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Legal Documents Most Americans Need

These documents will give your family guidance and comfort when they need it most.

POWERS

An advance directive or healthcare power of attorney is a legal document that provides loved ones and medical professionals a road map for your health care preferences should you ever be unable to make those decisions yourself. Appoint someone you trust to follow your wishes and give a copy to your hospital records department.

Similarly, a financial power of attorney gives someone you choose the authority to handle your finances when you are not able to do so yourself. Appoint a capable and responsible individual you trust and share your wishes with that person.

TRUST

A trust spares your heirs from the inconvenience and cost of probate. Instead, it allows for the rapid and private transfer of assets to your heirs.

WILL

A will is subject to probate, (reviewed by the court), which is public, and costs money and time. Consider attaching a list itemizing who is to receive any personal items not contained in your trust.

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Trusts and Your Estate

When it comes to estate planning, many people draft a will to dictate how assets will be distributed after their death. But a trust can offer additional benefits to you and your family.

SKIP PROBATE

When you die with only a will, most likely, your personal representative (executor) will have to apply for probate. This judicial process validates the will, which is then available to the public. But assets placed in a trust generally avoid probate, and your estate information remains private. The distribution of assets is generally faster and simpler, too.

CHOOSE THE RIGHT TRUST

There are many types of trusts, but generally there are two types that work for most people:

  1. An irrevocable trust has terms and provisions that cannot be changed by the grantor. Using an irrevocable trust allows you to minimize estate tax, protect assets from creditors, and provide for family members who are minors, financially irresponsible, or who have special needs.
  2. Alternatively, a revocable trust, allows the grantor to change the terms of the trust. For example, you can make an annual exclusion gift to a revocable trust without incurring a gift tax. Additionally, if you need additional funds, assets in a revocable trust can be accessed. Your trustee can make distributions on your behalf, pay bills and even file tax returns for you. Unlike an irrevocable trust, funds in this trust are not protected from lawsuits or creditors.

NAME A TRUSTEE

You will name who you want to manage the assets when you establish the trust. Choosing a professional, as opposed to a family member, can safeguard your loved ones from making decisions without knowing your wishes during difficult times.

GET IT RIGHT

Trusts are complicated. Work with your tax advior and an estate planning attorney to draft your estate documents properly.

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Protect Your Children

Unfortunately, some parents believe that if they died prematurely guardians for their child(ren) would automatically be the Godparents. This may be their wishes, but unless they properly draft legal documents, the court will decide what happens to the children—and your assets.

SET UP A TRUST

While you can name a guardian in your will, you still need to set up financial support for young beneficiaries who cannot receive assets until they are older. That’s why parents often place assets in a trust. You can name the child’s guardian or a trustee to manage the assets and you can specify when and how your child, or guardian, receives money. Trusts are also private, unlike wills that usually have to go through probate and become public record.

A popular choice is a revocable living trust. Benefits of a revocable living trust are that you can change it as often as you like because it remains your personal property until you die.

Planning for a disabled child is a bit more complicated. A good option in this situation is a special needs trust, which can help ensure the care and oversight needed indefinitely.

BENEFICIARIES

Consider life insurance to replace parental income and name the revocable living trust as the beneficiary. Also, make the trust beneficiary of all your retirement accounts. This will ensure that the proceeds flow directly to the living trust and can be used to provide for your child’s care.

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Exploring Trusts For Your Estate

While the federal estate tax basic exclusion amount has risen dramatically in recent years, some states have not followed suit by raising their exemptions. Even with higher current exemptions, the future of taxes is unpredictable, so you need a strategy to deal with potential estate taxes if you own significant assets. A trust could be part of that strategy.

CONTROL AND PRIVACY

A trust can help you control when and how assets are used during your lifetime. And when estate taxes aren’t an issue, a revocable trust may offer an attractive option. (It is revocable because you can change its terms or cancel it.)

Trusts, both of the revocable and irrevocable variety, shield their assets from the public glare of probate. One caveat: Only those assets owned by the trust avoid probate, so you’ll have to change the title of any assets you move. Both types of trusts can also include terms and conditions that deal with potential incapacitation.

And even when taxes aren’t an issue, you may want to consider trusts that can offer you more control over how and when adult special-needs and spendthrift children receive assets during their lifetimes.

TAX REDUCTION

While all trusts provide a measure of privacy and control, revocable trusts won’t provide tax advantages. However, an irrevocable trust will. The federal estate tax exclusion, now more than $11 million per person, was half that just three years ago and below $1 million two decades ago. As governments seek revenue, know that taxes can rise as easily as they fall.

Regardless, some states offer the same exemption allowed by the federal government, but others decouple their rates – some to as low as a $1 million exemption. Other states levy separate inheritance taxes, too. So if you have assets you want to pass to future generations, talk to an estate planning attorney and your tax professional to learn more about trusts.