What documents do I need in my estate plan?
There are generally four documents in your estate plan:
Revocable Living Trust
Financial Power of Attorney
Healthcare Power of Attorney
Pour-over Will
REVOCABLE LIVING TRUST
The trust is the core document in most clients estate plans. It says how the trust assets will be managed both during your life and after your death. You appoint a successor trustee to manage the trust property for you and your beneficiaries, and that successor comes into play upon your incapacity or death.
The trust will provide instruction for the trustee to make sure your intentional are followed and to ensure your beneficiaries (usually a spouse or child) receive the assets (or the benefit of the assets) in accordance with your wishes.
There is a lot of confusion about what type of trust a person should have. The more common options, revocable trusts, are ones that you generally have full control over and can change at any time (so long as you are of sound mind).
Irrevocable trusts are less common and usually only used in specific asset protection scenarios.
Living trust just means that the trust was created during your lifetime - as opposed to testamentary trusts which are created upon your death through your will (you don’t see too many testamentary trusts nowadays).
With a properly structured revocable trust you can get the benefit of avoiding probate, protecting your children’s inheritance, and potentially minimizing taxes for your family depending on your situation.
FINANCIAL POWER OF ATTORNEY
Your financial power of attorney (sometimes more generically referred to as a durable power of attorney) allows someone to manage your finances for you. This could be paying bills, depositing or making withdrawals from your bank, accessing retirement accounts, filing taxes on your behalf, speaking with your advisors (investment, CPA, attorney) on your behalf, and so on.
For my clients I’m generally drafting financial powers of attorney that are effectively immediately in order to avoid undue delay when you agent needs to act on your behalf. But if you are naming an agent who is not your immediate family member (or if you just aren’t fully comfortable with the idea of it being effective immediately) then you can create a springing power of attorney, which means that it only comes into effect once you are deemed incapacitated (which is generally defined in the document as being the point in time when a physician certifies you are no longer of sound mind).
A common point of confusion here is that a power of attorney is a power you are granting to your attorney - but it’s actually powers you are granting to anyone you choose. In other words, attorney in this context really just means the person you choose to be your legal representative (not necessarily an actual licensed attorney or lawyer).
HEALTH CARE POWER OF ATTORNEY
Similar in concept to the financial power of attorney, the health care power of attorney simply names who can act on your behalf for medical decision making purposes.
Unlike the financial power of attorney, this document would only come into effect if you cannot make decisions for yourself (in other words, it’s automatically set up as a springing power).
In New Hampshire, your health care power of attorney and living will (advanced medical directive) are combined into one document to give your agent and your doctor the direction/legal authority as to what you would like to happen in the event you are in vegetative state and need artificial life support. Please note, this is different then a medical directive or medical order that you would fill out with your physician - like a DNR.
In Massachusetts, we call the health care power of attorney a health care proxy, and the same idea applies. The only major difference is that we don’t have a living will statute on the books, so instead we use general advance medical directive language inside your health care proxy to give your agent helpful guidance on your wishes in certain circumstances.
With respect to both your financial power of attorney and health care power of attorney, these documents are only valid during your lifetime. Upon your passing, your powers of attorney are no longer effective (whereas other legal documents, like your trust are generally active after death and you will only comes into play upon your death, if needed).
POUR-OVER WILL
Pour-over wills often confuse clients when they first hear the term because of both the name and because they don’t understand why they need a Will if they have a trust.
And the answer for most clients is that they generally don’t need a Will if they have a trust. It’s really just a safety net or a catch-all document in the event that something falls through the cracks and passes through your estate (which would lead to a probate court filing that would be directed by the instructions you left in your Will). In such event, the pour over will generally just has one beneficiary - your trust - in which case the will would simply pour assets going through the probate process into your trust (that’s why it’s called a pour-over will).
If you have minor children, then your will is also used to name a guardian for your children in the event you pass away before they reach age 18. Other then that, if all goes as planned, your will should be a useless document.
Questions or concerns? I’m always happy to help - feel free to schedule a call with me today by clicking the link below.
