Everyone knows that estate planning is important, but how do we get started with it? Let’s get started by breaking it down into pieces. What are the four components of a basic, solid estate plan?
Will or Trust
This is the centerpiece! It answers this question – “how will my loved ones actually receive my possessions?” You may use a will to lay this out, but it has some drawbacks relative to a trust.
One consideration is that the inheritors of a will typically receive their inheritance as a single lump sum. This means that they have neither guidance nor guardrails in the future, and may provide them with enough resources to destroy themselves or cut them off disability benefits. These drawbacks are acceptable for some situations, certainly, but many families desire a higher “margin of safety.”
A second drawback to consider is this: complications in estate administration. These include financial complications, headaches, and wasted time. Here in Texas we can use a small estate affidavit to claim some property if an estate is valued at $75,000 or less. There is also a simplified probate process for small estates– but once people do the math, they often find that their estate exceeds this figure.
Let’s say your estate is neither under $75,000 nor ideally suited to a will. What happens if you use one anyway? Your executor must admit the document to probate. This court process tends to be time consuming, and ties up the estate’s resources while it is ongoing.
Please note that probate records are public. This means that anyone who is interested– including marketers– can access the records to find out how the resources were distributed, and probate expenses reduce the value of the estate. We here at SSLF dislike probate because we have found it to be inefficient and stressful for our clients.
What are your other options? One choice that works for most people is the revocable living trust. A solid trust can form the centerpiece of your estate plan. The trust is revocable while you are still alive and have mental capacity, and essentially holds the title to assets on your behalf.
The right of revocation is not your only source of control, because you will typically act as the trustee (manager of the trust) while you are alive and well. This means you have complete access to the trust’s resources.
The trust declaration will also name a successor trustee who can administer the trust after you pass away, and your heirs will become beneficiaries. This means that the trustee should distribute assets to the beneficiaries in accordance with your wishes.
The nature of this process (assuming everything has been constructed correctly) eliminates the need for probate, which is generally a net gain to both speed and financial efficiency. You can even include a spendthrift provision in the trust, and you can instruct the trustee to provide limited incremental distributions to the beneficiaries– giving your loved ones enough resources to live in dignity, but not enough to destroy themselves. This may be structured so that creditors cannot reach the principal.
Trusts are highly flexible tools, and may be used to satisfy specific objectives. It is wise to work with an estate planning attorney to examine all of your options before you commit to a single course of action.
A living will is used to express your preferences regarding the use of life-support measures like resuscitation, ventilation, and artificial nutrition and hydration. Do you wish to be kept alive by artificial means? Do you want to restrict those means? This form permits you to plan this out. You can also include your organ donation and comfort care medication choices.
Durable Powers of Attorney
How can we plan for unexpected accidents or medical emergencies? After all, medical situations and complications can arise that are not related to the utilization of life support. These may still render us unable to advocate for ourselves, however. If you are unable to communicate, who will advocate for you? To account for this possibility, your plan should include a durable power of attorney for health care.
The trusted person you name in this document will be able to make healthcare decisions on your behalf, but they should consider the wishes you have expressed in your living will. These wishes may not carry the full decision, but they carry weight.
It is also recommended to use a second power of attorney to name a representative who can handle your financial affairs if you are disabled. You can name a disability trustee in your living trust to assume this role in the event of your incapacity.
HIPAA Release Form
Finally, let’s consider a HIPAA release. This acronym stands for the Health Insurance Portability and Accountability Act of 1996, and most of us know that it restricts disclosure of your medical information. However, if your loved ones are restricted from receiving your medical information, how can they make informed decisions under a power of attorney?
When you sign this release (also often called an “authorization”), you give doctors permission to release information to the people whom you choose. This information is crucial to those people who are advocating for you, and you may choose to extend this information to others as well.
Schedule a Consultation Today!
Ready to work with an estate planning attorney here in Cedar Park? Give us a call at (512) 258-9455 or send us a message. There is no obligation, and we’d love to talk with you, get to know you a bit, and find the best way to proceed in your situation.