Basic Parts of an Estate Plan
Probate laws vary from state to state.
The following is a general description of basic parts of an estate plan in Texas:
The Will
The Will is the most basic part of an estate plan. It identifies the family or other beneficiaries, directs the payment of debts and the distribution of the probate estate (as opposed to the non-probate assets described below), provides trusts for minor children to avoid guardianship of the estate of the minors, names person guardians of the minors, provides for an independent executor to serve without bond with the power to sell assets, provides tax planning where appropriate and contains a self-proving affidavit to avoid having a witness to the Will signing testify in the Court hearing on the Application to Probate the Will. It may also create or fund additional trusts designed for various purposes, including tax planning.
Non-testamentary Trusts
Non-testamentary Trusts (as opposed to testamentary trusts which are created in one’s Will) can be revocable or irrevocable, and can take many forms, including “grantor trusts,” various types of trusts for minors and so-called “Crummey” or annual withdrawal trusts, which are frequently used to purchase and hold life insurance policies. All of these trusts are a very important part of estate planning.
Durable Power of Attorney
A Durable Power of Attorney is an important document allowing the person designated as the agent (attorney-in-fact) to take care of various business affairs (as opposed to medical decisions) for the person signing the document. It can be designed to either take effect immediately or to become effective upon the disability of the person signing the document. In either event it should survive the disability of the person. Without a Durable Power of Attorney a Court-supervised Guardianship of the Estate of a disabled person might be necessary, which is typically a cumbersome and expensive process.
Medical Power of Attorney
A Medical Power of Attorney is an important document which designates an agent to make health care/medical decisions (as opposed to business decisions) in the event that the person signing the document is unable to do so.
Directive to Physicians (Advance Directive)
A Directive to Physicians (Advance Directive) is an important document often referred to as a “Living Will.” It sets forth the desired level of medical care and treatment at the end of life. It can alleviate some of the painful emotions and indecision of family members who are called upon to make those difficult decisions.
Authorization to Release Medical Information
An Authorization to Release Medical Information is an important document designed to permit health care providers to release health information regarding the person signing the authorization to designated personal representatives. Usually the designated personal representatives are persons designated as agents under a Durable Power of Attorney and a Medical Power of Attorney. Sometimes the authorization is added to those documents rather than as a stand-alone document. The authorization is needed because of restrictions contained in the Health Insurance Portability and Accountability Act of 1996, commonly referred to as HIPAA.
Non-Probate Assets
In addition to assets which pass under a Will (“probate assets”), other assets do not (“non-probate assets”). Those assets generally pass to a beneficiary designated in writing. Examples of non-probate assets include life insurance, Individual Retirement Accounts, annuities, retirement plans and accounts with financial institutions or brokerage firms with a right of survivorship or payable on death designation. The beneficiary designation of non-probate assets must be coordinated with the planning for the assets passing under a Will.
In an increasing number of cases, the value of a person’s non-probate assets may far exceed the value of the probate assets. Often it is possible to structure the ownership of non-probate assets to avoid having the proceeds included in an individual’s taxable estate for purposes of federal tax. An example is an appropriately structured, funded and administered life insurance trust.
Other Documents and Planning Techniques
There are other documents which can be an appropriate part of estate planning, depending upon a person’s particular desires and situation, including a Designation of Guardian in Advance of Need, an Appointment of Agent to control Disposition of Remains and an Anatomical Gift.
There are a number of more advanced and sophisticated planning techniques which may be considered in particular circumstances. Many may be utilized with a carefully planned and structured strategy of gifting. Some may be used to hold appreciating assets and may in some cases be used to manage and control family assets while obtaining tax benefits. Examples may include family limited partnerships, charitable lead and remainder trusts and grantor retained annuity trusts.