In 2016, when Prince Rogers Nelson died intestate, he joined a list of celebrities, including Bob Marley, who had passed on without any form of estate planning. His only living beneficiaries were his sister and his five half-siblings, and according to intestate laws in Minnesota, his hometown, his siblings would distribute his estate among themselves.
Failing to create an estate plan made it more difficult for Prince’s heirs to settle his affairs. First, his siblings filed lawsuits against each other for various reasons. Additionally, the IRS disputed the valuations of the estate claiming that Prince’s estate is worth double the amount reported by the estate administration.
Some reports claim that estate planning was against Prince’s beliefs as a Jehovah’s Witness adherent, but the truth is that we will never know why Prince didn’t leave a Will or an estate plan.
Even if your estate is not as big or complex as a famous musician’s, you should still have an estate plan before your passing or incapacity. In this post, you will learn about estate planning and how to go about it, but first, what is an estate?
What is an Estate?
An estate is a term used to describe everything a person owns, including digital assets, real estate, insurance, cash, and investments. In the past, an estate typically referred to land and buildings on a vast property, commonly a farm or homestead, or the historic residence of a notable family. However, in the legal and financial sense, an estate refers to all of a person’s valuable assets. A person’s estate consists of their total assets minus their liabilities.
An estate plan protects your family and property when you pass on or become incapacitated. A solid estate plan includes instructions regarding your healthcare and property distribution. Every person should have an estate plan irrespective of age or economic class. The purpose of an estate plan is to distribute a person’s assets in accordance with their wishes and to lay out guidelines for end-of-life care.
What Is Estate Planning?
Estate planning is a step-by-step process of organizing the distribution of a person’s property and settlement of their affairs upon death or disability. There are many kinds of estate planning documents, including Wills, Beneficiaries designations, Living wills, Powers of attorney, and Trusts. Each of these documents is crucial in ensuring your loved ones experience a smooth transition in your absence. Generally, Estate planning ensures you:
- Decide who will inherit your possessions after your death.
- Designate an executor to manage your affairs after your death.
- Name a guardian for young children.
- Establish guidelines for financial and medical decisions for when you cannot make decisions.
- Avoid probate court and considerable expenses. Maintain the worth of your Trust.
What documents are needed for Estate planning?
A well-laid estate plan should have at least six essential documents :
- A durable power of attorney.
- Beneficiary designations.
- A living will.
- Medical directives.
- Guardianship designations.
In addition to these six documents, a successful estate plan should include long-term care insurance to cover old age, a lifetime annuity to provide income until death, and life insurance to give money to beneficiaries without probate.
What Is a Last Will and Testament?
A last will is a document where a person expresses their wishes regarding their belongings and heirs before passing on. A person’s last will specifies the distribution of their possessions, including whether they will be left to another person, a group, or donated to charity, as well as the disposition of other responsibilities, such as the care of dependents and management of accounts and financial interests.
A person makes a will while alive, but its instructions are only executed after death. A will designates a living individual as the executor also known as the personal representative of the estate and is the same person responsible for managing the estate. Typically, the probate court oversees the executor, ensuring that the will’s instructions are followed.
The last will provides the basis of an estate plan and is the principal document to guarantee that the deceased’s estate is resolved according to their wishes. Even though an estate plan may include more than just a will, the will is the document the probate court utilizes to direct the estate settling process. Learn more about the last will and write one today.
What Is a Living Will?
A living will is a document where a person chooses the kind of medical treatment they want if they cannot express their desires. A living will is also an advance directive, a general term used to describe any legal document that addresses your future medical care.
A living will is activated when a person cannot communicate their treatment preferences due to a life-threatening condition. Doctors do not review the wills for primary medical treatment that does not involve life-threatening conditions.
Consider an unconscious patient with a terminal disease or a life-threatening accident. Doctors and other health workers will consult the patient’s living will to ascertain whether or not the patient wishes to receive life-sustaining care, such as assisted breathing or tube feeding. In the absence of a living will, choices about medical treatment fall to a spouse, family members, or other third parties. These persons may be unaware of the patient’s wishes or unwilling to adhere to the patient’s vocal, unwritten instructions.
