The process of inheritance planning involves the execution of various different legally binding documents. There are basic estate plans, and more complex estate plans. First we will look at the anatomy of the basic estate plan, and then we will take a glance at some of the more complex inheritance planning techniques.
The Last Will or Last Will & Testament
A very common inheritance planning device is the last will or last will and testament. Just about everyone has heard of this document. It is used to record your final wishes regarding how you want your financial assets distributed among your heirs after you die.
There are a couple of other things to consider if you are using a last will to arrange for the transfer of your assets. Someone has to actually conduct the business of the estate after you pass away. This individual is called the executor or personal representative. It should be noted that a female estate administrator is sometimes called an executrix.
When you are planning your estate, you should include the choice of an executor. This is not a ceremonial role. There are very real business-oriented tasks that must be completed. As a result, you should select someone who has a good bit of business acumen. The executor that you choose should also have the time and the inclination to handle the estate administration tasks.
If you are the parent of a minor child or children you could nominate a potential guardian in your last will. This person would care for the children should it become necessary. If you don’t choose a guardian in your will, the court would be forced to choose a guardian if both parents were dead. The court’s decision may not be consistent with your own choice, and this is why you should nominate a guardian in your last will.
The heirs to the estate don’t receive their inheritances until your estate has been probated when you arrange for the transfer of your personal property through the execution of a last will. Because of this delay, many people will choose to arrange for asset transfers outside of probate.
This can be done in a number of different ways. You can add an additional owner to your property through joint tenancy with right of survivorship. Another option would be to open payable on death accounts and name beneficiaries who would assume ownership of the accounts in the event of your death.
The above courses of action are generally not recommended by estate planning attorneys because certain difficulties can arise. A more comprehensive probate avoidance solution would be a revocable living trust.
With this type of trust, you don’t surrender control of the property that has been conveyed into the trust while you are living. However, after you pass away, the trustee that you choose distributes the assets that remain in the trust to the beneficiaries in accordance with your wishes.
The distributions of assets out of the revocable living trust take place in a direct manner outside of the process of probate.
It is important to prepare for the possibility of incapacity when you are devising your estate plan. This is done through the execution of a living will along with the creation of durable powers of attorney.
A living will is used to express your wishes regarding the utilization of life preserving measures. These measures would include things like artificial nutrition and hydration and mechanical respiration. In your living will, you can choose to accept these measures should you become incapacitated, or you can instruct doctors not to use artificial life support measures.
With a power of attorney you name an agent to act in your behalf, but a standard power of attorney would not remain in effect if you were to become incapacitated. As a result, incapacity planning involves the execution of documents called durable powers of attorney, because they do remain in effect if the grantor becomes incapacitated. With these legal devices, you empower agents of your choosing to make health care and financial decisions in your behalf in the event of your incapacitation.
While we’re on the topic of incapacity planning, it should be mentioned that you can name a successor trustee if you use a revocable living trust to transfer your assets. If you were to become incapacitated, this trustee would administer the trust’s assets.
Advanced Inheritance Planning
Some circumstances call for more advanced estate planning strategies. For example, if you were to give a direct inheritance to someone with special needs who is receiving government benefits, his or her benefit eligibility could be jeopardized.
This type of situation is addressed by making the individual in question the beneficiary of a supplemental or special needs trust. The trustee could use funds that have been conveyed into the trust to improve the quality of life of the beneficiary without impacting benefit eligibility.
Estate taxes are another factor. If you are exposed to death taxes you must take steps to gain estate tax efficiency.
Schedule a Consultation
Now that you know the basics, you may be ready to take action. To set up a consultation, call us at 860-548-1000 or send us a message through our contact page.