Question: Have you created a will? What about other important estate planning documents? If you have, when was the last time you reviewed them? Well-crafted, up-to-date estate planning documents ensure your wishes will be carried out. They also can help ease the burdens on your family during a difficult time.
A will is a legal document that arranges for the distribution of your property after you die and allows you to designate a guardian for minor children or other dependents. It should name the executor or personal representative who’ll be responsible for overseeing your estate as it goes through probate. (Probate is the court-supervised process of paying any debts and taxes and distributing your property after you die.) To be valid, a will must meet the legal requirements in your state.
If you die without a will (that is, “intestate”), the state will appoint an administrator to determine how to distribute your property. The administrator also will decide who will assume guardianship of any minor children or other dependents. Bottom line? Your assets may be distributed — and your dependents provided for — in ways that differ from what you would have wanted.
The living trust
Because probate can be time-consuming, expensive and public, you may prefer to avoid it. A living trust can help. It’s a legal entity to which you, as the grantor, transfer title to your property. During your life, you can act as the trustee, maintaining control over the property in the trust. On your death, the person (such as a family member or advisor) or institution (such as a bank or trust company) you’ve named as the successor trustee distributes the trust assets to the beneficiaries you’ve named.
Assets held in a living trust avoid probate — with very limited exceptions. Another benefit is that the successor trustee can take over management of the trust assets should you become incapacitated.
Having a living trust doesn’t eliminate the need for a will. For example, you can’t name a guardian for minor children or other dependents in a trust. A “pour over” will is a good idea because it directs that assets you own outside the living trust be transferred to it on your death.
Other important documents
A “letter of instruction” can complement, but not replace, your will and living trust. It should provide vital information that your family will need after your death. For example, you can include your desires for the memorial service, as well as the contact information for your employer, accountant, and any other important advisors. The letter isn’t a legal document.
A few documents will become invaluable to your family should you become incapacitated. Two are forms of power of attorney.
The durable power of attorney for property allows you to appoint someone to act on your behalf on financial matters should you become incapacitated. The power of attorney for health care (also known as a “health care proxy”) covers medical decisions and takes effect if you become incapacitated. The person to whom you’ve transferred this power — your health care agent — can make medical decisions on your behalf.
Living wills, also commonly referred to as “advance medical directives,” outline the conditions under which you’d want life support equipment removed or other specified life-prolonging medical treatments not to be given. They generally go into effect only if you’re incapacitated and you’ve been certified by two physicians to be permanently unconscious or terminally ill.
Don’t go it alone
Last but not least, review the beneficiary designation forms on any insurance policies, as well as your 401(k) plans and IRAs, to be certain that the money will go where you want it to go.
Estate planning can be complicated, and there are many tax and legal issues involved. So, it’s best not to try to tackle these documents on your own. Instead, work with your lawyer and tax and financial advisors.