Estate Planning 101
By: Sarah Ranger and Rachel Trafton, Maine Elder Law Firm
As you know, we strongly believe in the importance of estate planning. This month we wanted to share with you some key estate planning information. We hope you enjoy this article, which was provided to us 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 is simply making decisions ahead of time about what will happen to you and your property when you die or become incapacitated. To ensure your estate planning goals are met, it is important to work with an attorney to create valid and legally binding estate planning documents.
A basic estate plan consists of three documents: an Advance Health Care Directive, a Financial Power of Attorney, and a Last Will and Testament.
1. Advance Health Care Directive
You may have heard of a Living Will or Health Care Power of Attorney. An Advance Health Care Directive incorporates both of these concepts and more. In a Directive, you choose an agent to make health care decisions for you if you are unable to make them for yourself. You also specify your wishes for end-of-life care, such as whether you want to receive life-sustaining treatment in certain situations. You can customize the document by stating your wishes related to organ donation, funeral and 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 back-up agent in case your first choice becomes unavailable. It is very important to pick agents that you completely trust to act according to your wishes or in your best interest. If you name co-agents, it is important to choose individuals who will not disagree over financial decisions.
A Financial Power of Attorney can be effective immediately upon signing, or it can be effective only upon your future incapacity as determined by a doctor or a judge. You can give your agent broad or limited authority to act on your behalf regarding financial affairs.
A Financial Power of Attorney should be prepared by an attorney. There are certain legal requirements that these documents must meet and failure to include those could cause the document to be invalid.
3. Last Will and Testament
A Last Will and Testament spells out how you want your probate estate distributed after you die. It also names the person who will administer your estate, called your Personal Representative.
Your Will does not list every piece of property you own. If you wish to leave a specific sum of money or a piece of real estate to particular beneficiaries, the Will lists those distributions. The rest of your probate assets make up your “residuary estate” which is anything else not specifically mentioned. The Will states how your residuary estate should be divided. A commonly used phrase is “to my descendants, per stirpes.” Descendants includes your children, your grandchildren, your great-grandchildren, etc. Per stirpes means that your estate is divided into equal shares for your living children and any deceased children who left descendants of their own.
An attorney should prepare your Will as well. While certain handwritten or nonconforming Wills may be admitted by the Probate Court, it will save time and money during the probate process if the Will is 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 that is jointly owned with a right of survivorship will not be a probate asset upon the first joint owner’s death. It will simply pass 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. It is important to work with your financial planner to ensure your beneficiary designations are up to date.
Complex Estate Planning
While a basic estate plan will be enough for many people, there are certain individuals or couples who may need more complex estate planning. The following list includes some examples:
- Elderly couple planning for the possibility of long-term care
- Parents planning for a child with a disability
- Individual or couple owning real estate in multiple states
- Parents with minor children
- Blended families (couples with children from prior relationships)
- Individuals with very high net worth
Taking the time to prepare an estate plan can save your family time, money, and hassle in the future. It will also increase the chances that your wishes will be honored when you are no longer able to speak for yourself.
Don’t forget, even if you have already prepared an estate plan, you need to update it every five to ten years and especially whenever there are significant changes in your family or health circumstances.