But planning for the future really isn’t complete until you have an estate plan in place. These four basic legal documents can save you, your friends and your family the cost and hassle of settling your affairs through the court system.
1. A Will or Trust
You have worked hard to earn and save your money. Maybe you have already thought about leaving all your money to friends and family (or maybe to your favorite charity) should anything happen to you. But if you don’t have legally enforceable documents, your hard-earned cash could be spent on court costs, attorney’s fees, and ultimately be given to a relative you had no intention of ever receiving a penny.
These are worst-case scenarios, but unless you have a written will or trust giving direction as to how your estate should be left on your death, a court could step in and make those decisions for you.
Both documents have provisions to direct how a person’s money should be given away upon their death. You can do everything in a will that you can do in a trust. The only difference is that generally the assets given away by a will have to be supervised by a court in what is called a probate administration. A trust is completely private and the giving away of assets does not have to be supervised by a court.
In both documents you outline how you want your assets distributed on your death and who should distribute them. In planning your will or trust, you select an executor (for a will) or a trustee (for a trust) to gather up your assets on your death, sell your property, make gifts of personal items and ultimately give away your money according to your written wishes. In most cases, without a written will or trust, the courts step in and determine how and to whom your estate should be left.
A will is usually cheaper to set up and is often used by people with few assets as a means of transferring assets at death. As previously stated, a will would most likely have to be probated on death, which means a court is to monitor the administration of an estate; this can be costly and is often very time consuming. Wills have fallen out of favor because of probate costs and high attorney’s fees. More often people are using a trust to outline their wishes for the distribution of assets on death.
A revocable living trust does not have to go through a probate administration at death. A trust is like a contract. Assets are titled in the name of a trust during a person’s lifetime and a death. A trustee gives away those assets according to the terms of the trust document. There is no supervision of a trust administration so time and cost to friends and family can be minimal.
2. A Power of Attorney for Property
If you give someone a power of attorney, you have given him or her the ability to step into your shoes should you become incapacitated. In a power of attorney, you can designate a spouse, a friend, or a relative to take care of your finances if you should become incapacitated. Your agent under your power of attorney can pay your bills, sign your tax returns and sell your property to raise money for your care. Without a power of attorney, a court would have to nominate what is called a conservator to do these things for you.
3. A Power of Attorney for Health Care
In this document you can name a friend or relative to make health care decisions for you if you are unable to communicate your own wishes regarding medical care. You can also state your wishes regarding artificial prolongation of life or what is more commonly referred to as “pull the plug” language. This document is sometimes called a Living Will.
4. A Pre-Nuptial Agreement
Although a pre-nuptial agreement is not for everyone, it can be very helpful for women entering into a marriage who hold significant property as a result of an inheritance, high income, or owning their own business. A pre-nup is basically a contract that keeps property you had before the marriage as your own separate property throughout the marriage. If you have designated specific property or your income as separate property before marriage, then on divorce or death this property would remain your own. A pre-nup can save you time and money sorting out these issues on divorce and your heirs’ time and money unraveling a mess on your passing.
The reason to consider these documents now is to ensure that your friends and family will never have to go to court to get permission to do anything regarding your estate. So add these four documents to your to-do list and see an attorney for expert advice. A little planning in the short term can save you and your family a lot of money and time in the long run.
Keller Smith is an attorney with The Keller Law Firm in Manhattan Beach, California; she can be reached at www.kellerlawfirm.com. She contributes a column once per month.