An estate plan consists of four basic documents: a last will, a living trust, a financial power of attorney and a medical power of attorney and advance directive, according to the article titled “Common Estate Planning Myths” from The Street.
These documents need to be well-integrated, funded and aligned with your financial plan. There are many common misconceptions about how these documents work together to create a roadmap for your legacy. Let’s explore them.
A last will is a legal document outlining how you want your assets to be collected and distributed after death. The last will is also used to name an executor, who is responsible for managing assets, paying debts and distributing what is left to beneficiaries you specify. A last will also designates a guardian to care for minor children upon your death.
- Myth: “If you have a trust, you don’t need a will.” Fact: Even if you have a trust, you still need a will. For a trust to be effective, it must be funded, which means transferring assets from individual ownership to the trust ownership. People often forget to transfer assets or something unexpected occurs. For example, if a person creates a trust but becomes incapacitated before assets are transferred, the last will controls the distribution of assets.
- Myth: “Trusts are only for ultra-high net worth people.” Fact: Everyone can benefit from a trust. Trusts are used to retain privacy, control assets, plan for incapacity and avoid probate. Trusts can also be useful when family dynamics are challenging, or if you want to assert control over assets even after death. Consider a married couple with a net worth of $1 million who die prematurely with two children in their 20s. Each child inherits $500,000. Twenty-somethings may not be ready to handle large sums of money. A trust would allow the heirs to receive smaller amounts over the course of years and not all at once.
- Myth: “I have a trust, so I don’t need a power of attorney.” Fact: You need a power of attorney. Some assets cannot be owned by a trust, including IRAs, which must be owned by an individual. If you became incapacitated and do not have a power of attorney, there will be no one able to oversee investment management, Required Minimum Distributions or pay bills. Your spouse or other family member will have to petition the court to appoint a conservator to manage financial affairs.
- Myth: “My loved one is in the hospital. However, I’m their spouse/daughter/sibling, so of course the hospital will tell me about their medical status and let me make decisions for them.” Fact: Protecting patient confidentiality is the law and healthcare facilities are very mindful of adhering to all state and federal guidelines. An 18 year old who suffers an illness or injury is legally an adult, and parents have no legal right to medical information or decision-making without a medical power of attorney and a HIPAA release form. They cannot speak with the insurance company, doctors or make decisions about their loved one’s care.
A comprehensive estate plan, including a last will, financial power of attorney and health care proxy is something every adult should have. Book an appointment with Vick Law, P.C. today to protect those you love and prepare for the future.
Reference: The Street (Jan. 6, 2023) “Common Estate Planning Myths”
Suggested Key Terms: Power of Attorney, Trust, Health Care Proxy, HIPAA Release Form, Trusts, Incapacity, Probate, Heirs, Will, Assets, Executor, Guardian
