A common misconception is that having an estate plan simply means drafting a will or a trust. However, there is more to include in your estate planning to ensure that all your assets are seamlessly transferred to your heirs. A successful estate plan should also include arrangements that allow your loved ones to access or control your assets if you ever become unable to do so yourself.
The Estate Planning Must-Haves
Here is a list with 6 estate planning must haves:
1.) Will/Trust
2.) Durable Power of Attorney
3.) Beneficiary Designations
4.) Letter of Intent
5.) Healthcare Power of Attorney
6.) Guardianship Designations
In addition to these six documents and designations, a well-laid estate plan also should consider the purchase of insurance products such as long-term care insurance to cover old age, a lifetime annuity to generate some level of income until death, and life insurance to pass money to beneficiaries without the need of probate.
If you are unsure if you have any of these 6 must haves, read through the following descriptions of each document or designation.
Wills and Trusts
A will or a trust might sound intricate or costly—as if only rich people have them. However, that is not true. A will or trust is one of the main parts of every estate plan, even if you don’t have substitute assets. A will ensures that your property is distributed according to your wishes (as long as it’s drafted according to state laws). Depending on the trust, some trusts can limit estate taxes or legal challenges. However, simply having a will or trust isn’t enough. The wording of the document is critical.
A will or trust should be written in a way that is consistent with the way you bequeath (distribute) the assets that pass outside of the will. Assets that pass outside the will do not go through probate and go straight to the beneficiary. For example, if you have already named your brother as a beneficiary on a retirement account (an asset that can go straight to beneficiary without it being in the will), you don’t want to bequeath the same asset to a cousin in the will because it could lead to a will contest. Both individuals could become bitter toward each other (and you) during a legal battle.
Durable Power of Attorney
A durable power of attorney (POA) is an agent or person you assign that will act on your behalf when you cannot do so yourself. If a POA is not assigned, a court might have to decide what happens to your assets if you are found to be mentally incompetent, and you may not agree with their decision. A POA document gives your appointee the power to handle real estate, participate in financial transactions, and make other legal decisions as if they were you. This type of POA is revocable by the principal at any time, usually when they are deemed physically able or mentally competent, or upon death.
In most cases, spouses can be assigned as reciprocal powers of attorney meaning they are each other’s power of attorney. However, in some cases, it might be better to assign another family member, friend, or a trusted advisor who is better with finances to act as the agent.
Beneficiary Designations
As mentioned above, some of your possessions can pass to your heirs without being dictated in the will (e.g., retirement plans). This is why it is pertinent to maintain a beneficiary, and a contingent beneficiary, on such items. Insurance plans might also go straight to the beneficiary so it should contain a beneficiary and a contingent beneficiary as well.
If you do not name a beneficiary, or if the beneficiary is deceased or unable to serve, a court might decide where your funds go. And if a judge does not know you, and is unaware of your situation, beliefs, or intent, they are not likely to make the same decision you would have made.
Who you name as beneficiaries should be over the age of 21 and mentally competent. If they are not, a court may end up getting involved in the matter.
Letter of Intent
A letter of intent is a document that stipulates what you want to be done with a particular asset upon your death or incapacitation. Some letters of intent provide funeral details or other special requests. It is normally left to your executor or a beneficiary.
It is not a document that may not be valid in the eyes of the law, but it does help inform a probate judge of your intentions. Because of this, it may help in the distribution of your assets in case your will is deemed invalid for any reason.
Healthcare Power of Attorney
A healthcare power of attorney (HCPA) or healthcare proxy is a document that designates another individual (usually a spouse or family member) to make important healthcare decisions on your behalf in case you are unable to.
If you are considering executing this document, pick someone you trust, who shares your views, and who would most likely recommend a course of action you would agree with. This person could literally have your life in their hands. A backup agent should also be designated, in case your initial person is unavailable or cannot act at the time needed.
Guardianship Designations
Many wills or trusts incorporate a clause designating a guardian, but some do not. If you have minor children or are considering having kids, designating a guardian is crucial. Ensure that the individual or couple you choose shares your views, is financially sound, and is genuinely willing to raise children. Like all designations above, a backup guardian should also be named.
Without these designations, a court may rule that your children live with a family member you would not have selected. In extreme cases, the court could mandate that your children become wards of the state.
Hire An Estate Planning Attorney
Estate planning can be complicated, it is more than just deciding how to divide your assets when you die. It is also about making sure your loved ones and other beneficiaries are provided for and can gain access to your assets in case of any temporary or permanent incapacity.
A will is a great place to start, but it's only the beginning. Regardless of whether or not you have one, consulting with an estate planning attorney is always helpful for all your estate planning needs.
For further estate planning information, please contact the Law Office of Inna Fershteyn at (718) 333-2394 to receive the most highly qualified legal advice.