What is estate planning?
In a word, it’s about “control” – control over your financial and personal affairs. When someone passes away, his or her property must somehow pass to another person. In the United States, any competent adult has the right to choose the manner in which his or her assets are distributed after his or her passing. (The main exception to this general rule involves what is called a spousal right of election which disallows the complete disinheritance of a spouse in most states.) A proper estate plan also involves strategies to minimize potential estate taxes and settlement costs as well as to coordinate what would happen with your home, your investments, your business, your life insurance, your employee benefits (such as a 401K plan), and other property in the event of death or disability. On the personal side, a good estate plan should include directions to carry out your wishes regarding health care matters, so that if you ever are unable to give the directions yourself, someone you know and trust would do that for you.
Why is it important to establish an estate plan?
Sadly, many factors, such as procrastination, lack of knowledge, or fear, prevent families from engaging in proper estate planning. Instead, all families – large and small, simple and complex, modest means or wealthy, should make legal plans for the management of their assets and personal affairs to maximize the potential that their wishes will be followed. Without proper planning, the state’s intestacy or other default laws will take over upon your death or incapacity. Failure to outline your intentions through proper estate planning can create family tension, unintended distribution of assets, and even increased estate taxes.
What does my estate include?
Your estate is simply everything that you own, anywhere in the world, including:
- Your home or any other real estate that you own
- Any interests you may have in any business
- Your share of any joint accounts
- The full value of your retirement accounts
- Any life insurance policies that you own
- Any property owned by a trust, over which you have a significant control
How do I name a guardian for my children?
If you have children under the age of eighteen, you should designate a person or persons to be appointed guardian(s) over their person and property. In Vermont, you would include this designation in your Last Will and Testament. Of course, if a surviving parent lives with the minor children (and has custody over them) he or she automatically continues to remain their sole guardian. This is true despite the fact that others may be named as the guardian in your estate planning documents. You should name at least one alternate guardian in case the primary guardian cannot serve or is not appointed by the court.
What estate planning documents should I have?
A comprehensive estate plan may include the following documents, prepared by an attorney based on in-depth counseling which takes into account your particular family and financial situation:
A Living Trust can be used to hold legal title to and provide a mechanism to manage your property. You (and your spouse) are the Trustee(s) and beneficiaries of your trust during your lifetime. You also designate successor Trustees to carry out your instructions as you have provided in case of death or incapacity. Unlike a Will, a Trust usually becomes effective immediately after incapacity or death. Your Living Trust is “revocable” which allows you to make changes and even to terminate it. One of the great benefits of a properly funded Living Trust is the fact that it will avoid or minimize the expense, delays and publicity associated with probate. Read the FAQ section on Living Trust for more information.
If you have a Living Trust-based estate plan, you also need a Pour-Over Will. For those with minor children, the nomination of a guardian must be set forth in a Will. The other major function of a Pour-Over Will is that it allows the executor to transfer any assets owned by the decedent into the decedent’s trust so that they are distributed according to its terms.
A Will, also referred to as a “Last Will and Testament”, is primarily designed to transfer your assets according to your wishes. A Will also typically names someone you select to be your Executor, who is the person you designate to carry out your instructions. If you have minor children, you should also name a Guardian as well as alternate Guardians in case your first choice is unable or unwilling to serve. A Will only becomes effective upon your death, and after it is admitted by a probate court.
A Durable Power of Attorney allows you to name another person or persons to sign your name and perform acts on your behalf. This person is called your “agent” or “attorney-in-fact.” Examples of acts your agent may perform include accessing your bank accounts, paying bills, managing investments, and selling real estate. Without a properly drafted power of attorney, it may be necessary to apply to a court to have a guardian or conservator appointed to make decisions for you should you become disabled. The guardianship process can be time-consuming, expensive, and emotionally draining. The durable power of attorney is usually effective upon signing, although some (known as a “springing” power) may become effective at a later specified date or upon a certain event. All powers cease upon death or by revocation during lifetime.
An Advance Health Care Directive allows you to appoint someone, called your “health care agent,” to make health care decisions if you are unable to do so. It also permits you to outline certain medical instructions such as life-sustaining treatment, anatomical gifts, and disposition of remains. Your agents can insure that health care professionals provide care for you in accordance with your wishes.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) contains privacy regulations which require virtually every health care provider to limit access to confidential medical records and information, regardless of one’s state of health. In order for your family members, friends, and/or designated health care agents to obtain individually-identifiable health information about you, you must specifically authorize disclosure and release of the information in writing, with a HIPAA Release. With this form, health care providers are expressly authorized to answer questions posed by the designees and openly discuss your condition, treatment, test results, prognosis, and all other information pertinent to your health care, even if you are fully competent to ask questions and discuss your medical condition.