you want done with a particular asset after your death or incapacitation. Additionally, some letters of intent also provide for the details of the funeral and for other special requests. Usually this document is simply given to your executor or to a beneficiary for help later in informing a probate judge of your intentions. While a letter of intent may not be necessary to the proper administration of your estate, it can help in clarifying your intentions if for some reason the will is deemed invalid.

Well, that about wraps up this series of articles on estate planning.  I hope that by now you would agree that a proper estate plan is simpler, less costly and time-consuming than most people think. If you haven’t put an estate plan in place, or if you know your present plan is in need of an overhaul, I would encourage you to not procrastinate on making the necessary changes. Do a little research and engage a recommended and well-qualified estate financial planning attorney to create or update your estate plan as soon as you can.

Lastly, remember that while one of the many benefits of putting together an estate plan is the peace of mind it brings you, the most important benefit of estate planning is that it helps those you are going to leave behind. Their well-being should be your motivation for the time and the effort of updating your planning. Make sure you’ve left them the tools they’ll need to carry out your wishes.