Frequently the question is asked: “What is an estate plan?” The concept of which, generally speaking, is quite simple. So what does it mean to plan one’s estate? The term, an estate plan, is used to refer to the legal process of planning for the disposition of a person’s assets after death, while the individual is still alive. It is planning for the future of what happens to the “stuff” you own or have an interest in once you pass away.
Why is an estate plan important?
An estate plan is important for two main reasons. First, it lets you to completely control the disposition of your assets after death, and second, it allows you to minimize the impact of state and federal taxes imposed on your assets when they are transferred to others.
Is estate planning only for the wealthy?
Absolutely not. This is a common misperception in the realm of estate planning. Due to the fact that estate planning provides a method of control for how an individual would like their assets to be disposed of or distributed upon death, it is crucial that even the non-wealthy plan their estate accordingly in order to have a say in what happens to their assets once they are no longer here. Simply put, in order to ensure that your assets are distributed to the family members, loved ones, or charities/organizations that you desire with minimal tax implications, an estate plan is the best way to do so.
So, what is an estate plan?
Although an estate plan is individually tailored to each person, the following are the common legal tools used to accomplish effective planning: Will, Trust, Power of Attorney, and Patient Advocate Designation (health care power of attorney/advance health care directive).
Will – A Will is oftentimes the most widely known and common tool in an estate plan. A Will is a legal document that essentially states what you want to happen to your assets when you pass away. When drafting your Will, you will typically nominate a person as a personal representative (executor) who is responsible for carrying out your stated wishes and distributing your property to the persons or organizations you designate. If a person dies without a Will in Michigan, they are considered to be intestate, and as such, their property will be distributed according to the Michigan laws of intestacy, and generally speaking, to the decedent’s heirs.
Trust – Trusts are also a very useful tool when planning the distribution of one’s assets, and unlike a Will which only enters into effect upon death, can be effective during a person’s lifetime as well as upon death. A Trust is simply an agreement between the person creating the Trust, or trustor/settlor, and the person responsible for managing the Trust, or trustee. The Trust agreement contains language indicating how the Trust assets are to be used and/or distributed, and can be effectively used to plan for any taxes that might be incurred.
Power of Attorney – As yet another powerful instrument in estate planning, a Power of Attorney is a document that names a person to handle your own personal financial rights, among others, in the event that you are unable to do so yourself. Managing credit cards, tax returns, payments to a nursing or other care facility are just a few of the important decisions that can be designated by the creation of a Power of Attorney.
Patient Advocate Designation (Advance Health Care Directive) – Similar to a Power of Attorney, and sometimes referred to as a Durable Power of Attorney for Health Care, this legal document works in similar fashion to that of a standard power of attorney, however, it is distinguished in that it allows a named person, called an agent or attorney-in-fact, to make health care related decisions for you in the event that you are incapable of doing so yourself. Included in such decisions are funeral arrangements, end-of-life care, as well as those choices regarding medical treatment.
While these are just a few tools that our incredibly skilled and highly intelligent attorneys use on a daily basis, an estate plan is not something that should be done without the assistance of a lawyer. Proper estate planning is an art. Our experienced attorneys at The Probate Pro can effectively create an estate plan for you, eliminating the burden or stress involved.