"Must Have" Legal Documents
Whether your estate is large, small, or somewhere in between, you have the same basic need: someone to make sure your wishes are carried out and/or to make decisions for you if you become unable to do so. Ideally, as aging parents, we want to be able to choose whom we want to act on our behalf and we want our wishes carried out. Ideally, as children of aging parents, we don't want to be left to guess what Mom or Dad may have wanted and we don't want to find ourselves in the position of having to handle their affairs with no recognized authority to do so. Two documents that are priceless in that regard are a financial power of attorney and a healthcare power of attorney (now known more universally as an advance medical directive).
Financial Power of Attorney
A Financial Power of Attorney gives the person you choose (your Agent) the legal authority to handle all of your financial matters. This authority may be limited in any way you wish. The Financial Power of Attorney is effective once signed and remains in effect until you choose to revoke it, you are declared incapacitated by a court proceeding, or you die. If you become ill, your Agent will be able to manage your financial affairs. There should be no need for a court to declare you incompetent or to appoint someone to manage your financial affairs.
Advance Medical Directive
An Advance Medical Directive allows you to name a person (your Health Care Agent) and an alternate to make medical decisions for you if you become incapacitated. When your Health Care Agent is called upon, he or she is entitled to consult with health care providers for informed consent, to have access to appropriate clinical records, and to apply for benefits such as Medicaid. In addition, your Health Care Agent can authorize, or refuse to authorize, life-prolonging procedures in accordance with your wishes.
A third crucial document is the vehicle you choose to pass your estate to your beneficiaries, typically a Will or a Trust. The power given to an agent through a power of attorney terminates at death. At that time the disposition of your estate must be handled by an Executor (through a Will) or a Trustee (through a Trust).
A Will is a legal document that controls the distribution of a decedent’s property according to that person’s wishes. It enables a decedent to appoint a Personal Representative or Executor to handle property and affairs from the time of death, until the estate is settled. Property distributed under the terms of the Will becomes the probate estate. Without a valid Will, the probate estate will be distributed according to the laws of intestate succession, which may not be what you want.
A Living Trust ( sometimes called a "Revocable Living trust") is amendable and revocable during the lifetime of the person who creates the trust (" the Grantor"). This results in the trust not having a separate existence for tax purposes, since it can be revoked or amended. Following the death of the Grantor, the trust becomes irrevocable, and the Trustee is directed to distribute the trust assets according to the terms of the trust, much like a Will, but without the need to be appointed by the court as would be the case in probate. A Living Trust is often misunderstood by the public. Although Living Trusts can avoid a probate, they are not designed to save taxes or to protect assets. Trusts created with those objectives in mind are categorized as "irrevocable" trusts.
An irrevocable trust is commonly used to provide asset protection and/or tax savings for the Grantor and the Grantor's family. By placing assets into an irrevocable trust, the Grantor is giving up complete control over, and access to, the trust assets. In addition to providing tax savings in some instances, the trust also provides asset protection from the Grantor's creditors, while still allowing access by the beneficiaries of the trust, who are often family members. Various types of irrevocable trusts are
commonly used as a tool for VA pension planning and Medicaid planning. For more information click on our VA Benefits tab or Medicaid Planning tab.
Special Needs Estate Planning
Yet another estate planning tool for use in unique circumstances is a "special needs" trust (also known as a "supplemental needs" trust) which allows a beneficiary who needs special care to receive gifts or other funds and yet not lose his or her eligibility for certain government programs. Such trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining eligibility for public benefits. Often, special needs trusts are created by a parent or other family member for a child with special needs (even though the child may be an adult by the time the trust is created or funded). This estate planning vehicle is an excellent choice for grandparents ,and other friends and relatives, who want to leave a bequest to a disabled beneficiary. For more information click on our Special Needs Planning tab.