In life there are two sure things, as the saying goes: Death and taxes. People have to confront their taxes each year, but some people go a lifetime afraid to confront the fact that they need to do their own estate housekeeping. The failure to put together a simple estate plan can cost a family dearly, in terms of both money and aggravation. Wait too long — until after a loved one dies or becomes incapacitated — and it may be impossible to obtain the full benefit. It would be like trying to buy fire insurance after the house has already burned down.
What is a simple estate plan? It depends upon your circumstances, but for most people it will consist of the following: (1) a will or; (2) a trust and a pour-over will; (3) an advanced health care directive and (4) a durable power of attorney for finances.
By having these documents prepared by a competent attorney, one can save thousands of dollars. A simple bypass trust could possibly save a couple’s children hundreds of thousands of dollars in estate tax.
A will or trust is a legal instrument that speaks on a person’s behalf in order to designate where property will go after one’s death. A will is a formal document requiring properly witnessed signing and is best prepared by an attorney, although theoretically a (holographic) will can be completely handwritten. A will is probated — in other words, administered through the courts, unless one’s total estate is worth less than $100,000 and without real property. This usually adds to the costs of administering an estate with attorney’s fees, executor fees and costs, which is one of the reasons people with property and/or children choose a trust rather than a will. However, sometimes it is perfectly appropriate and reasonable to use a will, especially if one has contentious children and feels that court supervision would be beneficial in the administration of the estate.
A trust is a legal document that creates a new entity called a trust. The most common trust is a revocable bypass trust, which allows a person and a spouse to control and use all assets over the course of their lifetimes, and when one spouse passes to preserve that spouse’s estate exemption. This can save the children hundreds of thousands of dollars when the other spouse dies, but this benefit is lost if these documents are drafted and the trust funded after the first spouse dies. Avoiding probate and paying less estate tax are two of the major reasons that people find trusts more attractive than wills as a testamentary instrument.
Just as important as the will and the trust is the durable power of attorney for finances and the advanced health care directive. These two documents together can avoid the necessity of a conservatorship if one becomes incapacitated. Estate planning is not only for when one passes away but also during the later years of life. The advanced health care directive allows a person to designate an agent to make health care decisions if that person becomes incapacitated and, if necessary, a conservator. This is not only important for people with family, but also for people who have a close friend or significant other to whom they are not married. The advanced health care directive can give those loved ones legal rights that are analogous to that of a family member or a married person. The failure to make advance arrangements can shut out a loved one from taking part in some of the most important life decisions.
The durable power of attorney for finances is a power of attorney that only becomes effective upon the incapacity of a person and can help avoid the necessity of a conservatorship, as it allows the agent to handle financial affairs without the necessity of court intervention. This can be an extraordinary savings to the incapacitated person as well a tremendous convenience to the caregivers, friends and family members, who are already in a very stressful situation.
Life and its transitions are difficult enough; it can be less difficult by taking care of this necessary bit of housekeeping. The investment of time and money in having an attorney draft a well-crafted estate plan is a minimal investment compared to the benefit and protection it provides. People are often reluctant to confront this necessity as it entails confronting one’s own mortality, but by taking care of these matters, people are liberated by taking charge of their lives and making life easier for their loved ones.
