Estate Planning Basics: Wills, Trusts, And Medical Care

Estate Planning Basics: Wills, Trusts, And Medical Care

It’s very common for younger people — and older people, for that matter — to go without an estate plan. But whether or not you have kids, a spouse, or a great deal of wealth (yet!), the best time to create an estate plan might be right now.

Creating a will is an important part of estate planning, but there’s a lot more to it than that. Your estate plan should also include, in writing, the details of how you want to be cared for and who will be empowered to make decisions for you if you become incapacitated. Making a plan while you’re able to do so easily will make it that much easier on your loved ones if there comes a time when you aren’t able to do so. 

“It’s hard when you’re young and your life is ahead of you and the world is your oyster, to think that this day will come. It’s just very affirming when you have these things in order,” says Iffy Ibekwe of Ibekwe Law, an Austin-based attorney who specializes in estate planning for international women. “It’s like having car insurance. I don’t know if I’ll ever use it, but I’m planning for that.” 

Remember, you can always update your plan as your life changes. But getting these basic documents in place will protect you and your family, help you start thinking about your values, and make those future updates much easier.

What Is An Estate Plan? 

Your estate includes all of your assets — your home, your retirement accounts, your savings accounts, even your car, jewelry and book collection. Your estate plan provides guidance on how to  distribute and dispose of these things when you die. When you create an estate plan, you can leave sentimental objects to certain people or leave money to charity. 

Estate planning includes much more than that, though. If you get to a point where you can’t make medical decisions for yourself, your estate planning documents can explain what kind of care you want to receive (through a Living Will or Advance Directive) and who you want to make decisions for you. If you have kids, you can specify who you want to care for them after you die. 

Creating these documents takes time, careful thought, and, likely, legal fees. But once you have an estate plan in place, you only need to revisit it when you experience a major life change, like the birth of a child, a marriage, or a divorce. If you can do the heavy lifting now, you’ll thank yourself in the future. 

“A big part of this process is communicating to your key people — making sure that they’re comfortable in their role and making sure that they have access to whatever their role is on paper, by giving them a copy of your documents,” Iffy adds.

Planning For Your Assets: Wills and Financial Powers of Attorney

A will is the document that spells out what will happen to your assets — your home, your financial assets, your sentimental objects, and more — as well as your children, if they’re under 18. 

When you create a will, the first thing you’ll do is designate an executor, whose job it is to carry out your wishes after your death. Your executor is required to follow whatever instructions you leave them about who will receive which of your assets (and how and when). 

If you have children, you’ll designate legal guardians for them in your will, and you can include specific instructions for those guardians if you want to. You can also create guardianship documents that spell out who will care for any adult relatives you support. 

If you don’t have a will in place when you die, your assets will be administered by an intestate probate process. The probate system varies greatly from state to state, but generally speaking, state law will direct how to divide an estate among heirs. This process can be lengthy, contentious, emotionally exhausting, and expensive. Even if you’ve described your wishes to family and friends, the courts don’t adhere to verbal wishes — only those expressed in documents that follow state regulations. This is part of the reason many people work with attorneys to create their wills. Iffy recommends using an attorney because the forms you can find online may not hold up in court.

Some assets — including retirement accounts and insurance policy payouts — ask account owners to specify transfer-on-death instructions. If you die, those assets will be given to the beneficiaries listed on those accounts. These policies do not need to be detailed on estate planning documents. If you are leaving these assets to a minor, you have to retitle such assets to a trust for the benefit of the child. A trust can be set up within your will or standalone as a living trust.

Whenever you undergo a major life change, like a marriage, divorce, or the birth of a child, revisit your will and beneficiary designations to make sure you’ve named the people you want to receive those assets and benefits.

Finally, a financial power of attorney gives another person power to make decisions in your place if you become incapacitated during your life. A power of attorney is a legal document that gives another person the power to act as your agent  to make decisions about specified financial assets.

Planning For Your Healthcare: Advance Directives and Living Wills

If, at some point in your life, you become incapacitated and can’t advocate for yourself, a living will and healthcare power of attorney tell medical professionals and family members how you want to be treated. 

Your Living Will (sometimes called an Advance Directive) explains how you want to be cared for if you are terminally ill or in a vegetative state. For example, would you prefer that doctors do everything they can to save your life, or to let you go in peace with heavy narcotics? It’s a scary question to consider, but if you can answer it now, your family may be very grateful in the future.

An advance directive or healthcare power of attorney names someone who can make decisions about your medical care if you are incapacitated. The more information you give that person, the better they’ll be able to represent your wishes.

Like wills, both of these documents must be written in accordance with state regulations to be legally binding. An estate planning attorney can help you prepare these too. 

“Another document that’s very helpful is HIPAA authorization,” Iffy adds. This gives certain people legal permission to access your medical records. “If you have family out of town or the country and they need to find what’s going on with you in an emergency, they don’t have to fight federal privacy law.”

Lastly, if you know how you would like to be cared for after your death — for example, if you want to donate your body to medical research — you can add those wishes to your estate planning documents as well. That way, your loved ones won’t have to wonder whether they’re properly honoring your wishes. They’ll already know.

Planning For A More Complex Estate: Creating Trusts 

If you have a large estate with a variety of assets, especially assets in multiple states, you might consider creating a living trust rather than a will. In this case, you can place assets in the trust throughout your life. When you die, the assets are transferred directly to one or more trusts managed by successor trustees. 

There are dozens of reasons why a living trust might be a good option for you, including supporting a child’s education or funding a charity whose work you value. There are a wide variety of types of trusts, each with its own pros and cons. An estate planning attorney can help you understand your options.

“A great example of a living trust is, for example, say you’re remarried but have your own children. You may want to put some assets into a trust to go to your children instead of leaving everything to your spouse,” Iffy says. “A trust is a mechanism that helps you put certain protections in place.”

Using a living trust rather than a will allows you to avoid probate on most or all of your assets. Not only does this save money and time, but it can help maintain your privacy, since probate courts are public. 

If you’re worried about estate taxes, it’s important to note that in 2020, estate taxes only applied to individuals with at least $11.4 million or couples with at least $22.8 million in assets. That’s a tiny fraction of families in the U.S. However, each state varies in terms of a state estate tax, therefore, it’s important to talk to an estate planning attorney in your area to see if state estate taxes might apply to you.

To get started on your estate plan — simple or complex — ask around for recommendations for an estates and trusts attorney. The more complex your situation, the more document preparation will cost. But investing in an estate plan now could save your loved ones lots of stress in the future. 

“The whole process needs to be done correctly,” Iffy stresses. “I had a potential client contact me and they wanted me to check if their LegalZoom doc was properly done, because they’d bought it a couple years ago but they hadn’t had it finalized. It was meaningless. They paid for those documents and thought, ‘I’ve got an estate plan done,’ but needed an attorney to make sure not just that it was done correctly but that it was executed, signed, witnessed, notarized.”

Think of your estate plan as the final gift you can give to the people you love: It’ll make things a little easier for them when you’re gone.

On a final note, estate planning is state specific, so if you already have completed your estate planning documents a few years ago and now live in a different state, you will need to update your estate planning documents with an attorney who is licensed in the state you now live in.

To learn more about Iffy and her firm, Ibekwe Law, visit ibekwelaw.com

Remember, I am not an attorney. As such, this blog post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem.

The post Estate Planning Basics: Wills, Trusts, And Medical Care appeared first on Gen Y Planning.

Author: Vritra

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