The Five Components of a Good Estate Plan
Many
people believe that if they have a will, their estate planning is complete, but
there is much more to a solid estate plan. A good plan should be designed to
avoid probate, save on estate taxes, protect assets if you need to move into a
nursing home, and appoint someone to act for you if you become disabled.
All
estate plans should include, at minimum, two important estate planning
instruments: a durable power of attorney and a will. A trust can also be useful
to avoid probate and to manage your estate both during your life and after you
are gone. In addition, medical directives allow you to appoint someone to make
medical decisions on your behalf.
Will = A
will is a legally-binding statement directing who will receive your property at
your death. If you do not have a will, the state will determine how your
property is distributed. A will also appoints a legal representative (called an
executor or a personal representative) to carry out your wishes. A will is especially
important if you have minor children because it allows you to name a guardian
for the children. However, a will covers only probate property. Many types of
property or forms of ownership pass outside of probate. Jointly-owned property,
property in trust, life insurance proceeds and property with a named
beneficiary, such as IRAs or 401(k) plans, all pass outside of probate and
aren't covered under a will.
Trust = A
trust is a legal arrangement through which one person (or an institution, such
as a bank or law firm), called a "trustee," holds legal title to
property for another person, called a "beneficiary." Trusts have one
set of beneficiaries during those beneficiaries' lives and another set -- often
their children -- who begin to benefit only after the first group has died.
There are several different reasons for setting up a trust. The most common
reason is to avoid probate. If you establish a revocable living trust that
terminates when you die, any property in the trust passes immediately to the beneficiaries.
This can save time and money for the beneficiaries.
Certain trusts can also result in tax
advantages both for the donor and the beneficiary. These could be "credit
shelter" or "life insurance" trusts. Other trusts may be used to
protect property from creditors or to help the donor qualify for Medicaid.
Unlike wills, trusts are private documents and only those individuals with a
direct interest in the trust need know of trust assets and distribution.
Provided they are well-drafted, another advantage of trusts is their continuing
effectiveness even if the donor dies or becomes incapacitated.
Power
of Attorney = A power of attorney allows a person you
appoint -- your "attorney-in-fact" -- to act in your place for
financial purposes when and if you ever become incapacitated. In that case, the
person you choose will be able to step in and take care of your financial
affairs. Without a durable power of attorney, no one can represent you unless a
court appoints a conservator or guardian. That court process takes time, costs
money, and the judge may not choose the person you would prefer. In addition,
under a guardianship or conservatorship, your representative may have to seek
court permission to take planning steps that she could implement immediately
under a simple durable power of attorney.
Medical Directives = A
medical directive may encompass a number of different documents, including a
health care proxy, a durable power of attorney for health care, a living will,
and medical instructions. The exact document or documents will depend on your
state's laws and the choices you make.
Both a health care proxy and a durable power
of attorney for health care designate someone you choose to make health care
decisions for you if you are unable to do so yourself. A living will instructs
your health care provider to withdraw life support if you are terminally ill or
in a vegetative state. A broader medical directive may include the terms of a
living will, but will also provide instructions if you are in a less serious
state of health, but are still unable to direct your health care yourself.
Beneficiary Designations = Although
not necessarily a part of your estate plan, at the same time you create an
estate plan, you should make sure your retirement plan beneficiary designations
are up to date. If you don't name a beneficiary, the distribution of benefits
may be controlled by state or federal law or according to your particular
retirement plan. Some plans automatically distribute money to a spouse or
children. Although others may leave it to the retirement plan holder's estate,
this could have negative tax consequences. The only way to control where the
money goes is to name a beneficiary. Source:
www.ElderLawAnswers.com
Contact
The Office of Inna Fershteyn & Associates to make sure your estate plan is
complete.
www.BrooklynTrustandWill.com
