Starting with the will, most people understand what a will is, but what exactly does it do, and more importantly, what doesn’t it do? The goal of a will is to designate who receives your assets after you’ve passed. A will also allows you to name someone to oversee the distribution of your estate. The named individual is called the Executor or Executrix. One of the most important functions of a will may be the designation of a guardian for your minor children should you pass unexpectedly. A will is the most basic estate planning document and is inexpensive to execute. As much as a will covers, it is not a catch-all for your estate planning needs. For example, simply having a will does not avoid probate or the court appointed process of distributing assets. Even though a will spells out your wishes, a probate judge actually reads your will in court and makes determinations in case there are any ambiguities or challenges to the will.
This leads us to our next estate planning technique, a Trust. Whereas a will must go through the public probate process, a Trust is a private document that dictates the distribution of your assets, among many other functions. A trust allows for greater control of your assets both in your life and after. You’ve probably heard of a Trust Fund and that very simply is a pool of assets that are named in Trust for someone but can be accessed at varying periods of time according to how the Trust is drafted. This is an area that can get extremely complex as there are a seemingly infinite number of Trust combinations which are certainly beyond the scope of this article. However, the important Trust features to keep in mind from a planning perspective are that they avoid probate, offer the owner more control of their assets and can also provide protection from creditors. As you might expect, a Trust is more expensive to set up and with the more complex cases may be many multiples of the cost of a basic will.
As outlined above, wills and trusts help articulate your wishes after death, but what happens if you become incapacitated in your lifetime due to an injury, illness or accident? Power of attorney allows you to designate an agent to manage your finances in the event of mental or physical incapacitation. This document ensures the appropriate individual assumes control of your property for the duration of your incapacity. For instance, you may not want a likely candidate such as your spouse to have to shoulder the burden of paying the bills and managing finances while also juggling work and the kids if you’re in the hospital or otherwise unable to handle those duties. A power of attorney helps mitigate these unexpected circumstances but only designates authority until death, after which your other estate planning documents we’ve already discussed will carry out your wishes.
The final basic estate planning technique we’ll address is advanced medical directives. Whereas a traditional power of attorney determines who will control your finances, medical directives are analogous to power of attorney for your medical care. Many people have very specific desires when it comes to their medical care whether it relates to life support or other potential life-saving medical techniques and it can be very difficult and emotionally taxing for family members to make these decisions without prior direction. By setting up a durable power of attorney for healthcare, a living will (also known as “declaration of intent”) or a Do Not Resuscitate order, you can make those choices for yourself in advance to relieve your family of the inevitable pressure these types of circumstances can cause.
While we’ve covered a rough outline of basic estate planning, these represent just a few examples of techniques you can use to articulate your goals for transferring your wealth and making healthcare and financial decisions in the event of incapacitation. The process of estate planning can get very complex and in future articles, we’ll discuss additional planning approaches like GRATs (Grantor Retained Annuity Trusts), CRUTs (Charitable Remainder Unitrusts) and other fun acronyms. All of these techniques are designed to preserve your wealth, reduce taxes and/or ensure your wealth is transferred according to your wishes.
Please contact any of the professionals in the Wealth Office™ for more information or to discuss the resources DiMeo Schneider & Associates, L.L.C. has available to help you review and formulate your estate plan.
