Do You Have These Documents?

There are three to five estate planning documents individuals need to consider regardless of their age, health and wealth. Below is a summary of what you need to be familiar with. First and foremost before any document can be considered is engaging a qualified attorney who will prepare the proper documents for your needs.

Durable Power of Attorney-A durable financial power of attorney (DPOA ) can help protect your property in the event you become incapacitated, whether you are physically unable or mentally unable to handle your financial affairs. A durable power of attorney scope can be limited to specific powers or can be quite broad.

A Durable Power of Attorney allows you (the principal) to authorize someone else (attorney-in-fact) to act on your behalf so this individual can pay everyday expenses, administer your investments and even file tax reports. This document can contain broad authorization for you to allow someone else to make gifts on your behalf, handle your retirement accounts with the ability of changing beneficiaries or accelerating withdrawals if necessary.

There are two types of DPOAs-(1) A standby DPOA which is effective immediately or (2) A springing DPOA which only becomes effective when you become incapacitated. Note: some state do not allow a springing DPOA. A Durable Power of Attorney by definition survives and continues and is not affected by a subsequent disability or incapacity of the principal. The death of the principal terminates the DPOA.

Durable Health Care Powers of Attorney-Advanced Medical Directives- Advanced medical directives let others know what medical treatment you want, or allows someone else to make medical decisions for you should you be in a position you can not express your wishes.

A living will allows you to approve or decline certain types of medical care even if the result of your wishes terminates your life. In most states living wills become effective under specified circumstances such as terminal illness or injury. A living will is used to decline medical treatment that serves to only postpone the moment of death. 

A Durable Power of Attorney for Health Care (health-care proxy) allows you to appoint an individual to make medical decisions for you. You decide as specified in the document how much power this individual will or will not have.

A Do Not Resuscitate order (DNR) is a decision you have made allowing medical personnel not to perform CPR if you go into cardiac arrest. There are two types of DNRs. One is effective if you are hospitalized. The other is used if you are outside the hospital.

Will-The main purpose of a will is to distribute your property to your heirs according to your wishes. Without a will (intestate) your property is distributed according to state law which may not be what you would want. By making a will, a person can transfer property in a different manner than that provided by statute. The principle of intestate succession is to distribute the decedent's property as the government believes the decedent would have wanted the property distributes had a will been executed.

There are two other important aspects of a will. 1-You name the person (executor) who will manage and settle your estate in accordance with your wishes and as reviewed by the probate court. 2-You can name a legal guardian for minor children or dependents who may have special needs. Without this provision in your will, the state will make the appointments for you.
It is important to keep your will up to date especially after a move to another state, marriage, divorce, or some other life change.

A will can provide for trusts that become effective upon the decedents death. The will can set out the terms of a trust in which the named trustee can manage assets on behalf of the beneficiaries for many years after the death of the individual. A will allows the testator to make alternative provisions in case some heirs predecease him or her.

It is important to remember that assets titled in your name only pass to your heirs as indicated in your will through probate. Naming a beneficiary, or beneficiaries on an IRA account or a life insurance policy owned by the decedent will automatically pass to the named beneficiaries outside of probate. This is true even if your will names other individuals. This is sometimes referred to as a "will substitute". You could have unintended tax consequences for your heirs if your estate is named the beneficiary of a retirement account. Property titled jointly with right of survivorship (JWROS), tenancy by the entirety pass automatically to the survivor. 
Question-If all the assets are held in joint tenancy or have designated beneficiaries for IRAs and life insurance policies, is a will needed?
Answer-While the assets owned will pass to the survivors or beneficiaries without probate, additional assets acquired which are not titled to the trust will go through probate. Also, named joint tenants or beneficiaries might predecease the grantor. A will will always be valuable to prevent intestacy.

 It is important to keep your will up to date especially after a life changing event such as, marriage, a divorce, death of spouse, child, move to another state. Also the need to change executor, guardian, change in tax laws, change on property values or ownership, will require you to update your will. 

Probated documents such as the will, inventory of assets held by the decedent become a matter of public record. Even where an individual has a living trust that was originally set up to hold assets, it is still important to have a will which will "pour over" into the established trust any assets which were not transferred to the living trust. See comments on living trusts below.

Letter of Instruction- A letter of instruction is not a formal legal document and IS NOT a substitute for a will. This can be used to help the executor to locate important documents such as bank, brokerage accounts, retirement accounts, safe deposit box location, debt obligations, etc. This document can contain your personal thoughts, burial and funeral wishes and anything else that you want to express in a non public manner as the document remains private. Any directions you include in this letter are not binding and the people to whom you address the letter may follow or disregard any instructions.

Living Trust- A living trust which is a revocable or inter vivos trust is a separate legal entity created during one's lifetime (the grantor) to own property such as your home and investments for the benefit of another (the beneficiary). As the trust is a revocable living trust, the grantor has the right to control the trust by changing the terms, transfer property in and out of the trust
change the beneficiaries, and even end the trust. For federal income tax purposes, all income is taxed to the grantor, since he is considered the owner of the trust corpus.

No gift tax is generated by funding a revocable trust since the gift is not completed until the trust becomes irrevocable (see next paragraph). Since the grantor has not irrevocably disposed of any assets, the entire trust corpus will be included in the grantor's estate for federal estate tax purposes.

A revocable trust  becomes irrevocable when the grantor transfers title to the property during his lifetime, gives up the right to revoke or amend, terminates the trust, or when the grantor dies.

The primary purpose of a living trust is to avoid probate. Property in a living trust is not included in the probate estate. A living trust generally Does Not save the estate any "Death Taxes" that are paid in settling an estate. A living trust also does not protect property from creditors or ex-spouses.

Not everyone needs a living trust. Much depends on your situation, property in the estate, your state laws, and the complexity of your estate. The probate process can be simple, easy and inexpensive or it can be complex that results in the delaying of property transfer and incurring expense. Probate does take time and your property will not be distributed until the probate process is complete. Transferring property in a living trust is almost immediately done and is not a matter of public record as a probate estate is. Generally, a trust document does not become public record.

Probate can also interfere with the management of property such as real estate, a closely held business, or a stock and
bond portfolio. While the executor/administrator is responsible for managing the property until the probate process is completed, this individual may not have the time or expertise to manage the property. Transferring property in a living trust can make an easier transition for the management of the property.