It is generally best to break complex responsibilities down to their simplest components. For example, how do you restore a car? As the song says, “one piece at a time.” This principle applies equally to estate planning, so let’s look at the five fundamental planning documents that can form the basis of our estate plans.
1 and 2) A Will or Trust
We’ll start with the centerpiece. After all, asset transfer after death is probably your primary concern in estate planning. There are two options at this stage. First, you can state your wishes in a simple will. Alternatively, you can utilize a trust. These two documents are easiest to discuss in comparison with each other.
We’ll start with the will. Use of a will has some limitations relative to a trust. One of its most immediate drawbacks is the extended timeline. If you use a will to govern your estate planning, then your inheritors won’t receive their bequests until the estate has been probated by the court. This process generally takes more than six months.
Probate creates its own headaches. Various expenses shave down the value of the estate before it is distributed to the heirs. Further, the general public can access these court records, which can affect your family’s privacy. A will typically distributes lump sum inheritances all at once. This is suboptimal when dealing with an inheritor who has tax issues, is going through a divorce, is dealing with substance addiction, or is simply bad at managing their money.
Let’s move to the living trust. A living trust generally has fewer drawbacks than a will. The primary negatives of a living trust are the expense and up-front paperwork. Its distributions are not subject to probate, and you can instruct the trustee to distribute limited assets over an extended period of time– meaning that they don’t receive the entire sum of money in a single distribution. This can provide a beneficiary with some protection from creditors.
There are numerous trust types that you can use to satisfy your objectives. A good estate planning attorney (rather subjectively, we consider ourselves to be among them) will get to know you and evaluate your situation to create a plan that fits your needs.
3) Living Will
We’ve already discussed a will, so how is the “living will” different? In short, a living will is the document that is used to express your choices regarding the use of feeding tubes, artificial hydration, resuscitation, and other life-support methods. Every estate plan should include a living will!
You can even add instructions regarding donation of your organ and tissue if you wish to do so, and you can include your preferences on medication. A living will gives you a great deal of control over your medical care.
4) Durable Powers of Attorney
Your living will is focused on life-support choices. What if a medical situation and/or emergency occurred that rendered you unable to effectively communicate your wishes? You can choose a trusted agent to make decisions on your behalf through a durable power of attorney for health care.
We all know that physical medical problems can cause incapacitation. Unfortunately, cognitive impairment is another threat many of us will face as we age. People with dementia become unable to handle their own financial affairs, so you should also have a durable power of attorney for property. This will permit a trusted agent to make financial decisions on your behalf in the event you are unable to do so.
Please note that, if you have a living trust, you will act as the trustee while you are alive and retain mental capacity. You will name a disability trustee to assume this role in the event of your incapacity.
5) HIPAA Release
HIPAA has been coming up in many conversations lately. What does “HIPAA” actually mean? The Health Insurance Portability and Accountability Act (HIPAA) is a law enacted almost thirty years ago. Significantly, provisions contained within HIPAA prevent doctors from sharing medical information with anyone but the patient. This was intended to protect the privacy of patients.
You should add a HIPAA release to your estate plan in order to give your healthcare representative the freedom to access all relevant information. You can grant these permissions to any number of people who are involved in managing your care.
Want to Learn More?
You came to us for information on elder care and estate planning, and we’re happy to help. We update our blog with new materials on a regular basis, and these are available to you completely free of charges or metaphorical “strings” attached.
We also have a small library of special reports. These cover important topics, are easy-to-read, and you can access any or all of them at any time. Please feel free to visit our special reports page to retrieve your own copies.
Our blog also contains helpful articles on a number of subjects. For example, you can read our articles on will contests, why to use a living trust, or IRAs and inheritances.
If you’d like to work with an estate planning attorney, give us a call at 512-258-9455. We’d love to help! Alternatively, you can send us a message to request a consultation.
- That Giving Feeling - February 20, 2023
- Do I Trust You? Part III - February 16, 2023
- Do I Trust You? Part II - February 15, 2023