Estate Planning: Just the Basics
Contributed by Caroline Currier
You may have previously avoided estate planning due to the unpleasantness associated with the possibility of death or incapacity. You may have started the process of getting an estate plan at some point, but later found the details involved to be daunting or overwhelming, and failed to follow through. However, a failure to properly plan may have significant consequences.
Fortunately, with the right guidance, preparing your family for such an unexpected event can be simple. In fact, we drafted this article to break down the seemingly complex concepts and documents involved with an estate plan.
What is an Estate Plan?
A properly designed Estate Plan ensures that your assets such as real estate, bank accounts, retirement accounts and life insurance policies will be distributed to your loved ones or specified charities according to your wishes, while also minimizing taxes and expenses.
A properly executed estate plan typically includes either a Last Will and Testament or a Living Trust, both Medical and Financial Powers of Attorney and a Living Will. Let’s take a look at what each of these things are and the purposes they serve:
Trust or Last Will and Testament: The first key document that your estate plan should have is a “Last Will and Testament” (a “Will”) or a “Living Trust.” Both a Will and a Living Trust allow you to specify where your money and possessions should go upon your passing and who the individuals are that will be responsible for managing the estate, paying debts, and distributing property as specified.
The most commonly asked question an estate planning attorney answers is: “What is the difference between a Will and a Trust?” The central difference between the two documents is probate. A Will only takes effect upon your death, and must go through court proceedings known as Probate. In Arkansas, a probate estate must remain open for a minimum of six months but can take much longer, during which time court and administrative fees must be paid out from the estate. Furthermore, probate proceedings are public.
A Living Trust is created and funded with your assets during your lifetime, meaning that you can transfer assets into and out of your Trust throughout your life. The Trust therein provides a certain layer of protection for your assets during your lifetime. A Trust plan also provides a seamless transition of assets for your loved ones upon your death, as the Trust can be administered without going through probate court.
It is important to note that Trusts are typically the more expensive option when looking at estate plans. However, those are willing to spend more on the front end in order to save their loved ones from the expense and headache of the public probate proceedings will find a Trust to be the best estate planning tool for them.
Powers of Attorney
Every good estate plan should also include provisions for incapacity. Incapacity might be a sudden-onset, debilitating impairment due to an accident or illness that inhibits your ability to make a decision on your own. Scenarios in which an individual is incapacitated can be troubling if a healthcare decision or the payment of an important expense must be made in an emergency.
To protect yourself and your loved ones in the event of an incapacity, it is important that you have both a Financial and a Medical Power of Attorney.
Financial Power of Attorney: In this document, you appoint someone — generally a spouse or family member — who can make financial decisions on your behalf. This includes allowing access to bank accounts to ensure bills and mortgages continue to get paid in the event of illness or incapacitation. This document also allows you to nominate a Guardian to act for any minor children that you have in the event that you become temporarily incapacitated and unable to care for them.
Medical Power of Attorney: In this document, you appoint someone – generally a spouse or family member — to make decisions on your behalf about medical care and treatment.
A living will specifies your wishes for end-of-life medical care. Specifically, this document allows you to declare, in advance, whether you want to be kept alive by artificial means if you are in a terminal state.
In sum, the work that goes into an estate plan is well worth the reward of relieving your loved ones from great stress and expense down the road. It is important to understand the basics of an estate plan before you dive into the process. The Estate Planning attorneys at Miller Butler can explain the details of a quality estate plan and walk through the best options for you and your family. Call our office today to schedule a meeting with an Estate Planning attorney.