July 15, 2024

Estate Planning Basics


The topic of estate planning if expansive.  I am going to cover some of the basic documents and considerations.  Please note that I am not an attorney and cannot provide legal advice.  It is critical to involve an attorney in your estate planning, and I recommend going to one that specializes in estate planning.

Almost every adult should have three basic legal documents in place. 

Health Care Proxy.  A health care proxy (also known as a Medical Power of Attorney) designates someone to make medical decisions if you are unable to do so for yourself.  This is often a spouse, partner, parent or sibling.  It is generally recommended that this individual live close to you, if possible, for logistical reasons.

HIPAA Authorization.  Many Health Care Proxies include HIPPA authorizations.  If not, you may want to consider creating these as well.  HIPAA Authorizations give permission for medical providers to release medical information about you to designated people.  Local providers may want you to fill out their version of this as well.

Durable Power of Attorney.  This document designates someone that can manage your finances if you are incapacitated.  You designate an Attorney-In-Fact that would be able to pay bills, access your bank accounts and investments and perform other financial duties.  Most powers of attorney are set up to be in force immediately.  If this is the case, it is obviously important that you trust the individual as they could steal your money if they wanted to.  You can also have a power of attorney that does not become effective until you are incapacitated.

Will.  Everyone should have a will.  If you own a home or have minor children, it is critical that you have one.  Probably the most important function of a will is to designate who will take care of your children if you pass away.  If you are married, this generally is your spouse.  But it is also important to designate a backup guardian, in the event you both pass away.  A will also provides direction on where your assets will go at your death.  Please note that a will does NOT allow your assets to pass probate-free.  If your asset does not have a designated beneficiary, it will need to be probated, but your will provides directions to the court and executor.  An obvious example of why you need a will is to tell the court who receives your house.  You can also include other items like cars, jewelry, etc.  It is possible to pass assets without probate through a trust.  It is also possible to include instructions in your will to establish a trust at your death, known as a testamentary trust.  A trust might be important if you have minor children and you do not want them to have full access to their inheritance at age 21.

Beneficiary Designations.  Something very effective and very simple to put in place is designated beneficiaries.  This allows many assets to pass to your beneficiaries without being probated.  If a specific asset has a beneficiary designation, it supersedes any direction in your will.  Retirement assets (IRAs, annuities, 401k plans, etc.) can have a beneficiary, as well as life insurance policies.  Brokerage investment accounts don’t always have a beneficiary, but can be added.  This is called a Transfer On Death, or TOD, account.  You can also ask your bank to make your account Payable On Death, or POD. 

Ownership.  Bank accounts, brokerage accounts and real estate can also be owned with another person, called Joint With Rights of Survivorship (JWROS).  If this type of ownership is in place, it will automatically pass to the other person if one person passes.  There are other forms of ownership as well, which are outside of the scope of this article.

There are more complex estate planning vehicles and concepts which will be discussed in a future article.  These include trusts, gifting, business owner considerations, Limited Liability Corporations (LLCs), charitable strategies, estate taxes, and Income with Respect to the Decedent (IRD) taxes. 

Estate planning is a critical component of financial planning and a key part of what we assist clients with.  As I mentioned before, a financial advisor can assist in the estate planning process, but does not replace an attorney.  Some people prefer to draft documents using online sources, but I personally recommend going to a local estate planning attorney.

Written by Lars Lambrecht, CFP, CLU, BFA, AMPA, CDFA, CLTC.  Lars is a Rehoboth resident and Private Wealth Advisor.


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