In creating an estate plan, there is often a lot of confusion when trying to determine exactly what documents are needed. While many types of trusts exist, a simple revocable living trust for probate avoidance, also known as a “living trust” is the most common. The living trust, however, is not the only important document you need when you’re creating an estate plan. Simple pre-planning with some other living trust basics can avoid potential problems that arise if you become incapacitated and after you pass away. These advance planning documents help protect all of your financial and medical needs, and even other caretaking needs. For most people, the estate plan can be completed by creating living trust forms and also including a pour-over will, a power of attorney, and an advance medical directive.
What is a living trust?
A living trust is a legal document through which your property, also known as assets, are placed. It is called a living trust because it is established and used for your benefit while you are alive. After you pass away, those assets are then transferred according to your wishes to your desired beneficiaries. The person who carries out your wishes is known as the successor trustee. If properly constructed, a living trust avoids probate, can distribute assets to your beneficiaries over a period of time, and protect against issues arising from potential incapacity, among other benefits.
Pour-over will
Although it may seem counter-intuitive as a living trust is often seen as the “alternative” to a will, both a will and trust are needed. When creating a living trust, however, a special will is created and becomes a necessary complement to the living trust. Even though the purpose of a typical living trust is to place into the trust all of your property in order to avoid probate and protect that property if you become incapacitated, occasionally some property is inadvertently left out. A pour-over will states that any property not previously placed into the trust can be transferred to the trust and administered by the trustee. This will “pours” the remaining property into the trust. If property is outside a trust and you do not have this type of will, property might be distributed according to the laws of your state of residence which might not be your desired distribution.
Another extremely important aspect of the will is that it designates your appointed guardians for any minor child. By formally appointing guardians, it will ensure that your children are raised by those family members or friends of your choosing instead of a judge who will likely not be familiar with your family and circumstances.
Power of attorney
A power of attorney is a document that allows a designated person to manage your finances, such as paying your bills, if you become incapacitated and unable to make decisions for yourself. This person is known as a attorney-in-fact. Upon your incapacity, your attorney-in-fact would be able to access your accounts, pay your medical bills, obtain financial information, etc. Without this document, your bank accounts and other property in your name would be entirely inaccessible without lengthy and expensive legal proceedings. A power of attorney used in conjunction with a living trust for your designated representatives to effectively handle your financial affairs while you cannot, providing you a piece of mind for yourself and your family.
Advance medical directive
An advance medical directive includes all of the medical information needed by your family and healthcare providers when you are not able to convey this information yourself. An advance directive consists of two main portions: 1) a living will and 2) a healthcare power of attorney. A living will sets forth all your intentions and wishes regarding your health. The healthcare power of attorney designates a specific person to make healthcare decisions for you for any and all decisions that need to be made that were not listed in the living will portion of the advance medical directive.
A copy of this document should be given to any designate agent as well as your primary medical physician and any treating physician for a surgery or any other procedure.
Other things to consider
While the living trust, along with the other three documents, are generally the main documents, your needs as well as your family’s needs may require additional planning. For example, a small business will likely require more estate planning to ensure a smooth transition to those people who are in the best position to take over the company or to wind it down. Also, specific trusts can be developed for children or other individuals with special needs or those receiving governmental aid. A comprehensive estate plan tailored to your family’s needs will generally prevent unnecessarily expensive and stressful situations in the long run.
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