An estate plan is just that: a plan that you create that accounts for death and in some cases, even disability. An estate plan may be as simple as thinking about what you would like to happen when you pass away, then taking steps to plan for that on your own. However, a more formal estate plan involves more than just thinking; it involves creating formal documents that express the plan and are recognized by law so that the plan can actually be put into practice. This should give you an overview of the different documents that may be included in a formal estate plan. Keep in mind that while these documents may be included, they do not have to be. Choosing the documents that are necessary and drafting these is part of creating an estate plan that is suited for you.
Trust Document
The trust document creates the actual trust (for more information about what is a trust click on the link). It names a trustee or co-trustees and the successor trustees (the trustees after the original trustees are no longer able to serve). The trustees are the people that control the trust assets – or if we follow up on the previous post’s elaborate analogy, these are the people that drive the car). The trust document also provides rules for what the trustees can and cannot do. Lastly, the trust document may include instructions about what to do with the trust property if the person that created the trust becomes incapacitated and what to do with the trust property if that person dies.
Will
A will is a formal document that dictates what will happen to a person’s possessions when they pass away. A will does not provide for incapacity. (You can read more about wills vs. trusts here).
Advanced Health Care Directive/ Healthcare Power of Attorney
An advanced health care directive is a document that provides instructions for your health care professionals about your wishes should you not be able to provide input about your own health care. It also provides you with an opportunity to name a person that will have the ability to make health care decisions for you in case you are not able. Your medical professional and agent still have to follow the wishes that you wrote down in the health care directive, as long as they are lawful.
Power of Attorney
A power of attorney allows another person to make financial decisions for you and gives them access to your financial institutions so that they can make the decisions. These have to be updated every few years and certain institutions/ title companies have their own version that they like you to sign so that it can be updated.
Other Documents/Tools that could be used for estate planning:
Title of the Property: Another tool of estate planning is actually using the title documents to create a joint tenancy or designating a beneficiary upon death.
For real estate this can be done using a deed. For example, a joint tenancy deed provides title to the property to the person that survives. A death on transfer deed provides for transferring of a property upon the death of a person.
For accounts at financial institutions, you can also name another person as joint holder of the account, or it may also be possible to designate a beneficiary upon death.
Please note…..
All of these documents have signature requirements that are specific to the document. They may either need to be notarized or witnessed. And all of these documents must be drafted in an unambiguous manner so that they are good guides to following your wishes.
Get Advise!
Even though, I do want to provide the information, please use the information responsibly. I cannot overstate that even though there are many options for tax planning, having this conversation with an estate planning professional is imperative. This is because the choice about what types of documents you need, and what the best way to create your plan, has with it financial consequences. Creating a joint tenancy, for example, instead of placing property in a trust, may create a taxable event, increase property taxes, and end up costing more in taxes in the end…..Or it may be the easiest most efficient solution for your situation – you do not know until an estate planner evaluates your particular situation.
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