Estate Planning for Beginners Part 3: Powers of Attorney
June 29, 2011
Once you are secure in the knowledge that you’ve provided for your family and ensured that your wishes for the distribution of your hard-earned fortune are clear, it’s time to take steps to ensure that YOU will be protected and financially secure during your lifetime. It is not uncommon for seniors to need help with the finer details of their finances as they age, or in rarer circumstances for someone who is injured or incapacitated to require an agent to make financial decisions for them. A Power Of Attorney is the document that gives your chosen agent permission to make choices on your behalf, as well as giving instructions as to how those choices should be made.
Here are some of the most important things you should know about your Power of Attorney:
- A Power of Attorney is only effective during your lifetime; it gives your agent (or attorney-in-fact) the power to act for you while you are alive.
- A Power of Attorney can be created to go into effect immediately or only become effective when you become incapacitated. This latter Power of Attorney is called a Springing Power of Attorney because it “springs” into effect once it is proven that the predetermined conditions (generally incapacity of you, the principal) have been met.
- A Power of Attorney can be revoked at any time so long as you have mental capacity.
- A Power of Attorney is for financial and legal issues only. A health care agent is appointed in a separate document (to be discussed in our next blog post.)
Because your Power of Attorney grants your agent-in-fact such broad powers it is of the utmost importance to choose an agent who will not only be able to make wise decisions for you, but who will also have your best interests at heart. While a Power of Attorney does grant an agent very broad powers, there are ways to build a system of checks and balances into the document; some of these include requiring your agent to keep detailed records and present these records to the principal (you) or other named individuals, or using restrictive language in the document itself which sets limits on the agent’s power.
Estate Planning for Beginners Part 2: Trusts
June 28, 2011
We’ve said it before on our blog and we’ll say it again: It doesn’t matter whether you’re a billionaire business executive or a teacher with a modest salary, it doesn’t matter whether you’re the patriarch of a large family or a stay-at-home mom of a newborn, a revocable living trust may be exactly what your family needs to protect family assets and their best interests. This is because a trust is probably the most comprehensive and versatile tool in your estate plan, and is a key part of helping you accomplish your goals.
There are two basic kinds of trusts—revocable and irrevocable. Revocable means that it can be revoked or changed so long as the grantor (the person who created the trust) is still living and is competent to do so. Logically enough, an irrevocable trust generally cannot be changed once it has been signed. The reason this question of revocability is so important is because a trust is not merely a set of instructions for how your wealth should be distributed, a trust actually owns the property placed within it, with the person or people serving as trustee (usually for a revocable trust this is the grantors themselves, while they are living) controlling the trust property within. It is for this very reason that trusts can be such a powerful and flexible tool for tax planning and estate planning.
The specifics of your trust will vary greatly depending on what you hope to accomplish. Parents of young children may wish to include a general trust for the benefit of all the children, with distributions made to their guardians as necessary. This general trust can be split into separate individual trusts when all of the children have reached a certain age or graduated from college. Parents (and often grandparents) may want to include education trusts under the umbrella of their revocable living trust. Many families feel it is important to include instructions for charitable giving in their estate plan, and may choose to set up a charitable trust with their children or grandchildren as trustees. Pet owners often create pet trusts to ensure that their animals will be well cared after the owner has died.
A trust, much more than a simple will, allows the grantor far greater control over his or her assets—and for a longer period of time—which is why trusts are particularly useful for anybody entering into a second or third marriage, or for any parent who worries about the choices a beneficiary might make once they come into their inheritance. Unlike a simple will, trusts are designed to withstand the test of time, allowing you to leave a legacy that can last for decades.
Estate Planning for Beginners Part 1: Wills
June 25, 2011
Every new project has to begin somewhere, and most newcomers to estate planning choose to begin with a will. A will is the most well-known of all estate planning documents, it is generally the simplest and easiest to create (although some wills can be very lengthy and complex), and in most states a will can contain within it instructions for peripheral topics such as guardianship of minor children or the final disposition of your remains.
