Life is precious and temporary. In the course of one lifetime we create memories, develop friendships, build families and businesses and homes, buy vehicles and artwork, travel, read and write, invest, and spend each day (hopefully) doing what makes us happy. No one wants to take time away from all of the beauty that life has to offer to think about the worst – what would happen to my loved ones if I were to die, how would all my stuff be distributed, who would manage my businesses, what would happen to my stocks and investments, how will my debts be paid off, who gets my house? Yet think about them we must.
While we cannot be sure of how or when our time will come to an end, we can be sure that it will eventually, and it’s best to be prepared for it when it does.
Whether death strikes without warning, or you find yourself mentally or physically incapacitated, proper estate planning protects your loved ones from having to make emotionally charged decisions during high stress times by ensuring your wishes are carried out in the manner you legally memorialized.
Most people don’t realize they have an estate, but everyone does, no matter how large or small. Your estate consists of many factors, including: real property, investments, bank accounts, business assets, life insurance policies, furniture, vehicles, artwork, jewelry, among others.
Careful consideration must be taken to determine how each asset and debt will be distributed upon death, and/or managed during life should you become mentally and/or physically incapacitated. If you don’t make those decisions ahead of time, your state will make them for you.
Each state has unique requirements with respect to estate planning and probate matters, so be sure to consult with an attorney in your state. Designing an estate plan is an in depth and thorough process, and worth what you pay for it. Below are some popular estate planning options to consider and use as talking points for your attorney consult:
1. What is a revocable living trust and how will that benefit my loved ones?
When considering distribution of assets upon death, many prefer to draft a revocable living trust, as it provides for more flexibility and faster distribution to beneficiaries upon death. Each state has specific requirements for probate matters, and consulting with an estate planning attorney in your state will ensure your trust is properly drafted, funded, and that all other considerations are accounted for in compliance with your state’s laws.
Revocable living trusts are comprised of all estate assets and managed by a trustee appointed by you. If the trust is fully funded – ie. all assets, title of accounts and real estate, investments and life insurance policies, etc., are transferred to the trust – then the trust can avoid probate upon death, but any unfunded property will be probated. The trust can also avoid court interference upon your incapacity or disability, by building a plan for how to address same directly into the instrument.
The trust unifies all your assets and wishes under one legally binding instrument, which can be amended by you at any time. Upon your death, the assets remain in your trust and are distributed at such times, to such persons, and in such a manner as your trust designates.
The trust is a great way to protect loved ones with special needs, and can incorporate spendthrift clauses to protect against irresponsible spending and the squandering of funds by certain loved ones. A trust also provides for privacy and confidentiality, unlike a will which must be probated and becomes a public record for anyone to see.
You can also create a comprehensive asset protection plan in addition to your trust, to shield certain assets from the claims of creditors. This typically requires more in-depth analysis by your estate planning attorney, and potentially the re-positioning of certain assets or titling of assets in more than one type of trust.
Net worth is not the only factor to consider when determining if you should create a revocable living trust. Questions to ask yourself include:
- if you have minor children
- if you own real estate in two or more states
- if you want to create a disability plan should you become incapacitated
- if you want your loved ones to avoid probate before getting access to your property
- if you want to keep financial matters private after you die
Providing for the maximum protection of estate assets, and privacy, a trust can protect your loved ones from the very public and lengthy probate process.
2. How does a will protect my loved ones?
Sometimes called a “Last Will and Testament,” a Will is a legal instrument in which you (the testator) designates one or more persons to manage the estate (the executor) who is tasked with the winding up of the decedent’s earthly affairs.
In your Will, you can designate whom will be guardian to your minor children, how possessions shall pass and to whom they’ll be passed on to, how your pets will be cared for, among other considerations. Upon your death, the Will is then probated.
Your executor will file with the local probate court to commence the probate process, and will have to provide the court with the validity of your will, in addition to a list of your property, assets, debts, and named beneficiaries. Thereafter, your named beneficiaries, other relatives, and creditors are notified of your passing, and have the opportunity to contest the Will and/or the probate proceedings.
Your executor is tasked with the job of finding all assets and debts relative to your estate, securing and managing them during the probate proceedings, paying off debts, paying taxes, and supervising the distribution of the deceased’s property.
The probate process can take several months, and during that time no distributions can be made, unless by court order and for special circumstances.
While having a Will is better than dying intestate (without a Will) and leaving all post-death decision making in the court’s hands, a Will in and of itself does not provide for what may happen should disability or incapacitation occur during life. It is best to supplement a last Will and testament with a Living Will containing a health care directive.
3. What is an advance directive for health care in living wills?
Car accidents, slip and falls, sudden illness – these events can occur to anyone of us at any time. Preparing for the “what if’s” is the best way to ensure your wishes are carried out should the worst occur, and to protect your loved ones from having to make those difficult decisions for you.
Decisions regarding what medical steps, treatment, tests, etc., should be performed on you should you become incapacitated and unable to express those wishes yourself, are often reflected in a living will. A living will is a legal document that states your wishes and directions regarding medical care, including whether life support systems should be used and/or life saving measures administered if you are diagnosed with a terminal condition or left permanently unconscious. In your living will, you can also authorize a health care representative who has the authority to make medical decisions regarding your care in accordance with the wishes you clearly express in your living will. If a circumstance arises that your living will did not anticipate, and your wishes regarding same are unclear, your health care representative can make decisions in your best interests based on what is already known of your wishes.
Should you change your mind over time with regard to medical treatment or with respect to whom you’ve appointed as your health care representative, same can be revoked and new terms drafted.
Your death or incapacitation will affect your loved ones in numerous ways. Don’t also place the burden of decision making on their shoulders. Get a plan in place to prepare for the “what if’s” today.