It's essential to make the right decisions when it comes to estate planning, such as whether to use a will or trust. But there is one decision that is even more important, and it is common to all estate plans. This article provides an overview of the decisions you need to make when creating your estate plan. Please note that this overview is only intended as an introduction to these decisions.
If you hire a law firm to help you with your estate plan, they will discuss all of these decisions in greater detail before drafting any legal documents. There are two documents that are essential during your lifetime and in case you become incapacitated and unable to speak for yourself: a power of attorney and a health care directive. A power of attorney transfers to another person (called your “de facto attorney”) the ability to conduct business transactions on your behalf. This includes banking, insurance, real estate and securities transactions.
You will need to identify both a principal de facto lawyer and an alternative de facto lawyer. A health care directive allows you to designate another person (called a “health care agent”) to make health care decisions on your behalf if you become incapacitated. This may include decisions regarding surgery, medications, care professionals, and arrangements. You will need to appoint a primary and alternative health care agent. Upon your death, your designated personal representative will gather the assets and distribute them in accordance with your will through the probate court process.
You will need to appoint someone to act as your personal representative, as well as an alternate personal representative. The Trustee is responsible for managing and distributing the assets of any testamentary trust created under your will or revocable trust. The trustee will have the ongoing responsibilities associated with the administration of these trusts. You will need to designate one person to serve as trustee and a second person as alternate trustee. How to support your surviving spouse is another important decision in estate planning.
Under the “absolute” option, your spouse would become the sole owner of all your property after your death. However, this direct option can become problematic if the surviving spouse decides to remarry. In this case, your surviving spouse may find themselves in a difficult position: they may disappoint your children by naming your new spouse as the new beneficiary, or disappoint your new spouse by keeping your children as named beneficiaries after your death. This can be further complicated if your spouse has additional children with their new spouse. Under the “marriage trust” option, all of your assets become legally owned by a “marriage trust” for the exclusive benefit of your surviving spouse.
In this scenario, your spouse is entitled to receive all income and sufficient capital distributions to maintain the standard of living that you both enjoyed during your joint life. Upon the death of your spouse, all assets remaining in the Marriage Trust are distributed according to your estate plan, not according to your spouse's estate plan. If you have live children, you will need to decide (i) how much each child should receive (either a specific dollar amount or a specific percentage of their total assets), as well as (ii) the terms of distribution to each child. Having decided how much each child should receive, the next question is to determine the terms of the distribution. Again, there are two options: either immediately (“total”) or under the structure of a testamentary trust for their continued benefit (“in trust”).Some common questions regarding whether or not an estate plan is necessary for you include: What would my plan look like? Is it necessary for me? Each person's situation is unique and requires individualized estate planning depending on their particular objectives and circumstances.
Without sound estate planning, any type of agreement you have made might not be maintained after your death. A successful estate plan also includes provisions that allow family members access or control over assets in case you are unable to do it yourself. And up to 8% of the assets of the estate can be consumed by attorney's fees, appraisal fees and more. If you die without a will, your estate will end up in probate court and the courts will decide who will inherit your possessions and assets depending on ownership of assets and what assets are in place. Again, each of the options listed above has both advantages and disadvantages, so it is best to have a comprehensive package of estate planning documents and thoroughly review them with an experienced estate planning attorney. Depending on your estate plan, you may want to name an estate as beneficiary, a specific trust or family member as beneficiary. Creating a comprehensive estate plan is essential for managing assets during life and after death; it ensures that wishes are respected and that family members are taken care of according to one's wishes.
It also helps reduce costs associated with probate court proceedings and attorney's fees.