Estate planning is a crucial responsibility of asset holders to make sure their holdings properly transfer to their heirs. However, estate planning goes far beyond drafting a will. Every adult should have these six important estate planning documents.
Your estate documents dictate the fate of both your physical assets and equity. The following documents assure that you stay in control, and that your estate turns over properly upon your death. It is important that you review your estate documents regularly and keep them up to date. Additionally, if you are married, both you and your spouse should have one of each.
Last Will and Testament
Your will is a legal document that defines who will inherit your property upon death, and it is solely held in your name. Furthermore, your will also defines the primary and secondary people that will assume the roles of executor of the estate, the investment advisor for the children’s money who are under 18, and the custodian of the children under 18. Keep in mind that wills do not avoid probate court. This means it can be reviewed by the court in order to analyze its authenticity and reliability.
Revocable Living Trust
A revocable living trust is designed to avoid probate court upon your death. In this case, “revocable” means that you can change any aspect of the trust as many times as you want prior to your death. “Living” implies that the trust can instruct the way in which your assets and bills should be managed should you become unable to do so.
Most importantly, the revocable living trust allows your assets to pass directly to your heirs as you have defined in the trust without the headache, time, or costs of probate court. Court costs can often be 5% of the value of the total assets plus lawyer fees. Even if probate court fees are low in your state, a revocable living trust will save a huge amount of stress and time by avoiding the courts all together.
Durable Power of Attorney
A durable power of attorney (POA) is a document which grants the authorization of someone to represent or act on another person’s behalf in private affairs, business, or any other legal matters — sometimes against the wishes of a another party.
The person authorizing the other to act on their behalf is referred to as the principal, grantor, or donor. The one authorized to act is referred to as the agent or attorney-in-fact. “Durable” in this case means that the agent is allowed to act even if the grantor is incapacitated. The POA terminates upon the grantor’s death or if the grantor revokes the POA in writing.
Most people focus on their estate documents and overlook one or two of these medical documents. However, these are just as important to set up in your estate planning. Medical documentation helps assure that in the case of your incapacitation or death, important assets, decisions, and information fall into the appropriate hands.
Healthcare Power of Attorney
The healthcare power of attorney informs medical personnel of who has the legal authority to make medical decisions on your behalf should you become unable to do so. This document is important to keep up to date because medical emergencies are often unpredictable and cause high levels of stress on family and friends. A healthcare power of attorney assures that your medical decisions and preferences are in the hands of someone you trust.
The living will, also referred to as a health care directive, is a document that defines how you would like to be medically treated in the event that you become unable to communicate, incapacitated, or terminal. This is an opportunity to develop specific instructions to ensure your wishes are carried out correctly.
Your HIPAA waiver defines with whom a doctor or hospital can share your medical information. Third party individuals are not able to access your private medical information without being mentioned on your HIPAA waiver.
Documents that Override Instructions in a Will or Trust
Beneficiary statements are legal documents that essentially override requests made in a will or trust. This means that if an asset has a beneficiary statement, it already has an inheritor in line, and any statements contradicting that in estate documents are disregarded.
Beneficiary statements that override requests made in estate planning documents can be applied to life insurance, 401K’s, IRA’s, annuities, and other retirement accounts.The following beneficiary statements can override instructions made in a will or trust.
Payable on Death (POD)
A POD is an arrangement between you and your bank or credit union. Should you designate a beneficiary to receive your specified assets upon death, this document will ensure your assets do not go through probate court.
Transfer on Death (TOD)
A TOD is a legal arrangement for brokerage accounts to enable you to transfer your assets to a beneficiary without hassle or the costs of probate court.
For both POD and TOD, you maintain complete control of the assets while you are alive and the beneficiary has no control. However, upon your death, the assets will be transferred to the beneficiaries, regardless of the provisions defined in estate planning documents.
Jointly Held Property
A jointly held property is a property held in more than one person’s name. This dictates that upon the death of one joint owner, the other joint property owner will inherit the asset no matter what is stated in estate planning documents. This means that if you bought a house with a college buddy 30 years ago under a joint ownership, you will inherit the whole house upon his death, despite the fact that he stated in his will that his wife and kids could use 50% of the money from the sale of the house.
If you’re like most people, you probably have a few of these documents already drafted. However, missing even one of these six important estate planning documents can result in significant losses. It is of the utmost importance that you consult an attorney and establish these estate planning documents to ensure the proper transfer of your assets to inheritors!
Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.
Lorenz Financial Services, LLC does not provide legal opinions or services. The above information is broad-based information that may or may not apply to everyone or might be incorrect in some states. Always hire a licensed attorney in your state before making any legal decision or taking any legal action.