Who is going to serve as guardian of your minor children (or your special needs child) if you die before they reach the age of majority?
Who is going to make treatment decisions for you when you are in a coma?
Who is going to manage your business affairs if you become incapacitated?
If your answers to these questions are “I don’t know,” you need an estate plan.
An estate plan outlines your wishes for your healthcare, the disposition of your assets, and the guardianship of your minor children upon your death or incapacitation.
Comprehensive estate planning is more than just drafting a simple will. Estate planning allows you to put strategies in place to minimize potential taxes and fees, and set up contingency arrangements to ensure that your wishes regarding healthcare treatment, guardianship and asset protection are carried out.
A good estate plan coordinates the disposition of your home, business, investments, life insurance, employee benefits and other property, and provides guidance about healthcare matters, including the use of life sustaining and heroic measures.
There are five common estate planning tools:
- Testamentary Will
- Land Trust
- Living Trust
- Healthcare Power of Attorney
- Property Power of Attorney
A testamentary will is a document that transfers personal and real property after your death. It is not enforceable until after your death. A will allows you to appoint an executor, a guardian and trustee for minor or special needs children.
A will allows you to leave directives regarding how your assets are to be distributed. Your executor will enforce the provisions of the will. The guardian will raise your children after your death. The trustee will control the assets that you leave your children in your will.
There are some disadvantages to including a will in your estate plan. Unlike a trust, a will can be contested in court. If you have a large estate, you may not be able to minimize the inheritance tax liability to your heirs. The provisions of a will cannot be enforced while you are alive, even if you are incapable of making your own decisions.
Finally, a will must be filed in probate court. Probate is a proceeding that oversees the administration of an estate. It handles the payment of debts, preparation of asset lists, distribution of assets, preparation of estate and income taxes, creation and maintenance of trusts and appointment of a guardian and trustee.
A land trust consists of real estate located in the State of Illinois. The recorded title to the real estate is held by a trustee but all rights of ownership are retained by the beneficiary. You can use a land trust to avoid probate, simplify property transactions in multiple ownership situations, centralize ownership and transfer ownership to a surviving owner.
A living trust operates during the lifetime of the person who creates it. It allows for customized asset management, including, financial and tax management in the event that you cannot manage your business affairs.
A living trust is funded with assets, and can be amended or revoked by the person creating the trust. It is typically used by people to handle their financial affairs while alive and dispose of their property after death. A living trust operates outside of probate.
Healthcare Power of Attorney
A healthcare power of attorney, commonly referred to as a living will, allows you to designate a healthcare agent to make medical decisions for you in the event that you become incapacitated and cannot make decisions regarding your own healthcare. The person you appoint must be at least 18-years old.
You may give the designated person the power to consent to treatment or the withholding of treatment, and/or authorize services or procedures, including resuscitation or life-sustaining measures.
The healthcare power of attorney becomes effective when a doctor states in writing that you lack sufficient understanding or capacity to make or communicate healthcare decisions. You can revoke or limit your healthcare power of attorney at any time.
Property Power of Attorney
A property power of attorney permits you to designate another to act on your behalf with regard to your property. Property consists of real estate, automobiles, jewelry, furs, business interests, etc.
A power of attorney can be general, enabling your agent to conduct any sort of business on your behalf, or it can be specifically limited to certain types of transactions.
There is a misconception that only wealthy people, married couples or people with children need estate plans. Wrong!
If you have assets or property of any kind, and wish to pass them on to people or organizations that you care about, you need an estate plan.