It may be uncomfortable to think about what happens after you die or become incapacitated, but one of the biggest financial mistakes people can make is not having a clear estate plan in place. By acting in advance and preparing for the future you can make the process much easier for your family and loved ones. It is also vital in creating clarity on how to handle your assets should you pass, so make sure you have these essential state planning documents in place.
Essential Estate Planning Documents
Let’s take a look at the typical documents that you will need to make up an “estate plan” and why your specific needs should be considered before deciding what estate planning documents to draft and the type of provisions you may need in those documents, no two clients are alike.
Last Will & Testament
Even if you don’t have many assets, you should have a last will and testament, and this is especially true if you have children or blended families. If you die without a will, your assets may pass through “intestate succession”. In Colorado, that means state law would direct how your assets would pass to your spouse and/or family members and it can get complicated. Friends, stepchildren and others you may have wanted to benefit under your will would be left out and even your spouse or children could get more or less than your intended. Your assets may not pass as you would like them to if you do not have a valid will in place.
Your will considers your beneficiaries and how you would like assets to pass to them. This can be an outright gift or a gift in trust for a spouse, minors or others that may have special needs.
A will also let you choose a personal representative (executor) who would assist in probating your estate if necessary and pass your assets out to your beneficiaries. You may also choose trustees and guardians for your children through your Will. Without a Will, someone may or may not step up to act as the personal representative, but even if someone steps up to act, it may not be the person you want in charge.
Revocable Living Trust
Trusts can be a valuable tool for handling an estate’s assets. A Will might not be the best choice depending on the size of your assets, your state of residence, and distribution wishes. You may want to leave a legacy for a charity you value, protect certain assets or ensure that minors or disabled family members are properly cared for through a trust. You may also want to have a trust simply to avoid probate court or for privacy concerns.
If you do decide to create a Trust, your assets will need to be retitled so that they fall under the Trust itself. You can name yourself trustee and appoint successors to step in and act if needed.
There are many kinds of trusts that you’ve likely heard of including:
- Charitable trusts
- Irrevocable trusts
- Asset protection trusts
- Living or revocable trusts
The differences between these various arrangements can be confusing, and often, they are marketed to clients who do not actually need them at the expense of the client to accomplish unnecessary estate planning goals.
As mentioned, your estate size may favour a Will and a Trust might not be right for you, this is why it is worth talking with an estate planning attorney to determine what is best for you.
Powers of Attorney
Within your Estate Plan you should not only include a Will or Trust but other important documents. One of these is a document to grant 'Power of Attorney'. These documents can be shaped to accommodate a variety of circumstances. We typically draft powers of attorney where agents would step in to act on your behalf for financial and medical decisions such as:
- filling tax returns
- buying and selling real estate
It is common for this document to be "springing" which means it requires proof of your incapacity, this can create another roadblock to overcome during a difficult time and therefore there are options to create a "non-springing" Durable Power of Attorney who will manage the finances in the event you can't without having to require proof.
Unfortunately, the power of attorney documentation is one that people tend to overlook and forgot. In the absence of power of attorney, your loved ones may need to petition the court for guardianship to legally handle your affairs if you were not able to act on your own behalf. It goes without saying that involving the courts in this way can add time, stress and significant expense to an already emotionally charged situation, and it’s entirely avoidable. If you have changed your mind about your current named agent and financial power of attorney, or you are named someone's agent of a power of attorney and wish to decline, it is critical to know how to revoke financial power of attorney as it could save you up to $100,000 if not dealt with correctly.
An Advance Medical Directive (Living Will & Healthcare Agent)
A living will is an end-of-life advance medical directive, which leaves the decision-making to the person creating the living will in advance of a possible terminal event, where their wishes could not be expressed. It typically includes potential treatment plans and can take the choice out of your loved one’s hands, and promote decision-making unity among your family members during difficult times. You want to make sure that your living will include a HIPAA (Health Insurance Portability and Accountability Act) privacy waiver so that your healthcare agent has access to your medical information.
Creating a living will is one of the areas of estate planning that is best undertaken with professional guidance so that it can be tailored to your unique religious and philosophical beliefs. Common clauses in living wills may not be consistent with your personal convictions and an estate planning attorney can work with you to draft a living will to fit your needs.
You also need to review your asset types and how they would be distributed upon your death. Assets with beneficiary designations would pass outside of your will (and any trusts) unless you specially included as a beneficiary. Incorrect beneficiary designations will frustrate your estate plan and can cause unnecessary heartache for your heirs. Make sure your beneficiary designations are consistent to the rest of your plans in your will/trust. You should review these often (once a year is a good best practice), especially if you’ve remarried or experienced other major changes to your family structure.
General Advice and Good Housekeeping
It is wise to gather your various financial accounts and insurance policies and store them in a secure and safe place such as a home safe or bank safety deposit box. Include items such as:
- Mortgage deeds
- Car titles
- Estate documents
- Wedding certificates/divorce agreements
- Childbirth certificates or legal documents to prove parental responsibility
- Anything else your agent may require
Having this information available after your passing helps your agent ensure your wishes are carried out as you intended and helps document and prove the reasons behind your estate plans in the event of any wills being contested.
Contact Nicole McGann, Longmont and Boulder, Colorado Estate Planning Attorney for an Initial Consultation
Estate plans will be different for all of us, they are for everyone of all ages as we all have our own estates and assets. Working out the exact details of your estate plan will depend on the size and value of your estate, your wishes and your personal circumstances. However, these essential estate planning documents will create a solid foundation for any individual estate plan.
Attorney Nicole McGann of McGann Law Group has extensive experience helping Longmont and Boulder, Colorado residents plan their estates.