by Austin Boyce, Advisor & Trading Analyst
There are many facets to an estate plan, and the terminology often isn’t part of our day-to-day conversations. That alone can make the topic feel overwhelming. Add to that the sadness that can come with thinking about the end of life, and it’s easy to see why estate planning is so often neglected.
An estate plan is simply a set of legal documents that spell out your wishes for your assets, healthcare, and loved ones—both during your life and after.
Fear not—in an effort to help you feel prepared, we’re heading back to the classroom. Think of this as a friendly refresher course, where we’ll review and highlight the key documents and terms that form the foundation of a solid estate plan. We’ll take it step by step, cutting through the jargon and giving you the confidence to engage with the process.
Estate planning will be the focus of our fall Strategic Planning meetings, and this primer is designed to help you come in informed, ready, and confident.
COMMON DOCUMENTS:
Last Will and Testament
Helps facilitate an efficient process for handling your estate. It outlines how assets should be distributed, names a personal representative, and designates a guardian (or guardians) for minor children.
Power of Attorney (POA)
Allows you to name a person or organization to manage specific aspects of your life. Medical and financial are two common types of Powers of Attorney. Some documents now also include a digital Power of Attorney. These documents can be immediately active or become active only after a specific set of conditions are met (known as Springing Powers of Attorney).
Living Will
Allows you to express your medical treatment preferences in advance. This is especially important when it comes to life-sustaining procedures and palliative care if you’re unable to communicate your wishes. Having this document in place can reduce or remove the pressure on your medical Power of Attorney to make these difficult decisions.
Trust
A legal document that governs how and when to transfer assets. Trusts can be used to maintain privacy by avoiding probate (described below).
Revocable Trust
Allows the trust creator to retain control of their assets during their lifetime, with the flexibility to change or revoke the trust at any time.
Irrevocable Trust
Cannot be modified once created. Assets placed in an irrevocable trust are generally protected from creditors, and the trust may help reduce taxes for the creator. The trust creator can also specify exactly how and when funds or property within the trust should be distributed.
COMMON TERMS:
Beneficiary
The person or entity named to receive specific accounts, such as a 401(k), IRA, or life insurance policy.
Personal Representative
Named in the will and responsible for carrying out the instructions within it.
Probate
The legal process of validating a will, settling debts with creditors, and distributing assets to the appropriate parties.
Intestate
The term used when someone passes away without a will. In this case, the courts use state laws to determine how assets will be distributed.
Estate Tax
A tax paid by the estate based on the total value of assets (cash, investments, property, etc.) above the exemption amount. This tax may be imposed at both the federal and state levels. (See Chart of the Month)
Inheritance Tax
A tax paid by the beneficiary based on the value of the assets they receive and their relationship to the deceased. This tax is only imposed at the state level and is currently applicable in six states. (See Chart of the Month)
PREPARING FOR MEANINGFUL ESTATE PLANNING CONVERSATIONS
While these lists are not exhaustive, they provide a solid starting point for foundational knowledge around estate planning. During your fall meeting, your advisor will walk you through the flow of your estate to ensure your documents reflect your current wishes.
Hopefully, having a baseline understanding of some common documents and terms will help you begin thinking about any changes you may want to make and feel more prepared for our upcoming conversations.
A little proactive planning can go a long way in ensuring your wishes are honored when you can no longer speak or act for yourself. For more complex situations, your advisor will also be able to illustrate different scenarios for your consideration.