What Is Estate Planning?
When you die, what will happen to your assets? Who will inherit them? How much will each person inherit? What will happen if you become incapacitated? Who will make medical and financial decisions for you? Who will take over your personal, financial, and medical affairs?
Estate planning is the process of making sure that these questions are answered the way you want. It is done in order to maximize the wealth that you pass on to your heirs after you die with the minimum inconvenience to them. It is also done in order to make sure that someone you trust will be making health care and financial decisions for you in the event that you become incapacitated. Most important of all, it is a way to document your wishes so that they will be adhered to upon your death or incapacity.
Without an estate plan, a large portion of your estate could be taken by estate taxes and probate fees. But a little education and some planning can give you peace of mind and save thousands of dollars for your children and heirs.
What Is a Will?
A will is a document that is effective when you die, in which you leave your assets to your heirs. You can also use a will for other purposes, such as to provide instructions on how you want to be buried, to disinherit one of your heirs, or to nominate a guardian for your minor children. The person who creates a will is called a “testator” and those who the will names as beneficiaries are called the “devisees”. A will must either be properly executed and witnessed in order to be valid or be a "holographic will" that is entirely in the testator's handwriting and signed and dated by him or her. Once a will is executed, it can usually be changed or cancelled throughout the testator’s lifetime. Having a will does not avoid probate. A court order for distribution at the conclusion of a probate proceeding will be required before title companies, banks, investment companies and stock brokerages will recognize your heirs as the owners of your estate.
What Is a Durable Power of Attorney (DPOA)?
A power of attorney is a written document in which a person (called the principal) appoints someone else (called the agent or attorney-in-fact) to act on his behalf. A “non-durable” power of attorney terminates when the person who created it become legally incapacitated. A “durable” power of attorney, on the other hand, continues to be valid even after the principal becomes incapacitated. If you want to prepare a power of attorney but do not want the attorney-in-fact’s powers to become effective until you become legally incapacitated, you can create a “springing” power of attorney. A springing power of attorney becomes effective only upon the happening of an event that you have designated. No matter what type of power of attorney you create, it will terminate when you die.
What is a Medical Power of Attorney?
It is a document, signed by a competent adult, i.e., "principal," designating a person that the principal trusts to make health care decisions on the principal's behalf should the principal be unable to make such decisions. The individual chosen to act on the principal's behalf is referred to as an "agent."
It is effective immediately after it is executed and delivered to the agent. It is effective indefinitely unless it contains a specific termination date, it is revoked, or the principal becomes competent.
What is a Revocable Living Trust?
Simply stated, a Revocable Living Trust is a trust that you create while you are alive, which you can revoke (cancel) or change at any time. Revocable Living Trusts are used to avoid probate, plan for incapacity, make provisions for management of your estate for your spouse and young or disabled children, and to reduce or in some cases, avoid estate taxes.
An irrevocable trust is simply a type of trust that can't be changed after the agreement has been signed, or a revocable trust that by its design becomes irrevocable after the Trustmaker dies.
With the typical Revocable Living Trust, it will become irrevocable when the Trustmaker dies and can be designed to break into separate irrevocable trusts for the benefit of a surviving spouse, such as with the use of AB Trusts, or into multiple irrevocable lifetime trusts for the benefit of children or other beneficiaries.
What Is an Advance Heath Care Directive?
Texas law requires that you cannot appoint someone to make health care decisions for you in a power of attorney that is for financial matters, usually described as a Durable Power of Attorney. California law allows you to appoint an agent to make health care decisions when you are no longer able, in a document described as a Durable Power of Attorney for Health Care Decisions and provided a form that was approved by the legislature. Texas law provided for a separate document that allowed you to direct your doctor to withdraw life support if you were in a coma and near death, by a document called a Directive to Attending Physician. The law now provides that both the Durable Power of Attorney for Health Care Decisions and the Directive to Attending Physician will be combined in one approved document called the Advance Heath Care Directive.