Frequently Asked Questions
What is an “Estate”?
Your “estate” consists of all property owned by you at the time of your death, such as:
- Real estate
- Bank accounts
- Stocks and other securities,
- Life insurance policies,
- Personal property such as automobiles, jewelry, and artwork.
- Business Interests
- Retirement Accounts
- Any rights and licenses you might have
Your estate also consists of everything you owe. Your estate may need to satisfy your mortgage and other debts before your beneficiaries inherit your estate.
What is Estate Planning?
Estate planning is the process by which you decide who will receive your property, what they will receive, and when they will receive it. If you have assets to protect, family to provide for, or concerns about what will happen to you if you become disabled, seriously injured, or sick, you should make an estate plan. A well-conceived estate plan also involves strategies to minimize potential estate taxes and estate administration costs.
What’s in a Good Estate Plan?
A good estate plan will typically include four documents:
- Last Will and Testament. A Will is a legally-binding statement directing who will receive your property at your death. If you do not have a Will, state law will determine how your property is distributed. A Will also appoints a legal representative (called an executor or a personal representative) to carry out your wishes. A Will is especially important if you have minor children because it allows you to name a guardian for the children. One thing to keep in mind is that a Will does not govern the transfer of certain types of assets called non-probate property, which by operation of law (how title is held) or contact (beneficiary designation) will pass directly to someone outside of your estate upon your death. Some examples of this type of property are an IRA, a 401(k) plan, life insurance, jointly owned property and “pay on death” or “transfer on death” accounts.
- Power of Attorney. A power of attorney permits another person, referred to as an attorney-in-fact, to make financial decisions and execute legal documents on your behalf. Without a power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process is time-consuming, expensive and emotionally draining, and the judge may not choose the person you would prefer.
- Health Care Proxy. A health care proxy designates someone you choose to make health care decisions for you if you are unable to do so yourself. Without a health care proxy, no one can make health care decisions for you unless a court appoints a conservator or guardian. Again. tThat court process is time-consuming, expensive and emotionally draining, and the judge may not choose the person you would prefer.
- Living Will. A living will, commonly referred to as the “pull the plug” document, provides authorization to your health care provider to terminate life-prolonging procedures in the event you are diagnosed with a terminal illness your life is being artificially prolonged by a life support system.
Many estate plans may also include one or more trusts, which can be utilized to manage your estate both during and after your life, avoid court involvement after your death and minimize estate taxes.
What is Probate?
Probate is the court-supervised process of validating a deceased person’s Will, appointing an individual to identify and collect the assets comprising the deceased person’s estate, paying the deceased person’s debts and distributing the deceased person’s property to heirs in accordance with the terms of the Will. If there is no Will, the deceased person’s property will be distributed under a state’s “intestacy laws”. Generally speaking, these laws favor a surviving spouse and children – although not necessarily on the terms and conditions that an individual might want.
How Often Should I Update My Estate Plan?
If you already have an estate plan, you’re ahead of the game, but if your estate planning documents are over 5 years old, you may want to meet with an estate planning attorney to see if your plan needs any updating. Here are the most common reasons your estate plan may need to be updated:
- Marriage and Divorce. Changes to your marital status are an important reason to review your estate plan. Whether recently married or divorced, each is a major change to your family’s dynamics. Make sure your new spouse is included in your estate plan and your ex-spouse is removed from it. Do this as soon as possible after your divorce to ensure your assets will pass in line with your wishes.
- Children. When you have a new baby, it’s good to add them to your estate plan to make sure they’re taken care of in case something happens to you and/or your spouse. If you’ve remarried and have children from your first and second marriage, you will want to address this in your estate plan. This also goes for any stepchildren that you would like to include in the distribution of your estate.
- Changes in your relationships with your nominated executors, trustees and beneficiaries: If the nature of your relationship with any of your nominated executors, trustees or beneficiaries has changed, you should consider updating your estate plan.
- Tax Changes. Tax law is constantly changing. This is something you will need to take into account with estate planning. Also, if you move to a new country, or even from one state to another, it’s important to be sure your current estate planning documents will be recognized under the laws of your new country or state.