Creating an estate plan is a crucial element in caring for your family. In order to situate your loved ones on a successful path, it is important to understand what documents you should have in place.
Although each estate plan is unique to the client’s particular goals and wishes, there are basic documents that should be considered in creating a proper estate plan. Here is some general insight into the documents that you may wish to have in your estate planning toolbox.
Advance Directives
Advance directives, such as the Power of Attorney, Health Care Proxy and Living Will, are legal documents that allow you to direct who will be in charge of handling your financial and medical decisions on your behalf in the event of your incapacity and inability to take care of such affairs. By having these directives in place, you alleviate your family members from the time, expense, and aggravation of having to go to court to gain control over your affairs during a time of crisis.
Last Will & Testament
In addition to the advance directives, you should also have a Last Will and Testament (“Will”) in place. Unlike the advance directives, a Will comes into play upon your death. This legal document outlines who will receive your assets at the time of your death and who will be in charge of administering your wishes. It is important to note that a Will only governs assets which are titled in your name alone and do not contain beneficiary designations.
The creation of a Will allows you to personally design the distribution of such assets rather than it being left to the provisions under the New York State law. Additionally, you are able to choose the Executor who will handle the administration of your estate. It is important that you choose someone who is trustworthy and reliable to carry out your wishes.
Even if all of your assets contain beneficiary designations or are jointly owned with rights of survivorship, it is still good practice to establish a Last Will and Testament. For instance, what if there is a pending lawsuit at the time of your death and your estate wins the case? The lawsuit proceeds would be payable to your estate and then distributed by the Executor pursuant to the terms of your Will.
If assets pass through your Will, then the transfer of those assets from your estate to your beneficiaries requires a probate proceeding in court. There are certain circumstances in which it is desirable to avoid a probate proceeding (e.g., privacy reasons, ownership of real property in multiple states, unnatural disposition of assets, ease of administration, etc.). In these cases, the addition of a Trust to your estate plan can be very valuable.
Trusts
A probate proceeding in court can be avoided by creating and funding a trust, whether a Revocable Trust or Irrevocable Trust. With trust planning, assets are funded into the Trust during your lifetime and are managed by the Trustee of the Trust. Upon your death, the Trustee can distribute the Trust assets in accordance with the terms of your Trust (similar to a Last Will and Testament), but without any court involvement. This eases the administration of your estate for your loved ones.
Avoiding probate is only one reason you may want a Trust as part of your estate plan. There are many other reasons you may want to create a Trust (e.g., Medicaid planning, estate tax planning, etc. ), which is why it is important to speak with counsel regarding your overall goals.
As we are all aware, life is uncertain and constantly throws obstacles in our way. Therefore, taking the necessary precautions and preparing ahead of time with a good estate plan is the responsible thing to do for your loved ones.