Estate Planning 101

Estate Planning 101

While many people think estate planning is only for very wealthy people, almost every family can benefit from having its own estate plan taking into account their specific needs. Without a plan of your own, the state will control many things, including how you are cared for as you get older, who can make healthcare and financial decisions for you, and how your assets are distributed after you pass away. Of course, the government doesn’t have an interest in making sure your wishes are carried out or minimizing estate costs.

Using the tools described on this page, and depending on your particular needs, a well-designed plan can help you accomplish the following goals and more:

  • Maintain control of your property while you are alive, and give what you want, to whom you want, in the manner you want after you pass away;

  • Take care of you and your family if you become incapacitated;

  • Protect your heirs from losing their inheritance if they become divorced or get remarried;

  • Make sure your heirs are mature enough to handle a large inheritance on their own, and if they are not, protect the inheritance until they are ready;

  • Prevent family conflict after your death.

Click here for more information about WHY you need an estate plan.

The Will or Last Will and Testament

A Will governs the disposition of your property. Without a Will, you will be deemed to die “intestate,” which means your assets will be distributed according to the laws of the state in which you live. In other words, you will have no control. If you allow this to occur, your assets could end up with some remote or estranged heir to whom you had no intention of giving anything. Additionally, if you have minor children, a Judge will decide who will be their guardian and who will manage the assets that you leave them. A Will is often the centerpiece, and should be a part of, every estate plan. For Last Will and Testament basics, including common terms, provisions and clauses, see Anatomy of a Will.

Living Trusts and Testamentary Trusts

In simplest terms, a trust is a legal agreement between at least three parties: the grantor (also called the trust maker, trustor, or settlor), the trustee, and one or more beneficiaries. The grantor is the individual who creates the trust agreement, then transfers ownership of certain assets to the trust. The trustee manages those assets for the benefit of the beneficiary or beneficiaries.

Whether established during life (Living Trust) or at death (Testamentary Trust), a trust agreement provides a means to control how, when, and for what purpose, assets pass to future generations.

A Living Trust can provide for orderly control of assets during your life, including the ability to provide for any disability or incapacity that may occur. All living trusts are either revocable or irrevocable, and go into effect during the grantor’s lifetime. A revocable Trust can be modified or terminated after its creation, whereas an irrevocable Trust can never be changed.

A Testamentary Trust specifies how your assets will pass after your death. People often turn to a Testamentary Trust in an effort to avoid the probate process or to save on estate taxes.

For Trust basics, including terminology and how to create a Trust, see Anatomy of a Trust.

Power of Attorney for Property

A Power of Attorney is a legal document that names one or more individuals designated by you to make decisions concerning your property. Powers of attorney are valuable tools for managing your personal affairs, business affairs, and health care. They can be used to appoint an agent to act on your behalf in the event you are unavailable (for example, due to military deployment) or incapacitated.

Unless drafted properly, the power may end if you (the grantor of the power) become physically or mentally incapacitated. This can be addressed through a “durable” power of attorney, which lasts through incapacity, or a “springing” power of attorney, which only comes into being in the event of incapacity.

A Power of Attorney ends at death and cannot be used as a means to avoid probate or transfer ownership of assets. In addition, some financial institutions refuse to honor this document unless it is drafted on their form. Finally, if drafted too broadly, the Power of Attorney can be easily abused leaving your assets at risk.

Medical Directive

A Medical Directive (also sometimes called a “Durable Power of Attorney for Health Care”), is an important legal document essential to every estate plan. In many jurisdictions, it serves two functions. First, it acts as a Living Will, containing provisions outlining your desires as to what medical treatments should be utilized to keep you alive should death become imminent or if you are in a persistent vegetative state without any chance of recovery. Whether or not you are in such a state is determined by medical professionals, usually including your attending physician and at least one other medical doctor.

Second, your Medical Directive will also designate the person that you want to make medical decisions for you when you are unable to express your preferences. Typically, this occurs in situations where you are unconscious or in a mental state where you do not have the legal capacity to make decisions for yourself.

During this stressful time, having a clear understanding in writing of your desires will prevent family disharmony and assist your physicians in providing the appropriate treatment.

HIPAA Authorization

The Health Insurance Portability and Accountability Act (HIPAA) established national standards to protect the privacy of patients’ health care information. It mandates that health care providers and insurance companies who release the medical information of patients can face civil fines, criminal penalties, even imprisonment. While most of us would agree that medical information should be kept private, HIPAA has resulted in some unfortunate consequences for patients and their families. This is because the penalties associated with violating it often make health care providers extremely cautious about sharing medical information, even in an emergency, with family members, spouses and children. Fortunately, you can sign a HIPAA authorization that allows you to specify individuals authorized to have access to your medical information. This makes it easier for your loved ones to ascertain your condition in an emergency and provide support in your hour of need.

Probate

Probate is the court process that occurs after someone dies, and is used to change title to assets from the name of the individual who has passed away into the name of the living beneficiaries. It is also the process by which creditors of a decedent file claims to collect their debts and where interested parties who have a complaint regarding the deceased can file a complaint (a Will contest).

Many people are surprised to learn that a Will does not help you avoid probate.  The purpose of a Will is to make your wishes known concerning your assets, the beneficiaries of those assets, and the appointment of your executor. If you do not have a Will in place when you pass away, the courts will have the power to distribute your assets for you. A Will is therefore important to have in place before a tragedy occurs, so your wishes are carried out the way you intend. 

Probate court, whether there is a Will or not, must oversee the distribution of your property.

Estate Administration

The executor of a Will, successor trustee of a Living Trust, or administrator of an estate where there is no Will or Trust are fiduciaries who must act in accordance with the terms of the Will or Trust and applicable law. Such fiduciaries are charged with the task of administering the Trust or estate. Depending on the type of property owned, how it is titled, the provisions of the decedent’s Will or Living Trust, and the applicable law, the fiduciary often has complicated responsibilities, including notifying creditors and paying debts, filing a final income tax return, and changing title and distributing property to heirs.

For more information and FAQs about estate planning, read our Estate Planning Blog.

Contact a Wayside Legal Estate Planning Attorney

Wayside Legal LLC is an award-winning law firm located in North Bethesda, Maryland, with experience handling estate planning matters in Maryland, D.C., and Virginia. If you are facing a situation where you need assistance with planning for the future, contact a Wayside Legal attorney today for a consultation to discuss your specific estate planning needs.