Why an Estate Plan is More Than Just a Will

Estate plan file in a filing cabinet

Individuals often think that if they make a Will, it means they have a complete estate plan — but that is actually a common misconception. An estate plan is more than just having a Will. While a Will is an important estate planning document which sets out your wishes regarding distribution of your property after death, it is only part of an estate plan. An estate plan should not only include after death planning, but should also include lifetime planning in case you become incapacitated because of a medical crisis from a serious accident or illness such as dementia.

What should be included in your estate plan?

Last Will and Testament

Having a Will is an important part of an estate plan. A Will is less expensive than a Revocable Living Trust and can function as an effective method to convey property after death. However, unlike a Revocable Living Trust, a Will needs to be probated after death through the court system and becomes a public document. As long as privacy is not a major concern and a person has well thought out beneficiary designations on their financial accounts, a Will may be an appropriate document to include in an estate plan.

Revocable Living Trust

A Revocable Living Trust offers greater control over how a person’s assets are managed and distributed both during their lifetime and after death, with the ability to transfer assets in and out of the Trust and to amend or even revoke the Trust during their lifetime. It is also a private document that avoids probate administration.

Typically, a Trust provides a distribution plan that outlines a person's wishes concerning who will receive their assets, how the assets will be distributed and over what period of time. For example, if parents are deceased, a Revocable Living Trust can instruct a successor trustee to manage the Trust assets and to distribute all or portions of trust property when a child reaches a specified age or allow for distributions for specified purposes such as a child’s health care, education and support. Provisions in a Living Trust also address not only how you want your assets distributed upon your death, but also how you want your assets to be managed and used for your own care if you become incapacitated and lack the sufficient mental capacity to manage the trust and your day-to-day affairs.

A Revocable Living Trust can also be designated as a beneficiary on financial accounts and with an Enhanced Life Estate Deed (Lady Bird Deed) for direct transfers of assets and real estate property to the Trust after death with the Trust’s instructions controlling distribution.

Durable Power of Attorney for Property and Financial Matters

This is another essential document for a basic estate plan that protects a person and their family. In the Durable Power of Attorney document, a person designates a trusted person, usually a spouse or family member, to make financial and property decisions on the person’s behalf. The Durable Power of Attorney can be effective immediately at the time of signing the document or can be made effective in the event the person becomes incapacitated and unable to manage their day-to-day affairs. The Power of Attorney usually includes a provision that a person’s incapacity is to be documented by a licensed physician.

Patient Advocate Designation/Durable Power of Attorney for Health Care

A Patient Advocate Designation, which can also be referred to as a Durable Power of Attorney for Health Care, is another essential document for a basic estate plan. In a Patient Advocate Designation, a person designates a trusted person, usually a spouse or family member, to make health care decisions in the event they are incapacitated and unable to make decisions on their own behalf. The decisions can include both medical and mental health care decisions. Most importantly, the Patient Advocate document allows a person to include written instructions for life sustaining treatment or end-of-life care if they are in a coma and have no reasonable likelihood of recovery.

It is important to understand that choosing the right persons for a Durable Power of Attorney for Property and Financial Matters and for a Patient Advocate Designation is a very important decision and should be discussed with the person who is being considered for appointment.

Beneficiary Designations on Financial Accounts

Although a Will or Living trust is a central part of an estate plan, a significant portion of personal wealth for many people is contained in financial assets such as life insurance policies, annuities, and tax-favored accounts–like IRAs, 401(k)s, and education accounts. These accounts have provisions known as beneficiary designations that enable a person to appoint who will receive the contents of their account after death without the need of going through probate administration.

Designating and confirming beneficiary designations on financial accounts is crucial in estate planning however it is important to understand both the advantages and disadvantages of beneficiary designations. For example, a disadvantage may involve listing a minor child as a beneficiary on financial accounts. Financial institutions typically do not distribute account assets directly to minor children at the time of the account holder’s death so it may be necessary to establish a conservatorship with the probate court. The processes can be expensive and time-consuming, with the assets eventually being released to the child upon reaching 18 years of age, even if the child is not financially responsible. As an alternative, consideration should be given to designating a Living Trust as a beneficiary on financial accounts for the transfer of assets directly to the Trust at the account holder's death with distributions made according to the instructions of the Trust.

Schedule a Free Consultation with an Estate Planning Attorney

At Ager Law Office, Bill Ager helps individuals and families with all aspects of estate planning, including Wills, Living Trusts, Durable Powers of Attorney for Property and Financial Matters, Patient Advocate Designations and Enhanced Life Estate Deeds (Lady Bird deeds). From his Ann Arbor office, Bill Ager serves clients throughout Washtenaw County. To schedule a free consultation for an understanding of the cost of an estate plan specifically tailored to your needs, or for updating your existing plan, call (734) 649-0784, send an email to bill@agerlawoffice.com, or use the online contact form on this website.

Categories: Estate Planning