What Are The Basic Items In An Estate Plan? What Does Each Item Do?
There are several items that can go into an estate plan, each with their own function. Not all estate plans are equal and the general consensus is that everyone on the planet needs to have some kind of document that will take care of them during life. For example, in Massachusetts, an advanced directive type document that is legally enforceable is called a health care proxy. Everyone over 18 should have a health care proxy where they’re allowed to name an individual other than themselves, aka a proxy, to communicate their wishes to a medical provider in terms of what they would want to happen in a given circumstance. Another document one should have is a durable power of attorney. The durable is referring to the fact that upon incapacity, the power of attorney is not revoked. In a normal power of attorney if you become incapacitated then that power of attorney goes away. It’s not supposed to be maintained. But with a durable power of attorney, it endures your incapacity and allows you to designate a person to make financial decisions and handle your financial affairs. One of the downsides to the powers of attorney is that many financial institutions are hesitant to take them, especially if they’re older documents; they’re just nervous about them.
We suggest is that you have a revocable living trust, because a trust it can function during your lifetime. You can manage all of your affairs within the trust as trustee; you use your own social security number and manage your assets for your own benefit. It also allows you to escape probate. When I say probate, I’m speaking in a broad sense; in terms of what most people think of when you die and your assets are going to be disposed of to your heirs, others, to charities, or whomever you choose. But, I’m also talking about another type of probate that occurs during your lifetime; in Massachusetts it’s called a guardianship or conservatorships. In order to qualify there will to be a determination that you’ve been incapacitated or are incompetent on the public record. Additionally, there are costs associated. I had one in which the guardian ad litem appointed to review the accountings pursed $35,000 for this person’s lifetime, which was about seven years’ worth. However, everybody involved in the situation had already agreed that it was acceptable. But the court felt that they had to appoint someone to review it to make sure that it was fine even though the parties didn’t want the court to. That’s a cost that could be completely avoided if you hold your assets in a revocable trust and have the other documents.
You don’t need to go through any of that. Things are handled respectfully and your privacy is maintained. Your family doesn’t have to be embarrassed by all of the family information being available publicly. You don’t have the third-party mix of a judge who doesn’t know you; not that I dislike judges. My point being this person doesn’t know you or your family, doesn’t know the dynamics of your family, and in 10 minutes of standing in front of them they’re making decisions about your life, your family’s life, and you may not really agree with them. The revocable living trust is a way to allow for you to set things before you become incapacitated; fund that trust, manage it yourselves, and be able to hand off the baton to someone you’ve chosen with all the determinations you’ve made to the manner you want it handled.
Finally, there’s the last will and testament. We’ll also provide this document as part of our trust package. You might think that what you described in the other documents is supposed to bypass that and hopefully it will. But we put one in as a safety net because every so often something didn’t get into the trust. The will can add assets into the trust to make sure the determinations that you have made in your trust are followed. A will, on its own, is for dispositional purposes if you didn’t have the trust. It would say where the assets are to go, but it would require probate and all of the things that I mentioned that I don’t like about probate. With the will, the one good thing is that you do get to direct where things go.
A will can also have a trust within it. There are different types. That can be interesting and there’s one type of trust that can be in a will as well that is called a testamentary trust, meaning that it came about as the result of a will. There’s some benefits in the area of Medicaid planning to that type of a trust.
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