A common misconception regarding living wills is that they are difficult to create and execute. This assumption is most likely why so many individuals fail to implement one. In reality, the advance directive is a pretty straightforward document. The DeVries Law Firm can help you get started right away.
Power of Attorney.
A power of attorney (POA) is a document that authorizes someone to handle your property, medical, or financial affairs. Although it may be unsettling to think of the possibility of needing one, a power of attorney is crucial to your estate plan.
The person receiving authority is the agent, whereas the person granting authority is the principal. As a principal, you guarantee that you’ve put someone in place to make crucial decisions regarding your family, money, and healthcare.
A POA becomes active if the principal gets into a situation where they need decisions to be made on their behalf. For instance, if an illness or disability afflicts the principal, the agent will step in when necessary. Additionally, the agent can act on behalf of the principal if the principal cannot approve financial or legal transactions.
A power of attorney expires when the creator passes on, revokes it, or when a court of law invalidates it. In addition, a POA also ends when the creator divorces a spouse charged with a power of attorney or when an agent cannot continue carrying out outlined duties.
Five types of POA are useful in granting authority for different situations.
- Financial POA
- Springing POA
- General POA.
- Medical POA
- Durable POA.
The type of POA best for your estate plan will depend on your preferences and circumstances. For instance, creating a POA to plan for a situation where you could suddenly become disabled, such as a vehicle accident or a medical issue, is likely to require creating both a medical and financial POA.
A beneficiary designation is a document where a person who owns an asset(IRA, Health insurance) can appoint beneficiaries for the asset after they pass on. Beneficiary designations are specific to assets such as life insurance policies and individual retirement accounts. These assets are managed by the entity that holds the asset. For instance, suppose you buy a life insurance policy; the entity that owns your insurance will likely give you beneficiary designation paperwork. In the document, you would specify who should receive your insurance when you pass on.
Multiple beneficiaries are allowed. Assets can be distributed amongst many primary beneficiaries. Additionally, there can be several secondary beneficiaries. First in line to receive the asset are the primary beneficiary or beneficiaries. If the primary beneficiary passes on before the asset’s owner, refuses to receive the asset, or cannot be traced, the secondary or contingent beneficiary is the next in line. You should review your beneficiary designations periodically to keep the document relevant.
It is crucial to remember that a revocable living will or last will and testament do not take precedence over designations on accounts like your 401k, insurance policy, or retirement savings. If you designated a sibling or parent while opening one of these accounts because you didn’t have a family, whomever you selected would still receive your accounts even if your will mentions your spouse or children.
What is a Trust?
A trust is a document that permits a third party to hold assets on someone else’s behalf. The person or entity charged with caring for the assets is the trustee, while the grantor is the one entrusting their assets. Trusts may be set up in various ways, depending on the requirements of an individual. One of the primary advantages of a trust is that it typically allows the beneficiaries to avoid probate, allowing loved ones to access assets more quickly and easily.
A trust might be revocable or irrevocable. A revocable trust provides more flexibility, including the ability to make changes as needed. An irrevocable trust may give extra tax advantages, but it cannot be modified once established.
A Trust gives you control over your assets and where they go, and that’s an essential benefit. For starters, you can create a trust to provide long-term care for children with special needs. Another fantastic benefit of a trust is that it ensures that everyone in your family is covered. For instance, a trust can help you ensure your children receive their rightful inheritance, even if your spouse remarries or the family structure changes later in life.
Creating an estate plan often seems like a lot of work, but it’s not. Your effort in creating a solid estate plan is a worthy sacrifice if it means you get to protect your children. Your estate plan will also provide explicit instructions on how you want to be treated if you are disabled. The DeVries Law Firm provides step-by-step guidiance, simplifying the estate planning process. Schedule a free consultation to explore your situation in detail.