It’s common knowledge that proper estate planning is important for your future and the future of your loved ones. Knowing where to start, however, isn’t always straight forward. Before getting started, it’s important to understand the four main legal documents involved with a basic estate plan: Trust, Will, Power of Attorney, and Healthcare Directives.
We’ve provided a brief description of each below.
A “Trust” is essentially a guidebook describing how you would like your assets to be held and managed. For the purpose of this article, we will be discussing the trust most commonly used in estate planning, a Revocable Living Trust. A revocable living trust sets forth how you would like your assets held during your life, explains how your assets should be managed in the event you become incapacitated, and directs how your assets should be distributed after your death.
During your life, you may act as Trustee of your own Trust, ensuring that you maintain control of your property. If you become unable to manage the assets yourself due to incapacity, the trustee you name can step in to manage your assets on your behalf.
Unlike a Will, a Trust is not submitted to probate upon your death. Generally, the appointed trustee has the power to simply manage and distribute the assets upon your death without court oversight or approval. A Will is generally sufficient to direct what you wish to happen to your assets in most cases. Revocable living trusts, however, are often extremely useful in:
- Avoiding probate;
- Avoiding guardianship and conservatorship proceedings;
- Keeping matters private; and
- Planning for unique circumstances such as family contests upon death and planning for gifts to heirs with special needs.
Last Will and Testament
A Last Will and Testament (or Will) is a document you sign that describes how to collect and distribute your assets upon your death. If you have a simple estate, you may choose to execute a Will instead of a Trust. Your Will serves to describe your estate and directs who should manage your assets and how they should be distributed. In Idaho, the person that manages your estate is called a Personal Representative (sometimes referred to as an “Executor”). If you have minor children, your Will also nominates one or more guardians and conservators to care for them and manage their property until they reach adulthood.
When you have a Will, your estate will be submitted to probate and will be administered in accordance with the instructions you leave in your Will.
Power of Attorney
With a Durable Power of Attorney, you grant your agent the power to manage your property in the event you become incompetent or legally disabled. This is important to have in place no matter what estate planning tool you choose. It is of particular importance if you are holding assets outside of your Trust or if you have a Will which does not serve to manage your assets in the event you are incapacitated. Proper estate planning can serve to avoid guardianship and conservatorship proceedings in the event of your incapacity. A Power of Attorney becomes invalid upon your death.
Planning for Health Care
It is important for your estate plan to include an Advance Directive (often referred to as a living will) describing your wishes for how decisions will be made if you become too ill to direct your own health care. Under an Advance Directive, you name an agent who will be responsible for making decisions about your care, such as the medication you should take if you become seriously ill, the medical procedures that should be used to treat your illness, and which doctor should oversee your care.
Having an Advance Directive in place can ensure that a trusted person will be making the right calls related to your health and subsequent treatment if you can no longer direct your care on your own. An Advance Directive also sets forth your wishes for the decisions that doctors and loved ones may make concerning your death. This document includes a directive regarding the use of life-sustaining treatment in the event you are in an end-of-life situation. A comprehensive Advance Directive will make medical decisions easier for you and your family in the unfortunate event you experience a traumatic or terminal illness or injury.
Asset Titling and Beneficiary Designations
Assets may be titled in your individual name, in the name of your trust, or jointly with another person. In order to fully carry out your intentions regarding the disposition of your assets following death, it is critical that you understand how your assets are titled and that this be coordinated with your estate planning documents. How your assets are titled can also have significant income and estate tax consequences, and if properly structured, may help you avoid probate.
Beneficiary designations for assets such as life insurance and retirement accounts control who receives the asset upon your death. The beneficiary designations control, even if they differ from the provisions of your Last Will and Testament and your Trust. Therefore, it is important to review these carefully to determine they are correct after you have put your estate plan in place. In addition, beneficiary designations can also have significant income tax consequences.
At Madsen Beck, we prepare customized estate plans for our clients. Our team is committed to providing the peace of mind that comes from a well-designed estate plan. We are here to help ensure you are comfortable with your current estate plan and to assist those of you without an estate plan in place to take this time to take steps towards doing so. Contact us to schedule a consultation.