Estate Planning in a Nutshell
Let me first start by saying this- estate planning is for EVERYONE! No matter what your circumstances, there is an estate plan that is right for you and your family.
What is estate planning?
Estate planning is the process of arranging for the future management and disposal of an individual’s estate. An estate includes any assets a person may have including, but not limited to, real property, personal property, money, etc.
Why is estate planning right for me?
Estate Planning is for EVERYONE because, at some point in each individual person’s life, he or she will experience illness or death. Taking part in some type of estate planning during life is the smartest decision a person could make.
What are some of the basic estate planning tools available to me?
A will is a written declaration of an individuals' intent regarding his/her estate upon death. In the nutshell, a will simply designate who gets what when you die. It may all seem a little morbid to think about now, but it is best to make these decisions yourself - while you still can.
If an individual dies without a valid will, that person is said to have died “intestate.” This simply means that you did not have a will. For any individual dying intestate, the State of Alabama follows statutory laws that divide your estate.
A living will, much like its name, is a will which is only effective during life. Upon death, the will becomes invalid. A living will can, and should, include a designation of Medical Power of Attorney, Durable Power of Attorney, and an Advance Directive.
A Power of Attorney (whether medical or otherwise) is a document which grants a 3rd party decision-making power when it comes to specific tasks. For instance, a Medical Power of Attorney will designate another person to make medical decisions for you if you become incapacitated. A Durable Power of Attorney will designate another person to make financial and legal decisions for you if you become mentally incapacitated. All of these designations of powers can also be combined into a single Power of Attorney. It all simply depends on your preference.
An Advance Medical Directive is a document declaring what you would prefer medically if you are unable to voice those wishes yourself. For instance, if you are hit by a bus and become brain dead would you want to receive life-sustaining procedures or would you rather your family pull the plug after a certain point or amount of time? In situations like those, families are over-stressed and overburdened. Leaving this decision up to them could prove to be more burdensome. Additionally, what if your family has different wishes than you when it comes to something like this? Having an adequate plan in place can remedy a lot of problems before they have a chance to begin.
The beneficiary designation comes into play when you have a life insurance (or similar) policy. Finding the right plan and choosing the right beneficiary is an integral part of estate planning. It is also wise to take note that life insurance policies can act as more than just money paid out upon death. Several companies offer the option to allow an individual to borrow against the policy. For instance, if one day you run into a few money problems, you may be able to solve those problems by borrowing from your life insurance policy. Having a policy in place can be more beneficial (both during life and after) than most people would imagine.
Guardianship designation is especially important if you have children. This estate planning tool designates who will be the guardian of your children if something were to ever happen to you. It is important to have this tool when you have children because if you do not, you are effectively leaving the future of your children in the hands of the courts. While the court will attempt to discover and implement what is in the best interest of your children, as a parent you deserve a say. If you fail to implement this estate planning tool, you will lose that choice… you will lose your say.
A trust is the transfer of property to be held by one party for the benefit of another. A trust manages the distribution of an individual’s assets. Ownership of assets is transferred to a trustee to hold and manage for the benefit of a beneficiary. Think “trust fund.” Example: with a trust fund, a parent is allowed to place money in an account for a child and set restrictions on the disbursement of the funds to the child.
A trust can be created during the life of the grantor (the original owner of the
assets)- a living trust. It can also be established at the death of a grantor –
testamentary trust. The grantor can set provisions and rules to govern the
management and distribution of trust assets.
What does any of this mean if I die?
If you decide to implement a will, when you die, it will go through probate (a formal court proceeding). During the probate process, notice will be given to any interested parties to your estate as well as creditors. There may be guardians or conservators for the estate, and also during this process, any interested party can contest (or fight) the will. This process is mostly controlled by the courts. At the conclusion of probate, the remaining assets will be disbursed to the named heirs of the will.
If you decide to implement a trust, your assets will not go through probate. It is a private, family-controlled distribution, and there are no guardians or conservators. Generally, the assets go straight from the trust to the heirs of the estate.
How do I know which estate planning tools are right for me and my situation?
Every person is different and every situation is different. As an 18-year-old college student with no assets, I only had a medical directive. Now, as a mother and wife, I find the need to have an Advance Direction, a Guardian Designation, a Power of Attorney and a Will. Of course, I have the first 3 bundled into one document leaving me with just 2 estate planning tools.
Whatever your situation, it is a smart decision to have at LEAST an Advance Directive and a Power of Attorney. As time goes on, your plan may change. You may add a will or trust. Nothing is set in stone (until it is). As long as you are alive and well, you can change your plan. Just make sure you have something in place. The future is unpredictable and by failing to plan for it, you are planning to fail at it.