The Write Idea – An Estate Plan Is Only Four Documents Away

When faced with the possibility of incapacity or death, most people would prefer to have a plan in place to ensure that their needs and goals will be met. 

While many people believe they do not have enough money to need an estate plan, the need for such a plan is not solely related to your level of wealth. Everyone adult should have an estate plan in place.

Fortunately, a basic estate plan is quite simple to establish.

 

Last Will and Testament

The will is the document most people think of when contemplating an estate plan. Your will directs how your probate assets will be distributed after you pass away. When you die, your probate assets are those held in your name alone that do not have a beneficiary designated.  If you pass away without a will, your estate will be distributed as directed by the Commonwealth’s intestacy law, which may not be as you would have wanted.

A common misconception is that a will is not needed if every asset is jointly owned or has a designated beneficiary. Of course, there must be a surviving joint owner or beneficiary for this type of plan to work. If the joint owner or beneficiary does not survive you, your estate will need to be probated, which is when your will would be important. 

A will is also necessary for you to name a personal representative, who will carry out your estate. The personal representative will gather your probate assets, pay valid debts, and distribute the balance to your beneficiaries as set forth in your will. Further, if you leave behind minor or disabled children, a guardian can be named in the will to take custody of these children.

Likewise, a trust can be established in a will that would provide ongoing protection for minor or disabled children — or possibly for other beneficiaries who should not receive their inheritance outright, usually due to spendthrift concerns.  When there is no will in place, your power to make these designations and to direct the distribution of your property is forfeited.

 

Healthcare Proxy

A healthcare proxy is a document that designates a healthcare agent, who would make healthcare decisions for you if you were incapacitated. Your agent would step into your shoes and make your decisions as you would if you were able.

For example, they may decide whether a certain medication should be taken, whether a certain medical procedure should be done, or whether there should be an admission or discharge from a medical facility.

‘Living will’ language is normally included within the healthcare proxy because it addresses your end-of-life decisions and generally sets forth that you do not want extraordinary medical procedures used to keep you alive when there is no likelihood of recovery. 

This can be a difficult decision to carry out; therefore, care should be taken to name someone who would be able to honor that decision. If you have an advanced illness, you may choose to establish medical orders for life-sustaining treatment (MOLST) in addition to a healthcare proxy. A MOLST is a medical order form completed by you and your physician that relays instructions about your care. A MOLST eliminates the need for living-will language in a healthcare proxy, but the best practice would be to reference the MOLST in the proxy.  

 

Durable Power of Attorney

A durable power of attorney is a document that designates someone to make financial decisions. This document is usually in full force and effect when it is signed, but it is expected that it will not be used unless you want help with or are unable to handle your own financial affairs.

It is also possible to grant a springing power that does not take effect until incapacity arises.

The power of attorney is a very powerful document that is as broad as the powers granted within it. It gives authority to the person you name to handle all your financial decisions, not just pay bills. In most cases, the person named will be authorized to handle your real estate, life insurance, retirement accounts, other investment accounts, bank accounts, and any other matters involving money.

As such, the person chosen to serve in this capacity should be someone with financial savvy who can be trusted without reservation.

 

Homestead Declaration

For homeowners, a homestead declaration, once properly recorded in the Registry of Deeds, will declare your principal residence to be your homestead. The homestead declaration protects the equity in your primary residence up to $500,000 from attachment, seizure, execution on judgment, levy, or sale for the payment of debts.

In some cases, such as advanced age or disability, the equity protection can be up to $1 million.  If a homestead declaration is not recorded, there is an automatic $125,000 of equity protection. It should be noted that, in addition to some other specific exceptions, a homestead declaration will not protect your real estate from nursing-home costs or tax liens.

 

Conclusion

With these four documents, most people can help their loved ones avoid expensive legal hassles related to their ongoing care and their estate. Individuals with more complicated estates may require different or additional documents to fully protect their interests, but for the majority of people, an estate plan is only four documents away.