What Is Estate Planning?

The definition of Estate Planning is easy: it is a plan for your estate.  Your estate is what you own; it is your stuff. 

If you become mentally incapacitated, perhaps by accident or illness, you can no longer manage your stuff.  You can't buy or sell what you need, pay you bills, or file your taxes.  Someone will have to do this for you.  If you plan for this with Powers of Attoney or Trusts, you get to choose who helps you manage your stuff.  If you don't, a judge will choose someone for you after an expensive court proceeding.  You may not agree with the judges choice and it may be a stranger who is charging you hourly.

When you pass away, the ownership of you stuff must pass to someone else (sorry).  If you plan in advance for this, you get to choose who gets what, when they get it and how they get it.  You even get to avoid taxes that will be due if no planning is done.  You can do this by getting a Will or Revocable Living Trust.  You can also control who gets what with beneficiary designations such as with life insurance and retirement accounts.  Bank accounts can be designated Payable on Death (POD) to your beneficiary.  You can also own an asset jointly with someone else so that they become the sole owner if you die.  If you do not plan in advance, the law sets forth who gets what.

A typical Estate Plan may have a Will, Trust, Financial Power of Attorney, Healthcare Power of Attorney and a Living Will.  This planning is really not so much for you but for your loved ones.  If you have an Estate Plan, check to see if it needs an update.  If you don't have a plan, get one.  Your loved one's will thank you someday.

General Durable Power of Attorney

Your Durable Power of Attorney

For most people, the durable power of attorney is the most important estate planning instrument available--even more useful than a will. A power of attorney allows a person you appoint -- your "attorney-in-fact" or "agent" -- to act in your place for financial purposes when and if you ever become incapacitated.

In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that she could implement immediately under a simple durable power of attorney.

A power of attorney may be limited or general. A limited power of attorney may give someone the right to sign a deed to property on a day when you are out of town. Or it may allow someone to sign checks for you. A general power is comprehensive and gives your attorney-in-fact all the powers and rights that you have yourself.

A power of attorney may also be either current or "springing." Most powers of attorney take effect immediately upon their execution, even if the understanding is that they will not be used until and unless the grantor becomes incapacitated. However, the document can also be written so that it does not become effective until such incapacity occurs. In such cases, it is very important that the standard for determining incapacity and triggering the power of attorney be clearly laid out in the document itself.

However, attorneys report that their clients are experiencing increasing difficulty in getting banks or other financial institutions to recognize the authority of an agent under a durable power of attorney. A certain amount of caution on the part of financial institutions is understandable: When someone steps forward claiming to represent the account holder, the financial institution wants to verify that the attorney-in-fact indeed has the authority to act for the principal. Still, some institutions go overboard, for example requiring that the attorney-in-fact indemnify them against any loss. Many banks or other financial institutions have their own standard power of attorney forms. To avoid problems, you may want to execute such forms offered by the institutions with which you have accounts. In addition, many attorneys counsel their clients to create living trusts in part to avoid this sort of problem with powers of attorney.

While you should seriously consider executing a durable power of attorney, if you do not have someone you trust to appoint it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable power of attorney simply nominating the person you want to serve as your conservator or guardian. Most states require the court to respect your nomination "except for good cause or disqualification."

Last Will and Testament

If you own assets in your name alone, they may pass from you to the people you love, as long as you leave a Will. Without a Will, your assets pass according to the State’s rules, also known as intestacy. The State may not pass your assets to the people you care about. You should be sure.

Also, you should know that...

• Assets will pass through your Will to your loved ones if the Will is written properly.

• You can reduce your estate tax liability by using a trust in a Will.

• You can protect the ones you love by creating a trust in your Will which can protect that person from creditors.

• You can protect you.

• It is important that you give your family the tools to help you if you cannot help yourself, your children from divorce or, you may protect your children who are not good with money, or those who have other problems, such as addiction or mental illness.

• You can protect disabled beneficiaries by creating a Supplemental Needs Trust for them, which preserves assets for the family, while keeping their eligibility for public benefits.

• Your Will must go through probate - using the courts to divide your property.