The Basics of Estate Planning

We received a number of responses to the Loss and Grieving article, specifically regarding estate plans. So this week we will dive deeper into what an estate plan consists of and why it’s important when you consider planning for the future.

Contrary to popular belief, you don’t have to own a big house or have huge sums of money to have an estate. Your estate consists of everything you own when you die —  including your home, personal property, investments, bank accounts, retirement plans and any interests in a family business or partnership.

While beneficiary designations control who will inherit your retirement accounts and life insurance proceeds, most other assets are inherited base on your Will or Trust documents that say who gets your stuff.

If you die without a will or trust (“intestate,” in legal jargon), state law will determine how most of your belongings and assets are distributed, and the result may not be what you want. These laws establish a ranking of inheritors for your assets — typically first to the spouse, then to children, then parents and siblings.

I don’t know about you but I don’t want a government bureaucrat deciding how my assets are split, especially if the assets are going to be given to a spendthrift. Your Estate Plan puts these decisions under your control.

It is also important to note that important legal decisions also need to be made before the event of your death. What if an accident or illness — or simply the effects of aging — left you unable to tell your doctors what kind of medical treatment you want, or made it impossible to manage your financial affairs?

To cover yourself in these circumstances you’ll need to appoint a power of attorney — a trusted person you name that will be legally permitted to take care of important matters for you, such as paying your bills, managing your investments, or directing your medical care if you are unable to do so yourself.

You will need to contact a trusted estate-planning attorney to help you draft the documents needed to ensure your wishes are carried out in the event of your death, and that you and your family are well-cared-for in the event of your disability. 

Here are the basic estate planning documents we coordinate for our clients, and the role of each:

Simple Will:  Insures that your estate is distributed to your heirs in accordance with your wishes and not the State’s intestacy statutes.

Guardianship Trust:  A critical component of your will if you have minor children. In the event both parents die, this ensures that your children are cared for according to your wishes. Without this document, your children’s guardianship will be appointed and supervised by the court.

Special Needs Trust:  A trust designed for beneficiaries who are disabled, either physically or mentally.

Family Trust or Revocable Living Trust:  Trusts can take a number of forms and use varied names. Depending on your needs and the preferences of your attorney, one or more trusts may be advisable. In general, revocable trusts are used to ensure the privacy of your estate, reduce administration costs, and to more effectively provide for your family after your death or disability. In some cases, trusts may also be used to significantly reduce estate taxes.

Durable Power of Attorney (DPOA): Allows a designated representative to act on your behalf in the event of incapacitation. This allows your spouse or other loved one to take care of your property and other interests without seeking a guardianship from the court.

Durable Power of Attorney for Health Care (DPOAHC): Same as a DPOA, but specifically allows your spouse or other loved one to make medical decisions on your behalf if you cannot communicate with the doctor.

If you need guidance with any aspect of your estate plan or a referral to help you find an estate planning attorney, please do not hesitate to let us know. Feel free to schedule a meeting to discuss your needs and we will be more than happy to help.

Patrick Daniels is the Financial Planning Analyst at Precedent Asset Management, serving clients as a fee-only advisor in the Indianapolis, Indiana area and nationwide, through coordinated financial planning and investment management.