Estate planning is an area of law that covers a broad range of topics, including wills, trusts, and powers of attorney. Estate planning is important for anyone who wants to leave property to beneficiaries. Some estate planning documents can also help a person save money on taxes during their lifetime and enjoy the use and benefit of their property while keeping their assets protected from creditors. Estate planning also includes planning for how your affairs will be handled should you become temporarily or permanently incapacitated.
A will is one of the most common documents utilized in estate planning. A person must be of sound mind to create a will, and the author of the will must be free of duress and coercion at the time it is signed. To be legally valid, the signing of a will must be witnessed. A person who makes a will may change the will or add to it at a later time, as long as they have the capacity to do so. An addition to a will is known as a will “codicil.”
If a person passes away without a will, his or her property will be distributed according to state laws on “intestate succession.” This means that property will be inherited by the next closest relatives named by statute rather than those named in a will. Some types of property such as bank accounts and life insurance policy proceeds may be distributed to beneficiaries without a will according to who is named on the accounts.
A trust is a legal instrument that entrusts property to another person (or sometimes the same person as the grantor of the trust) to manage the property and to distribute it upon the happening of certain events (such as the grantor's death) according to the terms specified in the trust. A trust document must name the grantor/trustor/settlor, at least one trustee, and at least one beneficiary. It is also a good idea to list the property that is to be placed in the trust. There are many different types of trusts, and the type of trust utilized will depend on the type of property that will be placed in a trust and the needs of the beneficiaries and the person who is creating the trust. The trustee who is named in the trust document has a duty to handle the assets in the trust properly and carry out the wishes of the trust grantor according to terms specified in the trust document.
One important reason many people decide to create a trust for distribution of property instead of a will is so that beneficiaries can avoid probate court. Probating a will can be a costly and time-consuming process. A trust can ensure that the property in the trust passes to the successor trustee(s) automatically upon death, for eventual distribution to the beneficiaries according to the terms of the trust. A trust can be used to distribute property at a certain time, such as when a beneficiary is a certain age. A trust can also help keep property safe from creditors if the beneficiary is unable to access the funds in the trust.
Charitable trusts can be used to gift property to an organization after death. Charitable trusts may also be used for other purposes, e.g., setting up scholarships or endowments. Charitable trusts that are funded during lifetime can provide tax benefits during lifetime and at death.
Powers of Attorney
A power of attorney (POA) is a legal instrument used to grant another person permission to make decisions for an individual who has become incapacitated or who simply wants to designate another person to make decisions for convenience. Married couples often give each other powers of attorney with immediate effect for convenience. Parents often grant their children powers of attorney that do not spring into effect until the parent's incapacity.
There are two main types of powers of attorney:
- Healthcare powers of attorney; and
- Financial powers of attorney.
A person must be competent and of sound mind to sign a power of attorney document. A power of attorney can be amended or revoked later as long as the individual who is amending it has the capacity to understand the nature of the document he or she is signing.
A healthcare power of attorney allows a person to make healthcare decisions for a person who lacks the capacity to make decisions regarding medical treatment themselves. A healthcare power of attorney will allow the person named in the document to decide where a person will receive treatment and what types of treatments will be administered.
A financial power of attorney allows the person who has been named in the estate planning document to manage another person's financial affairs, including signing checks and other documents on that person's behalf.
A guardianship is similar to a power of attorney in that it appoints a person to make decisions for another, but it is created not by the consent of the principal but rather by a court order that results from the filing of a petition for guardianship. Guardianship petitions, especially if they are contested, can be very expensive, especially when compared with the alternative of planning ahead by creating a power of attorney.
Many people also prefer to create a power of attorney just in case they become incapacitated because a POA allows them to name who they want to make decisions for them in advance without a court order. They do not want to risk a court appointing someone that they would not want to act for them.
An advance directive is also known as a “living will.” An advance directive is a document that states what type of treatment a person wants to receive if he or she becomes incapacitated and unable to make his or her own medical decisions or communicate wishes to medical providers. Some states, such as Alaska, Arizona, California, Colorado, Oregon and Tennessee (and others), have useful statutory forms. Often, however, an attorney-prepared advance directive can be more specific and complete.
Without an advance directive, medical providers may be obligated to provide services even if these treatments are unlikely to prolong life or even if they are unduly invasive given the patient's terminal condition or poor quality of life. On the other hand, with an advance directive, a person may choose whether or not they want to continue receiving treatment if it is unlikely to improve his or her quality of life or is likely to cause unnecessary suffering.
For example, a person may choose whether or not:
- he or she will be placed on a respirator if unexpected to recover from incapacitating illness or injuries;
- he or she wants nutrition and hydration to be administered; or
- he or she wishes to be resuscitated if his or her breathing or heartbeat stops.
An advance directive can give many people peace of mind because they can dictate the medical care they wish to receive ahead of time. Without an advance directive, family members may be faced with very difficult decisions regarding medical care, and it is not uncommon for disagreements among relatives to arise about what an incapacitated person would have wanted if there is no advance directive in place.
Contact an Estate Planning Attorney
If you have estate planning questions in Arizona, Alaska, California, Colorado, Oregon or Tennessee, contact Nina Whitehurst at Cumberland Legacy Law, located in Crossville, Tennessee. You can use our online form to schedule a consultation or call us at (931) 250-8585.