Estate plans are an integral part of your financial plan. They help you control decisions made about your finances and health when you are unable to make them on your own, and they allow you a certain level of control about your estate after you pass away. Designing your estate plan involves a series of decisions you make by yourself and then collaborating with professionals to help you communicate those decisions in writing. While Trilogy does not in any way provide legal advice, we do work side by side with our clients as they solicit the necessary support to write a comprehensive estate plan. The following observations come from that collaborative professional experience.
The first decision to make is deciding between a will and a trust. Wills and trusts allow a certain level of control over how you would like your property to be distributed. Not only does a will spell out how you would like your property to be distributed, it also allows nominations for your executor and minor children. While a will enables you to have a voice after you pass, an important point is that it will not keep your assets immune from probate court. Even though you have designated beneficiaries and how you want property distributed, there can still be a court process.
In comparison to wills, trusts differ in that they are actual legal entities. While both a trust and will spell out how you want your property distributed, trusts take it a step farther to let you customize how you want your property distributed, allow for control of how that property is used once distributed and helps you avoid probate. Trusts will also help you mitigate tax implications in a larger estate as trusts involve navigating through more complex tax rules and regulations. Therefore, consult an estate professional to help you build a trust strategy that is right for you.
Deciding if a will or a trust is appropriate for you comes down to several questions to ask yourself. How much control and customization you want to have over your estate? Are you comfortable with the possibility of your estate going to probate if you only choose a will? Also keep in mind, wills and trusts are not mutually exclusive. While not everyone with a will needs a trust, all those with trusts should have a will as well.
Once you’ve made the decision between a trust or will, the next step is to ensure your plans for your assets and health/medical care continue to be carried out in the event you are incapable of making decisions on your own. A durable power of attorney is a legal agreement that enables you to designate who will make your legal and financial decisions if you become incapacitated. Unlike the standard power of attorney, durable powers remain valid if you become incapacitated. If you become incapacitated, this person will be able to act as you to continue paying your bills and will be able to make decisions about how to pay for your healthcare.
On the healthcare side, a health care proxy acts very similarly to the durable power of attorney. You designate someone to make your healthcare decisions if you become incapacitated.
In conjunction with a durable power of attorney and health care proxy is your living will. This document can also be referred to as a directive to physicians or a health care directive. A living will outlines what type, if any, of life-sustaining treatment you will permit in the event of your incapacity. It is an agreement between you and the attending physician. The decision for or against life support is one only you can make but must be legally written down to follow through on your wishes.
As important as a fundamentally strong estate plan is proper communication with the people that are responsible parties. It is important to have an open and honest conversation with the person whom you designate your executor, power of attorney and health care proxy. Discuss how to access your financial documents and introduce them to your financial advisor and estate attorney so they can establish a relationship prior to the emotional end of life and critical medical decisions.
Understanding if your estate plan is in good order should be a series of decisions and conversations that both outline how you want to live the end of your life and what you want your legacy to be. Work with professionals to help you with these tough decisions. Ultimately, an estate that is in good order is one where the owner knows what happens up to the point they pass away and what their legacy will be once they do.