Estate Planning 101
By: Sarah Ranger & Rachel Trafton, Maine Elder Law Firm
As you know, we strongly believe in the importance of estate planning. This month we wanted to share some key estate planning information. We hope you enjoy this article provided by Sarah Ranger and Rachel Trafton at Maine Elder Law Firm.
Estate planning is not just for the wealthy. Almost everyone should have at least a basic estate plan. Estate planning simply makes decisions ahead of time about what happens to you and your property when you die or become incapacitated. To ensure you meet your estate planning goals, work with an attorney to create valid legally binding estate planning documents.
A basic estate plan consists of three documents:
1. Advance Healthcare Directive
You may have heard of a Living Will or Healthcare Power of Attorney. An Advance Healthcare Directive incorporates both of these concepts and more. In a Directive, you choose an agent to make healthcare decisions for you if you cannot make them for yourself.
You can specify your wishes for end-of-life care, like whether you want to receive life-sustaining treatment in certain situations. Customize the document by stating your wishes related to organ donation, your funeral, burial arrangements, consideration of a particular faith, and other preferences related to end-of-life care.
2. Financial Power of Attorney
A Financial Power of Attorney also called a Durable Power of Attorney or General Power of Attorney, names the person authorized to act as your agent for financial matters. You can name one agent or co-agents. You should name at least one backup agent in case your first choice becomes unavailable.
Pick agents who you completely trust to act according to your wishes or best interests. If you name co-agents, choose individuals who do not disagree over financial decisions. A Financial Power of Attorney can be effective immediately upon signing or only upon your future incapacity as determined by a doctor or judge.
You can give your agent broad or limited authority to act on your behalf regarding financial affairs. An attorney should prepare a Financial Power of Attorney. There are certain legal requirements that these documents must meet. Failure to include those could cause the document to be invalid.
3. Last Will & Testament
A Last Will and Testament spells out how you want your probate estate distributed after you die. It also names the person who administers your estate, called your Personal Representative. It does not list every piece of property you own.
If you wish to leave a specific sum of money or real estate to particular beneficiaries, it lists those distributions. The rest of your probate assets make up your “residuary estate” or anything else not specifically mentioned. It states how your residuary estate is divided.
A commonly used phrase is “to my descendants, per stirpes.” Descendants include your children, grandchildren, and great-grandchildren. Per stirpes means your estate divides into equal shares for any living children and deceased children with descendants of their own.
An attorney should prepare your Will as well. While Probate Court admits certain handwritten or nonconforming Wills, it saves time and money during the probate process if properly drafted.
A common area of confusion in estate planning involves probate and non-probate assets. Your Will does not “avoid probate.” Your Will controls the distribution of probate assets.
Property jointly owned with a right of survivorship is not a probate asset upon the first joint owner’s death. It simply passes to the surviving joint owner. Accounts with beneficiary designations are also non-probate assets.
Those accounts go to the beneficiaries listed. Failure to update beneficiary designations can upset your estate planning goals. Work with your financial planner to ensure your beneficiary designations are up to date.
Complex Estate Planning
While a basic estate plan is enough for many people, there are certain individuals who may need more complex estate planning.
The following list includes some examples:
- An elderly person planning for the possibility of long-term care
- Parents planning for a child with a disability
- Individuals owning real estate in multiple states
- Parents with minor children
- Blended families, couples with children from prior relationships
- Individuals with a high net worth
Taking time to prepare an estate plan saves your family time, money, and hassle in the future. It increases the chance your wishes will be honored when you cannot speak for yourself.
Even if you prepared an estate plan, you need to update it every 5-10 years. Especially whenever significant changes occur in your family or health circumstances.