IMPORTANCE OF ESTATE PLANNING
TOOLS and TERMS
Estate planning: Carefully crafted wills and/or trusts are necessary to direct assets according to personal circumstances and preferences for family members, charitable organizations and other beneficiaries. Planning discussions with our clients address such circumstances and options for timing for distributions. Consideration is given to the tax implications of distributions and the best interest of individual beneficiaries. We discuss recommended advisors and fiduciaries to be included in the plan. Our services include providing resources to assist our clients with financial record keeping to help personal representatives and trustees with transfers following death.
Will: A valid will complies with testamentary requirements set by Indiana law and provides for the passing of assets to beneficiaries according to the client’s wishes. Wills can be simple or complicated, depending upon personal situations and preferences for asset transfers. A will can establish a trust for longer-term asset management. If created in the will to only become effective upon death, the trust is referred to as a “testamentary trust.”
Trust: A trust is an arrangement created to set terms for asset management and distribution to beneficiaries according to the terms of the trust agreement. The grantor is the person establishing the trust. A trustee is designated to manage and invest the trust property for the benefit of the trust beneficiaries. The trust property consists of assets transferred to the trust either during the grantor’s life or at death. Commonly, trusts are created with a reserved right to be changed or revoked (a revocable trust); however, they are situations where it is advisable to create a trust which is irrevocable.
Probate: From the Latin term meaning “to prove,” probate is the process established by state law to prove the validity of a will and carry out provisions for transfer of assets after death. A will is administered by a personal representative appointed by the Court. Estate administration can involve such tasks as payment of final expenses and debts, filing tax returns, appointing guardians for minor children, monitoring investments, selling property and making distributions to the beneficiaries per the terms of the will.
Non-Probate Assets: Assets are termed “non-probate assets” when they transfer upon death separately from a will. Examples of non-probate assets are those owned jointly with rights of survivorship, accounts with “payable on death” designations, and assets with a designated beneficiary, such as life insurance, retirement accounts and pension plans. The joint owner or beneficiary must survive for the asset to be transferred as non-probate; if there is no surviving beneficiary, the asset may pass under the will. It is important to be properly advised on options for non-probate transfers to optimize the timing of distributions and income tax consequences.
Intestate Succession: The transfer of assets following death is directed by state laws. When an individual dies without a valid will, trust or beneficiary designation, assets are transferred to heirs according to the laws of intestate succession. These laws direct specific shares to spouses and children and may differ from one’s intent for division of their assets. For example, the best interest of a child may be to delay distributions until they are mature enough to handle financial responsibility. Without a valid will or trust, assets could be distributed at age 18.
Power of Attorney: A power of attorney is useful to name and authorize a person you trust to act for you in financial matters. This document can be drafted to be effective immediately or alternatively, only in the event of you incapacity. A “durable” power of attorney is not affected by subsequent incapacity. It can include broad general powers for all financial affairs or be limited to specific transactions or financial categories.
Appointment of a Healthcare Representative: The appointment of a healthcare representative is used to designate someone you trust to make healthcare decisions when you are not able to do so yourself. The healthcare appointment provides a healthcare representative with full access to necessary medical records so that informed decisions may be made with the guidance of the treating physician.
Living Will: Also known as a life-support declaration, a living will documents your wishes regarding life-prolonging medical procedures, including artificial nutrition and hydration. The living will provides authority to preclude or remove life-support measures for someone diagnosed with a terminal condition or when medical measures would only artificially prolong one’s life.