What Are The Benefits Of Planning Your Estate?

Estate Planning is one of the most important things you can do to protect your health, your assets and your family.

What exactly is Estate Planning?

Although Estate Planning varies somewhat from state to state, there are similarities for all states. And while some states may have Estate taxes (taxes directly on assets), some may have Inheritance taxes (taxes on the different categories of heirs) and some have no taxes whatsoever, planning for the future is a wise idea for everyone. The idea is to preserve assets and have one's wishes carried out within the context of future events.

The best way to approach Estate planning is to make an appointment to discuss one's future needs and wishes with an attorney who is specialized in the area of Estates and Trusts. While anyone may write a Last Will and Testament, having a qualified attorney prepare and supervise this action will help to ensure the validity of the documents and will also help to prevent any unnecessary problems that may arise from matters that run the gamut from unclear language in explaining one's wishes to outright Will contests.

Additionally, holographic Wills, that is, Wills written by individuals without supervision by attorneys have a history of not always being held up in court. This is just a caveat for those who are giving this issue serious consideration.

Although the documentation required may differ from state to state, essentially there are three parts or aspects to the planning of one's Estate.

Part I - The Durable Power of Attorney

A durable power of attorney is a document that is generally used for one of two reasons and exists in order to let a person, who is in control of all facilities and capacities at the time of writing this document, choose, in essence, his or her legal guardian or committee. The purpose is to officially designate someone or ones to represent that person's intentions in matters concerning either healthcare or financial matters.

For purposes of this discussion, this section will deal with the financial durable power of attorney. Healthcare will be covered in another section.

A financial durable power of attorney is made by a grantor or testator (one who is writing this document, or who is having it written for them) to appoint, or at least indicate an individual or entity, having the creator's trust, to handle any and all matters should that individual become incapacitated. This is fiduciary accountability.

The person or the entity appointed (such as a family member or an attorney or bank representative), would then be in a position to pay the incapacitated person's bills, manage assets, make investment choices if necessary, and deal with any matters of a financial nature.

If a person were to become incapacitated for any reason without such a document, while the norm would be to look to a next of kin, the jurisdictional court would have the duty and the right to possibly appoint someone as they would see fit. As with the other documents that will be discussed next, having a durable power of attorney can offer considerable peace of mind.

Part II - The Living Will, also known as the Advanced Directive or Healthcare Proxy or Healthcare Durable Power of Attorney

As the name seems to imply, this document has one purpose and one purpose alone. That purpose is to see to the healthcare wishes of an individual, if he or she were to become incapacitated. It can be very broad in its terms, or highly specific, as to what the person who writes it wishes to see put into practice by medical professionals.

Many hospitals will even ask if a Directive has been written at the time of admissions for a procedure, so that they, as hospital healthcare workers, can provide adequate services in trying to adhere to requests.

The Living Will will typically name a person who is to designated as the debilitated person's personal representative. It will usually indicate wishes if a situation were to become extreme, such as whether or not extraordinary or mechanical means are desired for keeping that patient alive, whether or not to implement feeding tubes and direction with regards to certain procedures and medications.

There is one caveat with respect to the Living Will: while this document is intended to expressly lay out the wishes of the testator or creator of such a document, and it also can alleviate guilt brought on by family members having to make difficult and painful decisions, there are some doctors and some hospitals, protected by wording in state law, which allows them to disregard the wishes if such practices contravenes the practitioners' and/or the hospitals' religious or moral convictions. Nonetheless, the Living Will does give guidance to medical professionals and to the person acting as the personal representative, and again, it can definitely provide peace of mind.

However, as with everything else, it is best to be informed of local law and custom, if possible, and a good attorney can provide the best counsel in these matters.

Part III - The Last Will and Testament

Chances are, most people have seen television shows where there is a creative reading of the Will. In these shows, everyone waits nervously until the final words are spoken. Inevitably someone gets the packet and someone gets disinherited in a large way. It certainly can create some dramatic tension. But in truth, this is largely fiction.

In olden times, the reading of the Will was a standard, but in modern times like today, the majority of Wills written are submitted to Surrogate's Court or Orphan's Court or Probate Court, (naming of the Court depending upon jurisdiction), after a person has passed away. Then, the Will, any Codicils and other required paperwork (along with any filing fees) are submitted to the Court and the attendant judge signs an order granting Letters Testamentary or Letters of Administration (a piece of paper authorizing the assigned personal representative the legal right to represent the Estate) to the person that the Will has designated as Executor or Administrator.

Sounds like a lot of words in legalese, but the truth of the matter is a fairly simple one.

A Last Will and Testament is the ultimate document in saying specifically what an individual wants to be done with his or her personal Estate. Depending upon the nature of the assets, and how the person leaving said assets wants the disposition to be administered, it can be pretty simple or very complex. A Will spells out the wishes of the person, who is called a grantor or testator.

An asset that is held in joint name will pass to the surviving joint owner, and thereby bypass Probate, which is the filing of the Will and other relevant documents with the Court. Any assets which have a named beneficiary will do similarly: that is, assets such as life insurance, certificates of deposits with named beneficiary(ies) and many retirement plans will not be Probate property either.

Anything else that does not fit the above description is considered Probate property. That could include (but is not limited to) cash, solely owned stock and bond portfolios, real estate, tangibles goods (i.e., collections, artwork, etc.) and interests in one's own business or a partnership, beneficial interests in a trust and so on. An inventory would be made at the time of death, and this would be part of the Probate filing.

The personal representative (also known as Executor or Administrator) would be responsible, once officially appointed by the Court, to marshal assets, pay all debts of the decedent (the person who died), pay the ongoing expenses of the Estate, and finally, make distributions.

It is a huge job, particularly with some Estates.

Now, about taxes. The other major issue here is most assuredly taxes. Beside wanting to designate the personal representative(s) and Trustees (if there are any Trusts to manage under the Will), the goal of Estate planning and writing a Will is to minimize Estate taxes. Depending upon how the Estate is set up, taxes can be minimized significantly by careful and thoughtful Estate planning.

Sometimes it can be done through Trusts, sometimes through charitable gifts and sometimes, it can be managed by structuring distributions in such a way as to be of benefit to everyone.

There are times where small, modest changes will be made to a Will, and that is when a Codicil, which is an addendum to the Will, will be made. If significant changes must be made in a Will, then it is generally better, as a rule, to make a new Will. An attorney in this field can advise about the best way to approach the changes, however.

What a Will will accomplish is to delineate with fairly precise detail, exactly in what manner any assets will be disposed of. It can appoint personal representatives and Trustees, it can establish trusts, nominate guardians for minor children and it may set up certain conditions for all of the above to happen.

The bottom line, however, is that Estate planning is not only necessary in preparing for the future, but is an intelligent thing to do when one wants to preserve assets, plan for eventualities and arrange for the best possible healthcare, in accordance with one's own personal wishes.

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