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Estate Plan Basics: Why Do I Need One?

As blunt as it may sound, an estate plan is not necessarily for you. Think of it as a contingency plan for your loved ones to whom you want to leave your family heirlooms, bank accounts, stocks, home, retirement accounts and other things you have worked a lifetime for. Developing an estate plan ahead of time can save the recipients of your generosity immense time, energy, expense and stress during what would already be an immeasurably stressful and grievous time.

In addition, planning for the contingency of death or incompetence does not mean it is going to happen. Many Durable Powers of Attorney that are prepared are never used. Wills and Trusts can be amended or completely redone over the years as circumstances change. The key is to avoid putting your family in a situation where they need your estate plan, but it is too late to get one.

Even if your assets are not considerable, couples with minor children have nothing to lose and unquantifiable peace of mind to gain when it comes to estate planning. Even a young couple with a $100,000 life insurance estate and one surviving minor child can save that child thousands of dollars over the span of a guardianship with a relatively simple estate plan.

Just as no two families are the same, nor are any two estate plans. Every family has different assets, dependents, debts, and tax liabilities that must be taken into consideration when crafting an appropriate estate plan. However, there are a few basic components involved in almost every estate plan, described below.

What does a basic estate plan entail?

At a minimum, an estate plan typically consists of three properly executed documents: a Will, a Durable Power of Attorney, and a Health Care Power of Attorney. Under most circumstances, two further documents are also appropriate to be included in an estate plan: a Trust and, if you are not philosophically opposed to it, a Living Will.

  • 1. The Will: Also known as the “last will and testament,” the will is a written and formally executed document that directs an appointee of your choosing (called your “executor”) to distribute your assets according to your wishes in the event of your death. Any assets you owned at death that are not set up to be paid or transferred on death to another specific party are called “probate assets.” In other words, this means that proceeds like those payable to a named party under your life insurance policy or 401(k) are not considered probate assets, but all other assets are.
    The will is also the document you will use to name guardians and alternate guardians for your minor children.

  • 2. The Durable Power of Attorney: This document is where you formally appoint an agent to conduct your business and/or financial affairs on your behalf if you cannot do so yourself (the reasons for this can range from physical unavailability if you are out of town, to short- or long-term incapacitation). The Durable Power of Attorney can be a very broad power or can be limited to certain purposes. These factors are items to discuss with your estate attorney.

  • 3. The Health Care Power of Attorney: In this document you will formally appoint a person to make health-care decisions for you in the event that you lack the capacity to do so yourself. This form is generally in a standardized format that most healthcare providers easily recognize.

  • 4. The Trust: There are many different kinds of trusts, but the most common type used in estate planning is called a revocable, or living, trust. With a living trust you appoint a trustee to manage and distribute assets transferred to the trust during your lifetime and/or upon your death. A trust can minimize or avoid the unnecessary payment of inheritance or estate taxes for your surviving spouse or minor children. The trust can be part of your will or a separate document. Who to appoint as your trustee and what type of trust best suits your estate planning goals are topics of further discussion with your attorney.

  • 5. The Living Will: This document states to the world—loved ones, healthcare providers, etc.—that you do not wish to be kept alive by artificial or extraordinary means. The living will is an optional document, and if executing one is something you are philosophically opposed to, do not be afraid to tell your attorney so.

An important component that should be common throughout all stages of your estate planning process is an experienced, reputable wills, trusts and estates attorney with whom you feel comfortable. Estate planning by its nature can involve some of the most sensitive financial and personal aspects of a person’s life, and it should go without saying that you share this information with a respectful professional whom you can trust.

Arnold & Smith, PLLC is an aggressive civil and criminal defense firm in Charlotte, North Carolina. We provide wills and estates representation; family law representation for matters ranging from adoption to divorce; bankruptcy representation; personal injury and workers’ compensation representation; and zealous advocacy for those accused of criminal matters. Please contact our offices today to schedule an appointment with one of our experienced estate planning attorneys.