Wills and Trusts

The notion of having a will or trust may appear complex or reserved for the ultra-wealthy, but this is a misconception. Regardless of your asset level, a will and a trust should form integral parts of your financial plan. Wills ensure the orderly distribution of your assets in accordance with your wishes, provided they are drafted in compliance with state laws. Certain trusts also serve to mitigate estate taxes or potential legal disputes. However, it is crucial to emphasize that merely having a will or trust is insufficient; the precise language within these documents is of utmost importance.

It is imperative that the content of your will or trust aligns with how you have designated assets to pass outside of these legal documents. For example, if you have already named your sister as the beneficiary of a retirement account or insurance policy (assets typically excluded from a will and directed to a designated beneficiary), duplicating this asset within your will for a second cousin could invite a legal contest. Additionally, such a situation could lead to bitterness between individuals involved in a legal battle.

Furthermore, it is vital to designate a guardian and an alternative guardian for your minor children within your will. Failing to do so might leave the court with the responsibility of deciding the placement of your children, which may not align with your preferences.

Durable Power of Attorney

Drafting a durable power of attorney (POA) is essential to empower an agent or a person of your choosing to act on your behalf in situations where you are unable to do so yourself. In the absence of a power of attorney, a court may determine the disposition of your assets if you are found mentally incompetent, potentially leading to outcomes contrary to your desires.

This document grants your agent the authority to conduct real estate transactions, engage in financial dealings, and make other legal decisions as if they were you. This type of POA can be revoked by you at your discretion, typically when you are physically able, mentally competent or upon your passing.

In many cases, it makes sense for spouses to establish reciprocal powers of attorney. However, depending on the circumstances, it might be more practical to designate another family member, a friend, or a trusted advisor with greater financial expertise as the agent.

Beneficiary Designations

As previously mentioned, several of your assets can be transferred to your heirs without being dictated by your will, such as 401(k) plan assets. Thus, maintaining a designated beneficiary and a contingent beneficiary on such accounts is crucial. It is equally important to ensure that insurance policies also specify a beneficiary and a contingent beneficiary, as these assets may also bypass the will.

Failure to designate a beneficiary, or a situation where the beneficiary is deceased or unable to serve, could result in the court determining the fate of your funds. A judge, unaware of your specific circumstances, beliefs, or intentions, may make decisions that diverge from your own.

Additionally, it is imperative that named beneficiaries be over the age of 21 and mentally competent, as involvement of the court may become necessary otherwise.

Letter of Intent

A letter of intent serves as a document left for your executor or a beneficiary. Its purpose is to articulate your wishes regarding the disposition of a particular asset following your demise or incapacitation. Some letters of intent may also contain instructions for funeral arrangements or other specific requests.

While such a document may not possess legal validity, it can provide guidance to a probate judge regarding your intentions and prove helpful in asset distribution if your will is deemed invalid for any reason.

Healthcare Power of Attorney

A healthcare power of attorney (HCPA) designates another individual, often a spouse or family member, to make significant healthcare decisions on your behalf in the event of incapacity.

When considering the execution of such a document, it is imperative to select a trustworthy individual who shares your beliefs and is likely to make decisions aligned with your preferences. After all, this person may be responsible for crucial decisions that directly impact your well-being. Additionally, it is advisable to identify an alternative agent in case your initial choice becomes unavailable or unable to act when needed.

Guardianship Designations

While many wills or trusts incorporate this clause, it is occasionally overlooked. If you have minor children or are planning to have children, choosing a guardian is of paramount importance. Ensure that the individual or couple you designate as guardians share your values, possess financial stability, and genuinely desire to raise your children. As with all designations, it is also essential to name an alternative or contingent guardian.

Without these designations, a court may decide that your children should be placed with a family member you wouldn't have chosen, or in extreme cases, they may become wards of the state.

What Constitutes an Estate Plan?

An estate plan comprises various documents, including a will, guardianship designations, healthcare power of attorney, beneficiary designations, durable power of attorney, and a personal letter of intent outlining your wishes in the event of death or incapacitation.

Consequences of Dying Without a Will

In the absence of a will, your estate will undergo probate proceedings, with the court determining the recipients of your assets and possessions.

Prenuptial and Postnuptial Agreements

A prenuptial agreement is a legally binding contract established before marriage, designed to outline the terms of divorce and ensure a mutually favorable outcome for both partners should the marriage come to an end. In contrast, a postnuptial agreement serves a similar purpose but is drafted after the marriage has taken place. These agreements share several common traits, such as:

• They are fundamentally contractual agreements.
• They articulate the division of assets in case the marriage ends in divorce.
• These agreements may also specify certain financial obligations and responsibilities within the marriage.

In Conclusion

While a will is an essential starting point, it represents just the initial phase of estate planning. Estate planning encompasses more than simply deciding how your assets will be distributed upon your passing. It is also about guaranteeing the well-being and financial security of your family members and beneficiaries during periods of temporary or permanent incapacity.

Contact us for custom financial planning and asset management.