Often times it is believed that unless a person has accumulated massive wealth, he doesn’t have an estate and therefore, doesn’t need an estate plan. However, with few exceptions, most American adults have an estate. If you have dependents, own a car, real estate, bank accounts, investments, retirement accounts, life insurance and or personal belongings you have an estate and likely need an estate plan.
What is Estate Planning?
Estate planning is the advance preparation for the 1) management of your healthcare, personal care, and financial affairs should you become incapacitated 2) appointment of guardianship of dependents should you become incapacitated or die and 3) management and distribution of your assets upon your death. The complexity of an estate plan depends on the complexity of the estate and family dynamics. However, a basic estate plan consists of the following:
Last Will and Testament
A Last Will and Testament, most commonly referred to as a will, memorializes your wishes regarding the management of your estate upon your death. In addition to appointing a personal representative to manage the estate, a well drafted will details how assets should be distributed, to whom and when, and appoints a guardian to care for minor children and/or dependent adults. A will may also disinherit individuals who may otherwise be entitled to receive assets through laws of intestacy.
If you die intestate (without a will), your assets pass through intestate succession in accordance with state laws. The court appoints a guardian to care for your minor children and/or dependent adults. While the goal of intestate succession laws is to distribute assets and appoint a guardian in a manner that is representative of how the “average person” would, your desires may not be the same as those of the “average person”. The court may not be aware that your only brother is the last person on earth that you’d want to have your collection of vintage cars or your free-spirited sister is not the person you would choose as the guardian of your only child. However, if you die without a will, you relinquish control over to the state.
Medical Care Directives
A medical directive memorializes your decision regarding the type of lifesaving medical care you want to receive (or not receive), the type of daily personal care you receive, and appoints an agent to make the decisions on your behalf if you become incapacitated.
If you become incapacitated and don’t have a medical care directive, the family is left to decide what decisions you may or may not have wanted. Often times loved ones are unable to come to a unanimous decision and in some cases, resort to extended and costly litigation which often results in disharmony and broken relationships among family members.
A medical care directive is intended to alleviate these potential issues as it states the person’s wishes and grants a person or persons the authority to make decisions on his or her behalf.
Power of Attorney
A power of attorney grants another individual (an agent or attorney-in-fact) the authority to act on your behalf. While a power of attorney may be used for various purposes, in estate planning, it is most commonly used to appoint an agent to manage your financial affairs if you become incapacitated. A power of attorney is effective only during the grantor’s lifetime. The power of attorney terminates upon the death of the grantor.
If you become incapacitated and do not have a power of attorney, it is likely that the court will have to appoint a conservator, or guardian. In the event that a court appoints a conservator, the responsibilities and powers of the conservator are prescribed by state statutes. The conservatorship is subject to court supervision and can be costly and complex. In addition, the court may appoint someone that you may not have chosen.
So Do I Really Need an Estate Plan?
Should you become incapacitated yet still want to control 1) the type of lifesaving medical care you do or do not receive 2) the type of daily personal care you receive; 3) who makes medical decisions on your behalf 4) and who manages your finances, you need an estate plan. If you want to control the distribution of your assets upon your death, you need an estate plan. If you have dependents and would like to control who cares for them in the even that you become incapacitated or die, you need an estate plan. If you would like to minimize administrative costs and transfer tax-liability while maximizing transfer of assets to loved ones, you need an estate plan. If you would like to minimize the stress and familial disharmony associated with intestacy, you need an estate plan. If none of these issues are important to you, then you do not need an estate plan.
