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Estate Planning Basics

First National Wealth Management

Estate Planning Basics

Elisa Hurley
Personal Trust Officer

As Benjamin Franklin once said, nothing in this world is certain except death and taxes.

Fortunately, with a well-drafted estate plan, you can avoid burdening your loved ones with some of the negative financial effects of both.

Estate planning allows you to control more than just the management and distribution of your assets in the event of death or incapacity — it also secures your family’s future, preserves your legacy, and ensures your wishes are upheld during both life and death.

Let’s get down to it; the components of a comprehensive estate plan may include the following:

Wills – Ensuring your final wishes are honored

A will, or last will and testament, is a written legal document that outlines how your property should be managed, who should receive your assets (beneficiaries), and who will be responsible for carrying out these instructions (executor or personal representative) upon your death.

Beneficiaries can include individuals (like family members and friends) or charities, and the personal representative of your estate can be an individual or an entity.

If you have minor children, it’s crucial for you to also designate a guardian in your will; this ensures that your children will be cared for by someone you trust in the event that both you and your spouse pass away.

Now, maybe you think you’re too young to be putting together a will, or maybe the idea of doing so scares you.

We get it — thinking about death can be incredibly difficult. But what’s even scarier is not having control over your children or your assets if you were to unexpectedly pass away.

To give you a better understanding of why a will is so important, let’s go through the process of what would happen if you were to pass away with a will versus without one:

First, your will is to be admitted to probate, which is the legal process required to settle a deceased person’s affairs.

Then, your personal representative gathers your assets, notifies and pays your creditors, and distributes your assets according to your will.

If you do not have a will in place at the time of your death, the disposition of your estate is to be governed by your state’s laws. Typically, the hierarchy for how your assets are then distributed follows this order:

  • Surviving spouse
  • Children
  • Parents
  • Siblings
  • Aunts, uncles, or cousins
  • More distant relatives
  • If none of the above exist, then to your state of residence at the date of death

That’s why it’s essential to have a will in place — to ensure the distribution of your assets align with your wishes.

Additionally, you can make changes to your will as long as you are living and mentally competent. Changes can be made through a codicil (an addition or amendment) or by creating an entirely new will.

Powers of Attorney – Empowering trusted decision makers

A power of attorney (POA) grants a named individual (agent or attorney-in-fact) the authority to act on your behalf under specific circumstances, either immediately upon execution or if you become unable to make decisions due to illness or incapacity.

There are different types of POAs, each serving a distinct purpose:

  1. General Power of Attorney: This authorizes your agent to handle various financial and legal matters on your behalf while you have mental capacity.
  2. Durable Power of Attorney: Your agent retains the power to manage your affairs similar to a general power of attorney, but their powers remain in effect even if you become incapacitated.
  3. Limited or Special Power of Attorney: This grants the agent specific powers for a defined period and/or purpose. For example, you may use a limited POA to authorize someone to settle a real estate transaction or manage a business transaction on your behalf.
  4. Healthcare (Medical) Power of Attorney: A healthcare or medical POA specifies the agent who is authorized to make medical decisions on your behalf.
  5. Springing Power of Attorney: A springing POA “springs” into action only when a certain condition is met or an event occurs. Typically, a medical professional or specified individual must determine you have met the condition or that the triggering event has occurred, such as an inability to manage your own affairs.

POAs are a valuable tool for ensuring that your affairs are handled according to your preferences.

However, because your agent will have access to your financial accounts, business interests, real estate holdings (depending on the scope of their authority, as defined in the document), and even your health care decisions, it’s crucial to designate someone you know you can trust.

And speaking of trust…

Trusts – Privacy and flexibility in estate planning

A trust is a written document which provides the trustee directions to manage the trust’s assets and distribute the assets to the beneficiaries.

The creation of a trust requires three parties: a grantor, also known as a settlor or trustor, who creates the trust; a trustee, the person or entity who owns legal title to the assets in the trust; and one or more beneficiaries. Sometimes, at least initially, all three roles are filled by the same person.

The most common trust is a living trust, which is also known as a revocable trust.

Trusts offer flexibility and privacy while allowing you to avoid probate, and they are more flexible than wills because they can continue long beyond the death of the grantor and ensure assets are held or distributed over a long period according to the grantor’s wishes. In contrast, assets left by a will are fully distributed to beneficiaries relatively shortly after death through the probate process.

Additionally, because a properly funded living trust prevents the need for probate, it provides privacy from court filings and accomplishes all the objectives of asset transfer contained in a will.

This is why a living trust is sometimes referred to as a “will substitute.”

A living trust can be amended or revoked by the grantor if he or she is living and competent.

On the other hand, some types of trusts — such as irrevocable trusts — cannot easily be amended and are often intended to serve purposes that a living trust cannot, such as estate tax planning.

What’s next?

Because a good estate plan is not one-size-fits-all, we recommend consulting with an estate planning attorney to create a comprehensive estate plan tailored to you and your family.

And once it’s established, our team of credentialed professionals at First National Wealth Management can help you put your estate plan into action. If you have questions or are ready to get started, send us a note!

Disclaimer: This article is intended solely for educational purposes and is based upon South Dakota property, probate, and trust law. Each circumstance is unique, and any of the techniques discussed herein may not be appropriate for you or your situation. Prior to implementing any of these planning techniques, you should consult your professional legal, tax, and financial advisors.

Have questions? We're here to help.

Elisa Hurley

Elisa Hurley

Personal Trust Officer
Sara Baus

Sara Baus

Personal Trust Team Leader
Joe Dylla

Joe Dylla

In House Counsel
Maggie Groteluschen

Maggie Groteluschen

Fiduciary Services Manager
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