Estate planning is a multi-layered process that involves a significant amount of energy, thought, and oftentimes the need to engage in uncomfortable—but invaluable—conversations about your assets and your future should you become unable to care for yourself and after you are gone. Estate plans commonly contain some combination of medical powers of attorney, general durable powers of attorney (often referred to as financial powers of attorney), wills, a trust, and a statement of assets.

 

Medical powers of attorney empower an agent of your choosing to make medical decisions for you when you alive but incapacitated (e.g. in a coma or suffering from dementia). The authority granted under this instrument ends when you pass away. Medical powers of attorney are often combined with physician’s directives. A physician’s directive, similar to a medical power of attorney, is used when you are alive but incapacitated (e.g. in a coma or suffering from dementia). However, the physician’s directive governs two specific scenarios without involving your agent. The physician’s directive communicates in your voice, directly to your physician, your wishes regarding whether you should be placed on life support if you have a terminal condition or are in a vegetative state.

 

Where medical powers of attorney and physician’s directives, are used to govern your medical affairs, general durable powers of attorney are used to govern your financial affairs. As with medical powers of attorney and physician’s directives, general durable powers of attorney terminate when you pass away. And, as with the medical powers of attorney, general durable powers of attorney vest power in an agent of your choosing to manage your financial affairs when you are alive but incapacitated.

 

When choosing an agent for your powers of attorney, an executor for your Will, and/or a trustee for your Trust, it is wise to choose some who is smart, honest, and younger than you, if possible. The person or people you put in charge of your medical and financial affairs will be given a great deal of power. They will have to work with doctors, financial planners, accountants, attorneys and other professionals. As such, it is important that they have the ability to understand complex information and utilize that knowledge for your benefit. In addition to intelligence, this person or people need to be honest. As noted above, they will have a great deal of power over your affairs which you have to trust they will wield for your benefit, not their benefit or for the benefit of others. And, ideally, they should be younger than you so that you stand a better chance of having someone with capacity to govern your affairs as you age. It is important to note, that the person or people governing your medical affairs need not be the same person or people governing your financial affairs. You may select people for these roles based on their particular knowledge or experience.

 

When you pass away, your executor/s may need to probate your Will. Probate is the process where an executor is given the authority to retitle your assets. The Will is essentially the instruction manual that the court and your executor/s use is the management of your estate and the retitling of your assets. Often times Wills are used in conjunction with Trusts in which case the Will is called a Pour Over Will. The Pour Over Will captures assets not already assigned to the Trust and transfers them to the Trust. Pour Over Wills, when properly constructed, should contain an articulation of the distribution scheme contained in the Trust and should incorporate by reference the terms of the Trust to ensure that your assets transfer in accordance with your wishes in the event that the Trust is no longer operational. Trusts can be used to control and transfer assets while you are alive and after you have passed away. Trusts are used to minimize estate taxes or to give you control over your assets to achieve a special purpose. For instance, Trusts can be used to provide for a relative with special needs. Typically, Trusts are revocable while you are alive and upon your passing they become irrevocable, meaning that they cannot be changed. Under some circumstances, you may opt to make a Trust irrevocable from its inception to achieve asset protection. An irrevocable Trust is legally a separate entity from you. Placing assets in an irrevocable Trust makes those assets no longer your assets, although you may still control them through the powers you grant yourself in the Trust. Effectively, if you are sued and found liable for damages, the assets in an irrevocable Trust cannot be used to satisfy that judgment because they legally do not belong to you.

There are a lot of nuances to properly creating an estate plan, even simple estates require the contemplation of many factors. As such, they should be created under the guidance of a lawyer or attorney.