Most people are familiar with the term "estate planning," but often question whether it applies to them. Some perceive that estate planning is only for those with significant wealth or property, and therefore avoid preparing a plan. More often, we simply do not like to think about what an estate plan implies-death or disability! That is a natural reaction, and I am often reminded of how difficult it can be to discuss end of life issues. Despite that difficulty or the perception that an estate plan is only for the wealthy, having a plan is among the most important decisions one can make. A good estate plan takes the burden away from your family and survivors regarding your possessions, and more importantly, gives guidance for decisions about your quality of life. The components of an estate plan follow.
Last Will and Testament
I expect that most people know what a will does and have seen movies depicting the dramatic "reading of the will." While the formal reading of the will is cliché these days, it does demonstrate its main purpose-to carry out the wishes of the deceased person regarding their property. The will also designates a personal representative (formerly known an executor) to carry out the instructions contained in the will. At death, the property you own is known as the estate, and the will's prime objective is to manage the estate.
A typical will nominates a personal representative and a successor representative. It may provide for specific gifts to specific people. After those specific gifts are made, the will divides the remaining property among designated people. Those receiving property under a will can be family, friends, charities, or complete strangers.
For families with minor children, a will can also set up a trust to care for them in the event that both parents are deceased. The trust only comes into being in that event, so there is nothing to set up or maintain until both parents are deceased. This is a very common feature and provides peace of mind for parents that their children will be cared for financially. A will may also designate a guardian for minor children.
For people with significant wealth, a will might also have some tax features, but even in those plans, the basic function of a will is to make it clear what your intentions are for your property. Even modest estates are better served by having a will-to take the burden off of survivors, to make provisions for family and friends, and to designate someone to act for the estate. In the absence of a will, an estate must look to the state probate code to determine to whom the estate will pass and who will be the representative of the estate.
In sum, it is better to make your intent clear and have peace of mind for your family, rather than rely on the probate code to dictate how your estate is handled.
Powers of Attorney
Powers of attorney designate someone to act on your behalf in certain situations. The can be general or limited, of a durable or a specified duration. The most common power of attorney is the Durable General Power of Attorney, which nominates someone to act on your behalf in financial matters. Typically, in the event of your inability to act on your behalf, the general power of attorney allows another to act for you. Examples of such acts can be paying bills, arranging for housing or providing for in home care.
A Durable Medical Power of Attorney designates someone to make medical decisions for you. This power of attorney is used when someone is injured and unable to give consent. The medical power of attorney provides a mechanism for someone to give such consent on the injured person's behalf.
Powers of attorney apply only during your lifetime, and have no real effect after death. They are important to provide a method to make sure your affairs, both medical and financial, can be conducted during a period of time when you are disabled, or otherwise unable to act on your own behalf. Without powers of attorney, we are vulnerable to delay, or even court actions to appoint a conservator (whose authority is similar to an agent's under a power of attorney). Just like the will provides continuity after death regarding your possessions, powers of attorney provide for continuity during life, if you cannot act for yourself.
While a living will is described last in this article, it might be the most important instrument of an estate plan. While a will describes your intent with regard to your possession, a living will describes your intent regarding your life.
A typical living will assumes that you are in a coma or are unconscious from a terminal condition from which you will not recover. Two physicians are required to make the diagnosis. After the diagnosis is made, the living will states that you have chosen to remain in that condition for a certain period of time, that after the passage of that time you wish that no heroic measures be taken to save your life, that you wish to be made comfortable, and that you wish to be removed from a feeding tube or other artificial devices.
This document is important since it removes these difficult decisions from the shoulders of your family, and allows you to control the circumstances in which you want care to cease. While this issue is not easy to think about, it is better to do so in times of good health, rather than making family members make this decision in an emotional time.
There are other options, such as trusts, limited powers of attorney, do not resuscitate orders, charitable remainder trusts-the list goes on. Rather than getting bogged down with all the possibilities, people should consider at least having a will, powers of attorney and a living will. These 3 types of documents form the bedrock of an estate plan, and provide for continuity and peace of mind. They do not have to be complicated, but should express a person's desires for their property and life decisions.