When it comes to estate planning, many people are confused about their options. Most people understand wills, and many understand trusts, but what about powers of attorney, living wills and health care powers of attorney? Do we really need these various documents? The answer depends on your individual situation and assets, as well as your health, family and desires. An estate planning attorney can walk you through all the variations, such as the different types of trusts and powers of attorney. Generally, everyone should have some combination of documents. Here are some basics.
A will is a document that designates who gets your property after your death. It can accomplish more, such as creating a trust, but in essence, it’s a simple concept: who gets your stuff when you die. Often spouses name each other as primary beneficiaries and then their children in case the other spouse dies first. Sometimes parents want to leave property to children in unequal shares or to charity. Some parents don’t want children to get property outright, so they create a trust to hold property and distribute it upon certain contingencies or when children reach certain ages. There is no right or wrong way to leave your property – it is completely your choice. However, if you choose to leave your spouse out of your will, he or she has a right to petition the court for a share of your property, regardless of your wishes.
A trust is a bit more complicated. It is similar to a savings account, where money or property sits and earns income until paid out to beneficiaries. Trusts can be created while you are still alive (inter vivos) or at your death by will (testamentary). A trustee, or sometimes two co-trustees, “holds” property for the benefit of others, known as beneficiaries. A trust can be useful when you have minor children, or when children of any age may not be confident or trustworthy with money, or may have creditors. A trust can help protect assets left to your children from their creditors and from being spent frivolously. You can give the trustee discretion to make distributions, or give parameters within which to distribute, such as health, education or general welfare. That way, the trust can pay for tuition, books, ballet classes, a reliable car, or the down payment for a house. Many people are nervous about creating a trust (or trusts), but before you reject the idea, it is important to understand what a trust can accomplish and whether it would be right for your needs or goals.
A power of attorney (POA) is a document that gives someone else, usually a spouse or adult child, the power to sign for you. This power can be given for particular incidents, such as selling a house (a limited POA), or for all purposes (a general POA). It can become effective immediately or only in certain situations, such as incompetence. This document can be important if you have bills to pay and become incapacitated or are otherwise unable to conduct your personal business.
A health care POA is similar to a traditional POA, except that it gives someone else the right to make health care decisions for you. Again, this is usually a spouse or child, or sometimes multiple children jointly. It can take the burden off of family members by giving one or two people the specific authority to make these decisions when you are unable. A living will is the document that indicates what your health care desires are, such as whether you want artificial nutrition. Again, this can relieve some strain from your family members because they can comply with your wishes when you are unable to tell them directly.
Though some estate plans incorporate many of these documents, others only include one or two. None is legally necessary, but if you die without a will, state law will dictate who inherits your property, and it may not be the people that you wish. Nobody is getting younger, so now is the time to talk to a knowledgeable estate planning attorney about which documents would be right for your estate planning goals.