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An estate plan benefits you and your loved ones in the event that you become incapacitated and upon your death.
Planning now, while you are healthy, enables you to organize your affairs according to your wishes and to choose the person you would like to handle your estate.
Many documents are used in estate planning. The following is a list of five basic documents that can help with everything from minimizing taxes to avoiding probate, and allocating decision-making power to properly dispersing assets.
Financial Power of Attorney (for Property) –
A financial power of attorney allows an individual (agent), chosen by you, to handle your non-trust assets in the event that you become incapacitated. Through a power of attorney you can enable your agent to pay your bills from your bank account or transfer assets in to your living trust.
Healthcare Power of Attorney –
A healthcare power of attorney is very similar to the financial power of attorney described above. However, in a Healthcare POA your appointed agent will have the authority to make health care related decisions for you in the event that you are unable to do so for yourself. By the power of this document, your agent is able to consent to surgery on your behalf and to express your preferences regarding life-sustaining care if you are unable to speak for yourself.
Health Insurance Portability and Accountability Act Authorization(HIPAA) –
A HIPAA authorization allows your designated agent to obtain protected medical information about you in order to handle your medical affairs.
The Powers of Attorney and HIPPA authorization should be customized for each person. For example, rather than simply authorizing an appointed agent to make “health care decisions” for you, you may specify your specific wishes as to care. One notable example would be home care. Most people would prefer to age at home. If you were to have a stroke or suffer from dementia and could not express your desire, how would the person who is appointed to act as your agent know this? A simple fix is to write it down! Simply place your desires in the Powers of Attorney. How hard is that?
Last Will and Testament –
A will is a public document that is subject to probate court. Therefore, the creation of a will alone is not sufficient to create a solid estate plan. However, a will is still a useful document when used in conjunction with a living trust. A will can “catch” any assets that have not been transferred to the trust. Also, a will gives you the ability to nominate guardians for minor children. A common mistake when drafting a will is to fail to provide for the retirement and long term care needs of the surviving spouse. One simple way to use a will to provide for the surviving spouse is to leave the spouse his or her inheritance in a care management trust rather than an inheritance outright. This simple provision will make it far easier for the surviving spouse to obtain long term care benefits later if needed.
Revocable Living Trust –
A revocable living trust is useful, first and foremost, because it is a private document, and as such, it is not subject to probate proceedings. As we have discussed in previous blogs, probate court can be expensive and complicated and should be avoided whenever possible.
In order for a trust to work, it is imperative that assets be transferred into the trust. Once the trust is created, you continue to control your assets as you do now, but upon your incapacitation, your named trustee will manage the assets on your behalf. Furthermore, upon your death, your trustee will distribute the assets to your beneficiaries according to your plan.