The great New York Yankee catcher and wordsmith, Yogi Berra, once said, “If you don’t know where you are going, you’ll end up someplace else.” The same thing can happen with your assets during or after your lifetime without an appropriate estate plan. The following provides a basic overview of common estate planning documents and strategies to ensure you know where you’re going.
Powers of Attorney
A power of attorney permits another person, called an agent, to make decisions on your behalf while you are still alive. There are two main categories of powers of attorney: financial and health care.
Generally, a financial power of attorney permits your agent to access bank, investment, and retirement accounts; manage business interests; and mortgage, improve, sell, or purchase real estate.
A health care power of attorney typically permits your agent to make decisions regarding your ongoing or needed medical care, as well as make lifesaving or life prolonging decisions.
When drafting your power of attorney, you have the ability to limit any of the general powers discussed above as you think necessary. One of the other main considerations for powers of attorney is whether to make them effective immediately and ongoing during any later incapacitation or only make them effective upon some future event, typically a diagnosis of incapacity by a physician.
A Will, or Last Will and Testament, is a written document that disposes of your assets upon death. While you are living and competent, you have the ability to change your Will at any time.
Wills can provide for nearly any distribution of your assets. However, a Will cannot completely disinherit a spouse. Spouses have certain rights to assets of their deceased spouse unless there was a pre- or post-nuptial agreement. Aside from surviving spouses, a Will can provide for unequal distributions to children, completely disinherit a child or children, leave all assets to charity, or any combination in between.
Following death a Will is admitted to probate, which is the legal process required to settle a deceased person’s financial affairs. Probate includes gathering all of the deceased person’s assets, notifying and paying creditors, and distributing the remaining assets to the person or charity entitled to them under the Will.
If you do not have a Will, state law will determine who is entitled to your assets after death. Typically the hierarchy for payment of assets is:
• surviving spouse
• then children
• then parents
• then siblings
• then aunts, uncles, or cousins
• then more distant relatives
There are special rules if you die with a surviving spouse and children from a previous relationship. If you die without any surviving relatives, the State of South Dakota is entitled to your assets.
A Trust is a special legal relationship. A grantor or settlor creates a Trust. The trustee is the person or entity who owns legal title to assets in the Trust for the benefit of the beneficiaries who have equitable title to the assets. Trusts are typically written documents which direct the trustee on how to manage the assets and distribute the assets to the beneficiaries.
The most common Trust is a Living Trust or Revocable Living Trust. Some of the main advantages of trusts are flexibility, privacy, and avoidance of probate. Trusts are more flexible than Wills because they can continue long beyond the death of the grantor and ensure assets are distributed over a long period for beneficiaries. In contrast, assets left by Will are fully distributed to heirs relatively shortly after death through the probate process. Additionally, because a properly funded Revocable Living Trust avoids the need for probate, it provides privacy from court filings and accomplishes all of the objectives of asset transfer contained in a Will. This is why a Revocable Living Trust is sometimes referred to as a “Will substitute.”
While the grantor is living and competent, he or she has the ability to cancel or revoke a Living Trust. It is very common that the grantor, trustee, and beneficiary of a Living Trust is the same person at least initially. The grantor has the ability to determine when another trustee should be appointed, typically based upon the resignation or incapacity of a prior trustee.
There are many other types of trusts that may be appropriate and advantageous for your estate planning needs. These include Irrevocable Trusts like Remainder Trusts. You should consult with an estate planning attorney to determine if any advanced trust planning is required based on your specific circumstances.
By coordinating an estate plan with appropriate professional advisors, you can ensure that your assets will get to where you intended them to go. The credentialed professionals at First National Wealth Management can help.
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 your or your situation. Prior to implementing any of these planning techniques, you should consult your professional legal, tax, and financial advisors.