You probably have a fairly clear understanding of the overall goals of an estate plan. You may also have a vague idea of what needs to be included in a plan; however, until you actually sit down to work on your plan, the actual components of an estate plan remain a mystery. Not surprisingly, this leads to a number of questions. What do each of the estate planning tools accomplish? Which tools and strategies should be included in a plan? What are the most common components of an estate plan? An estate planning attorney at Nash Bean Ford, & Brown LLP explains common estate planning components.
Last Will and Testament
For most people, the foundation of their first estate plan is a Last Will and Testament. Executing a Will ensures that you will not leave behind an intestate estate. Dying intestate means the state decides what happens to your estate assets using the state intestate succession laws. Instead, your Will allows you to make specific and/or general gifts to loved ones. In addition, your Will lets you appoint someone as the Executor of your estate. The Executor is responsible for overseeing the administration of your estate. Finally, your Will offers you the only opportunity you have to officially nominate a Guardian for your minor child should one ever be needed.
After a Will, a trust is one of the most common additions to a comprehensive estate plan. A trust is a relationship where property is held by one party for the benefit of another party. A trust is created by the owner, also called a “Settlor”, “Trustor” or “Grantor” who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. Trusts are broadly divided into two categories, testamentary and living trusts. A testamentary trust does not activate until after the death of the Settlor whereas a living trust takes effect as soon as all the trust agreement is in place and the trust is funded. A living trust can be further divided into revocable and irrevocable living trusts. A trust can help achieve a wide variety of estate planning goals and should serve as the foundation of your estate plan if probate avoidance is desirable.
Throughout the course of your lifetime you will make many decision regarding your own health care. There may come a time, however, when you cannot make those decisions because of your own incapacity. One type of advance directive allows you to appoint someone as your Agent to make decisions for you when you cannot make them yourself. Another type lets you make some of those decisions relating to end of life care ahead of time so that your wishes are clear when the time comes that difficult decisions must be made.
Power of Attorney
A power of attorney allows you to appoint someone as your Agent to act on your behalf in legal transactions. There are two types of power of attorney, general and limited. A general power of attorney (POA) gives your Agent almost unfettered authority to act on your behalf, meaning your Agent can engage in financial transactions on your behalf, enter into contracts in your name, and sell your assets. A limited POA, on the other hand, only gives your Agent the specific authority indicated in the POA agreement. If you make any POA durable it means that your Agent’s authority will survive your incapacity.
Letter of Instruction
This is essentially exactly what it sounds like. A Letter of Instruction provides you with the opportunity to cover anything not covered elsewhere in your plan. Some people use it to explain decisions made in their estate plan while other use it to provide instructions that may be helpful during the probate of the estate. For example, if you did not divide your estate equally amongst your children, you might want to explain why you didn’t in the hope of preventing litigation and hurt feelings. You might also need to tell loved ones where important documents can be located or even something as seemingly mundane as how to winterize a vacation home.
Contact an Estate Planning Attorney
For additional information, please download our FREE estate planning worksheet. If you have additional questions or concerns about your estate plan, contact an experienced estate planning attorney at Nash Bean Ford, & Brown LLP by calling 309-944-2188 to schedule your appointment today.