Estate planning in a nutshell

by Frank Cardoza ([email protected]) 1,256 views 

While most people do not spend much time thinking about their estate plan, it is one of life’s biggest decisions. A customized, comprehensive estate plan will save your family time, money and stress when dealing with your estate.

Simply put, all estate planning involves answering a few simple questions:

  • Who will receive my property when I’m gone?
  • Who will be entrusted with transferring my property to my beneficiaries?
  • Who will make my healthcare and financial decisions if I am unable to?
  • Who will I nominate to take care of my children if both parents are deceased?

The answers to the questions above are the bedrock to any estate plan. The other concerns relating to estate planning include: avoiding probate, minimizing taxes, protecting assets, and establishing trusts for individuals with special needs.

Once your desires are known and problem areas are identified, the creation of a comprehensive estate plan can be accomplished via estate planning documents.

Estate planning can be complex, and there is usually no one-size-fits-all solution. Most estate planning documents provide solutions for three areas of life:

  • allowing others to act on your behalf if you become incapacitated,
  • administering and distributing your assets after your death; and
  • asset management for beneficiaries after your death.

Documents allowing others to act on your behalf include:

  • Durable Power of Attorney (Designation of Agent)
  • Health Care Power of Attorney
  • Living Will or Advanced Directive
  • Authorization to Access Medical Records.

These documents aid in avoiding the need for a guardianship if you become incapacitated. The named individuals are granted authority to manage your affairs, for your benefit. One misconception clients have is that power of attorney documents are effective beyond death. However, that is not the case.

Documents controlling the distribution and management of assets after death include:

  • Last Will and Testament
  • Revocable Trusts (also known as Living Trusts).

While the above documents control who gets your assets and who manages the distribution of your assets, they differ greatly in the effort required for getting assets from Point A (your estate) to Point B (your beneficiaries).

A common held misconception is that a Last Will and Testament will avoid probate. However, the opposite is true. The only way in which a Last Will and Testament becomes effective is through probate. Unfortunately, probate is generally undesired since it is a time consuming, expensive process which exposes one’s assets to creditors.

The preferred method in avoiding probate is through the use of a Revocable Trust. A Revocable Trust allows for the transfer of property and the appointment of a successor trustee to administer the estate without the need for probate, thus expediting the transfer of property and reducing transfer costs.

Finally, your estate planning documents will contain language specifying how assets are managed for your beneficiaries. The most common methods in accommodating said individuals are through the following:

  • Special Needs Trusts
  • Spendthrift Trusts

A Special Needs Trust allows for a beneficiary to inherit property for their benefit, while allowing them to continue receiving assistance to help pay for medical treatment and associated costs.

Spendthrift Trusts are useful when an inheritance is going to a minor or a person who has trouble managing finances. A Spendthrift Trust is established for the enjoyment of a beneficiary, but distributions are made at the trustee’s discretion.

With so many options available in creating a comprehensive estate plan, it can quickly become overwhelming. However, with the proper guidance, your estate plan can be easily crafted to fit your needs while giving you peace of mind.

Frank Cardoza is an associate attorney at Dennis Sbanotto P.C. in Fort Smith. He advises clients on estate planning, elder law and business law issues. The opinions expressed are those of the author.