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Estate planning — Part VII
If you haven’t already thought about estate planning, now is the time to start. Nobody wants to think about what will happen once they are gone. But by clarifying your goals and using basic estate planning techniques you can ensure that your wishes will be carried out and that your family is adequately provided for after you are gone.
Wills Wills are the cornerstone of any effective estate planning strategy. Drawing yours up should be one of the first things that you and your partner do as a newly married couple. In particular, it enables you to determine who will inherit your property, who will act as your children’s guardian, and who will execute your affairs after you die.
Trusts With a trust, you can leave your money to a beneficiary and still have control over how it will be put to use. It lets you designate how and when the beneficiary receives the funds. For instance, you can require that the funds be invested conservatively and that the beneficiary not gain access to the funds until she or he is a specific age. Also, a trust protects the money from creditors because this money cannot be taken from the beneficiary to settle a debt.
Benefits of trusts
- You can require that the funds be invested conservatively
- Protects the money from creditors because it cannot be taken from the beneficiary to settle a debt
- Can designate how and when the beneficiary receives the funds
Powers of Attorney In the event that you should become incapacitated, you should appoint someone to hold your power of attorney to make important decisions for you. There are generally two types of power of attorney: durable and health care.
1. Durable: A durable power of attorney gives authority to one or more people to manage your financial affairs on your behalf if you are disabled or are not capable of handling your finances yourself. This arrangement can be temporary or long term. Under its authority, the appointed “attorney-in-fact” can act on your behalf in the following ways:
- Use your money for your benefit to care for you, pay your medical bills etc
- Make charitable contributions from your estate
- Sign your tax return and other important documents
- Open bank and investments accounts and deposit funds into them
- Attend real estate closings
- Vote shares of stock that you own
- Make distributions from a trust for which you are the trustee or establish trusts for your beneficiaries if you haven’t already done so
Be careful when choosing a person for the role of power of attorney. Power is effective before you become disabled and therefore the holder of this power may transfer your assets in ways you do not approve of.
2. Healthcare: A healthcare power of attorney allows an individual to make your health care decisions in case you are unable to. For example, the holder of the power of attorney can ask doctors to terminate life support should the situation arise.
Living wills A living will clarifies your wishes regarding artificial life support. Most states now recognize your right to die naturally and the courts usually side with patients who have given instructions in advance concerning extending their lives with artificial support.
The easiest way to execute a living will and health care power of attorney is to use a standardized form available from most estate planning lawyers or from Choice in Dying, www.choices.org. Sign this living will in front of two impartial adults who are not related to you and who stand to inherit nothing from you. Copies of these wills should be placed with your medical records and with the executor of your estate.
Testamentary letters Whereas wills provide for distribution of larger assets such as your home, car, and bank accounts, testamentary letters designate who receives smaller items like china, family photos, and jewelry. This letter is a handwritten document that is referenced in a will. Many states recognize a testamentary letter as legally binding.
Like your will, the testamentary letter should be kept up-to-date and stored in an easy-to-find place.
Continue to: Part VIII: Property rights