But everybody knows that the main purpose of a will is usually to dispose of your assets and effects. In its most basic form, a will should include these important parts:
- The testator’s (Will-Maker’s) name and crucial information
- Nomination of an executor to carry out the wishes of the testator
- The names of the beneficiaries
- Instructions as to how the estate should be distributed to the beneficiaries
- Signature of the testator and the date signed
- Signature of witnesses and the date signed
As mentioned above, this is a will in its most basic form, but in fact most wills will also contain instructions for probate, instructions regarding the payment of debts and taxes, the names of any organizations to receive charitable distributions, a mention of relatives who may purposefully NOT have been named, and more.
Because a will can be so basic, many people believe that a will can easily be created on one’s own, without the help of an estate planning professional; in fact, there are plenty of companies who offer “Do It Yourself” will creation software for a fee. However, it is important to understand that while a will itself can be very simple, the federal and state tax and probate laws are rarely so. If you feel your estate is small and your wishes are modest then by all means keep your will short and sweet. However, we strongly urge ALL of our readers (even those with small and simple estates) to have an estate planning professional at least review your will and advise you as to its validity before you sign it and tuck it away.
The Importance of Estate Planning for New Parents
June 14, 2011
News sources such as the Washington Post entertainment section promise that this summer will be flush with celebrity newborns and proud mamas and papas. Some of the stars expecting additions to their families include Natalie Portman, Kate Hudson, Jennifer Connelly and more. Here at our office we wonder how many of these new parents will remember to update their wills or estate plans after the birth of their child… and how many of our readers have remembered (or will remember, if they are currently expecting a new child or grandchild) to update their own estate plans after an addition to their families.
Every parent knows that the time after the birth of a new baby can be a tired, busy and chaotic transition, and updating their estate plan is probably the last thing on any new parent’s mind. But after the first few months, when things have calmed down and you’ve settled into a routine, updating your estate plan to include and provide for your new little one should take top priority.
Here are a few things new parents will want to consider as they prepare to update their estate plan:
- Guardians for your child. Who are the people who will raise your child if the unthinkable should happen to you and your spouse? Many people choose close family members, others choose trusted friends.
- Keep your child’s inheritance in trust. Settling your entire estate on a 5, 10 or 16 year old is never a good idea. Consider instead creating a trust for your child which will provide for him until he reaches maturity.
- Trustees of your child’s inheritance. Who do you trust to invest and distribute the estate for your child while she is still a minor? Some parents choose to have the guardians also serve as trustees; others prefer to nominate separate trustees and guardians who will work together, providing a natural system of checks and balances.
- Providing for your child’s special needs. If your child has special needs he will need special planning to ensure that his needs continue to be provided for. Ask us (or your own local estate planning attorney) about a special needs trust.
Guardians, trustees, trusts and special needs planning are the very basics of estate planning for families with minor children, and should serve as a jumping off point for further discussion with your estate planner.
Even the Most “Normal” Families Can Benefit From Customized Estate Planning
June 11, 2011
Many people think that estate planning is a piece of cake: choose your beneficiaries, write up a simple will, and voila – you’re done! The truth is that while estate planning can sometimes be achieved with this amount of simplicity, most of the time there’s more to it than that—a lot more—especially if you have any variables or special circumstances to consider. Variables and special circumstances can encompass just about anything, including:
- Young children
- Adult children with differing financial needs
- Adult children who don’t get along
- A child, parent or sibling with special needs
- A second (or third) marriage
- A spouse with significant health problems, or who needs care
And according to this article in the Chicago Tribune special circumstances also include:
- A non-citizen spouse
- A much younger spouse
- Health concerns
A good tool in your estate planning toolbox to deal with these “special circumstances” may be to create a trust rather than just a simple will. A trust can be comprehensive and add flexibility to your plan —even if known circumstances change after your death. A well-drafted Durable Power of Attorney can add even more flexibility to your plan; for example, it can even authorize your trusted agent to modify your trust later on if the need arises.
For example, parents with three children ages 21, 17 and 15 may not want to divide their estate evenly now, especially considering that they’ve likely already paid for their 21-year old’s college education, but have yet to pay for college for the 17 and 15 year olds. These parents could choose to place their assets into a common trust to pay for the needs of all the children at the discretion of the trustee, and then divide into separate and equal trusts when the youngest child reaches the age of 21, or when all have graduated from college.
Very few families fit the simple “boiler-plate” description, and even fewer families will benefit fully from a one-size-fits-all estate plan. Our office can help you craft a plan to fit your family’s unique and special circumstances—both to address your situation right now, as well as circumstances that may arise years in the future.
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