Estate Planning 101: Tools in the Toolbox

Clients often ask me about the basics of estate planning, to help them organize their thoughts and to create the best plan for them.

Basic estate planning tools are as follows:

Wills: A will is often the first tool to come to mind in estate planning. A will designates who will inherit your property after your death. It also designates a person to administer your estate. When beneficiaries are minors, it is critical to name a trustee to manage their inheritance. A will names a guardian to raise minor children in the parents’ absence. Tax reduction tools can be included for estates that may exceed the exemption level.

Life Insurance: Life insurance policies pay proceeds by contract to the named beneficiary, outside of the estate. If an insurance beneficiary is also named in the will, he will receive both the insurance proceeds and the bequest provided in the will. If minor children are primary or contingent beneficiaries on an insurance policy, naming a trustee to receive legal title to the funds and manage them for the children will prevent the Clerk of Court becoming involved in managing the funds. Life insurance companies usually have trust designation forms. Alternatively, the policyholder can name “my estate” as the beneficiary instead of the children, and leave more detailed trust instructions in the will. Some retirement plans also name a death beneficiary, and these are paid by contract like life insurance proceeds.

Power of Attorney: A power of attorney names someone to manage your financial affairs if you were unable to do so. Although married persons may own many items of property jointly, there are always some items that cannot be jointly titled – e.g. retirement plans and government benefits – necessitating a power of attorney. If a person cannot manage his own financial affairs and no power of attorney exists, a guardian must be appointed through the Clerk of Court, which is expensive and time consuming.

Health Care Power of Attorney: A health care power of attorney names someone to make health care decisions for you if you were unable to make those decisions yourself. Some doctors simply ask the family what to do. However, some doctors or hospitals will not take action unless there is a health care power of attorney, living will or a court order. Even if a doctor is willing to implement a family’s decision informally, sometimes family members disagree; a health care power of attorney appoints one person to make the decision.

Living Wills: A living will is a declaration that a person wishes to die a natural death, without extraordinary measures, if he is in a persistent coma, vegetative state or suffers severe dementia. A living will is binding on doctors and health care agents. A living will can be contained within a health care power of attorney, or can be a separate document.

Living Trusts: Living trusts take in all of the owner’s property while she is alive, with beneficiaries named to take the property after her death. The usual purpose of living trusts is to avoid probate, or for privacy. Fortunately, in North Carolina probate is simple and not costly, so we do not have the need to avoid probate that exists in some other states. Living trusts can meet some specialized estate planning needs.

Attorneys can provide more detailed information on these documents. Insurance agents can assist you with various choices in life insurance.

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