Estate Planning Basics
More and more people are realizing that they do not have to be wealthy to have an estate plan, and that the focus of an estate plan is to protect what they do have to the extent possible. This is especially true now that the estate tax exemption is so high (currently $5 million at 35 percent). Traditional trusts are still used for wealth planning, but more rural families now understand that the important thing in estate planning is to make sure future generations will be able to enjoy what it has taken a lifetime to accumulate. At the same time, many realize that handing their children or grandchildren a large pile of assets may not be the best way to protect the beneficiary or the asset. Some disturbing scenarios come to mind: if a child gets divorced, will the ex-spouse get part of the family farm? Will an 18-year-old grandchild sell the family property and move to Jamaica? Estate planning can be overwhelming, so to make the estate planning process easier, you should understand the available estate planning documents.
Will
A Will is a legal document created during a person's lifetime but does not take effect until that person's death. A Will states how that person would like his or her property to be disbursed upon death and appoints an Executor to carry out those wishes. A Will usually requires Probate upon the person's death in order to disburse the person's property in accordance with the Will. Probate is the process where the court bestows that authority upon the Executor and then supervises how the Executor acts on your behalf to transfer title to real property (like a house) or personal property (like cash and jewelry) and to distribute your assets as you described in the Will. Without a Will, the Probate court will distribute your assets according to Missouri law. This means that your real or personal property may not be distributed the way you want it. In addition, Probate expenses can be significant and may require the Executor to pay for bonds, publication costs, court costs and attorneys' fees in most cases. A properly drafted Will can streamline the probate process by eliminating court supervision; otherwise, Probate can become a detailed, slow and expensive process.
Trust
A Trust is a legal document created during a person's lifetime designating how his or her property should be handled during his or her lifetime, then during his or her mental incapacity, and then after his or her subsequent death. The major difference between a Trust and a Will is that the Trust takes effect during the person's lifetime. The Trust is funded with the person's property which allows a trustee to manage the property during the person's lifetime, incapacity, and death. Since a Trust takes effect during a person's lifetime, it avoids the probate process at death. However, the person's assets must be titled in the name of the Trust for the probate process to be avoided.
Trusts can be either revocable or irrevocable. A revocable trust gives the person who makes the Trust the power to eliminate or revoke the trust during his or her lifetime, among other powers. With an irrevocable trust, the person who makes the Trust does not have the power to eliminate or revoke the Trust. There are benefits and detriments to both kinds, so determining what kind is right must be done on a case-by-case basis.
Power of Attorney
A General Durable Power of Attorney, sometimes called a Financial Power of Attorney, is a legal document authorizing a person (agent) to act on another's (principal) behalf with regard to financial matters. A Financial Power of Attorney ends upon the death of the principal. In some states, Financial Powers of Attorney can be either effective upon signing or effective upon mental incapacity.
A power of attorney that is effective upon signing gives the agent the power to act on the principal's behalf as soon as the principal signs the document. The benefit of this type of Financial Power of Attorney is that mental incapacity of the principal does not need to be proven for the agent to act. This type of Financial Power of Attorney can be useful for a husband and wife, especially if one spouse travels frequently. This type is not recommended when the agent is someone other than the spouse of the principal. A Financial Power of Attorney that is only effective upon mental incapacity would be more appropriate in this situation.
A power of attorney that is only effective upon mental incapacity of the principal gives the agent the power to act on the principal's behalf only when the principal is proven to be mentally incapacitated. This type of Financial Power of Attorney, sometimes referred to as a springing power of attorney, is primarily used when the agent of the principal is someone other than the principal's spouse. Situations may arise where a child or friend could use the Power of Attorney without the principal's knowledge for the benefit of the child or friend rather than the benefit of the principal. Having the Financial Power of Attorney that is only effective upon mental incapacity as determined by a qualified physician can help eliminate some of those situations.
Living Will
A Living Will is a legal document that states a person's decisions with regard to life-sustaining treatment. In essence, this document speaks for a person when the person is unable to speak for himself or herself. A Living Will does not appoint anyone to be an agent of the person. Instead, the document simply addresses life-sustaining treatment issues and decisions.
In some states, a Living Will can be revoked orally, which could create a situation where a person unintentionally revokes his or her Living Will. For example, if a person is in pain at the hospital and makes a statement such as, "I don't want to die," this statement technically just revoked that person's Living Will (depending on state law) if that person did not want life-sustaining treatment.
Durable Power of Attorney for Health Care
A Health Care Power of Attorney is similar to a Living Will in that it is a legal document that states a person's decisions with regard to life-sustaining treatment. However, unlike a Living Will, a Health Care Power of Attorney appoints an agent to enforce the decisions pertaining to life-sustaining treatment the principal has made during his or her lifetime. In some states, a Health Care Power of Attorney is only revoked in writing. If this were the case, then a statement of a person in pain such as, "I don't want to die," would not revoke his or her Health Care Power of Attorney.
Estate planning is just another way of saying wealth planning, whether the estate consists of a single family residence, some cash and jewelry or whether you own a large family farm worth millions of dollars in land and equipment. There are estate tax exemptions, gift tax exemptions and gift tax exclusions to consider when making decisions concerning asset distribution as well as gift tax exclusions to consider. The Estate Planning Lawyers at Smith Montgomery can help you create a Family Trust or help you with Probate Administration if necessary. Our knowledge of the changes in estate laws and tax laws is essential to help you make informed decisions about your financial matters based on your individual needs and preferences. Call us at 417-881-9000 or use the Contact Form to schedule your free first visit and evaluation.
This article discusses estate planning in general terms only, and nothing in this article should be considered as legal advice. No attorney can guarantee the outcome of a case; however, if you have a legal problem, please take advantage of a free visit to review your situation. If you need help deciding, visit the Client Reviews page on our website and see what our satisfied clients are saying about our legal services.