An estate plan typically includes either a will or a trust in conjunction with a power of attorney and a health care directive. A customized estate plan ensures that your property and possessions are distributed in accordance with your wishes upon your passing. In addition, a properly drafted estate plan will ensure that your family and your property are taken care of if you become incapacitated and are unable to make decisions for yourself.
A Will is a document that disposes of your probate assets when you die. A Will does not avoid probate. A Will is actually a letter to the probate court with instructions regarding who gets your assets.
Other functions of a Will include naming a guardian for your minor children and naming a personal representative (executor) to administer your estate. If you die without a Will, the Minnesota Statutes will determine who is named as personal representative of your estate, who is named Guardian for your children, and also, who will receive your assets upon your death.
A Revocable Trust can be used to avoid probate. Think of it like a box that you put all of your assets in to. Once you create the trust, you “fund” the trust by titling your assets in the name of the trust. Upon your passing, the trust’s terms control the distribution of assets titled in the name of the trust. Common reasons for using a Revocable Trust are to maintain privacy, avoid probate, provide divorce and asset protection for children, avoid estate taxes, and to make it easier to manage one’s property in the event of incapacity. Revocable Trusts also provide a more efficient administration of your estate upon your passing as opposed to the time consuming probate process.
Power of Attorney
A Power of Attorney (POA) document allows you to name another person as your “Attorney-In-Fact”. Your Attorney-In-Fact will have the authority to manage your financial and property matters in the event you become incapacitated and are unable to make decisions regarding these matters for yourself. A POA can also be used simply to give another person authority to handle those affairs even if you are not incapacitated. The POA is commonly used to ensure that someone is able to pay your bills and expenses using your own funds if you become incapacitated.
Health Care Directive
Similar to a Power of Attorney, a Health Care Directive (sometimes referred to as a “Living Will” or a Health Care Power of Attorney), will allow you to name a person of your choice as your Health Care Agent. Your Health Care Agent will be able to make health care decisions for you if you are unable to make those decisions for yourself. In addition, a Health Care Directive will include a HIPAA waiver allowing your Health Care Agent the ability to review your medical records to make informed decisions regarding your health care in accordance with your wishes. The situation in which this document best serves its purpose is where family members are unable to agree on whether to prolong life support for an individual who is incapacitated with minimal hope of recovery.
What happens if I don’t have an estate plan?
Generally speaking, if you do not have an estate plan, the Minnesota Statutes will determine what happens to your property and your children should you pass away. If you become incapacitated without a Health Care Directive or Power of Attorney, your family may need to petition the Court for a Guardianship and/or Conservatorship in order to take care of your legal and financial affairs. As you might imagine, these proceedings can be quite costly and can usually be avoided by a simple estate plan. Guardianship, Conservatorship and Probate proceedings are all avoidable with proper planning.