Most people understand that a will takes care of divvying up money and property after someone dies. But other estate planning documents exist that also offer the opportunity to nail down personal affairs. What other basic estate planning documents exist?
What difference exists between a Will and a Living Will? When and Why might a trust present a better option? Some simple definitions should clarify what purpose basic estate planning documents serve.
Basic Documents: The Will
A will speaks at the moment of death, directing who will get property. As long as a person possesses ‘sound mind’ they may execute a will, stating who should receive money, real estate, personal items and anything else of value in which the person making the will has an interest.
Laws in each state specify formal steps to be followed in creating a will. For example a self proving affidavit lets the probate court allow the will without witnesses running into court to verify that the person actually signed the will.
Wills, discussed above, handle money and property. Living Wills provide a statement that one does not wish to be kept alive by artificial means. This document takes effect after the signer is incapable of participating in medical decisions. The Living Will legally directs health care providers as to whether or not life should be sustained by artificial food and hydration, or other forms of artificial life support.
Health Care Proxy
In this document the signer names someone to make medical decisions after they are no longer capable of doing so. This takes effect long before the Living Will. For example, serious medical challenges like heart attack or stroke often render the victim unconscious. Various medical options require someone to make a decision as to which path to follow.
Without a person designated to discuss options medical providers face a lack of direction. The Health Care Proxy ends that dilemma by designating a person to decide among options when the victim is unable to do so. New Hampshire law actually labels this document a ‘Durable Power of Attorney for Health Care’.
Durable Power of Attorney for Financial Affairs
This document allows the signer to name someone else to take care of money matters. The person designated in this document can pay bills, endorse and deposit checks, even sell real estate. A general power of attorney allows the designated person to carry out the greatest range of powers. A limited power of attorney focuses on limited events, typically for example naming one person to sign documents at a real estate closing, and nothing more.
Remember your will comes into play only after death. The power of attorney for financial affairs allows another person to carry out financial transactions while you may be incapacitated or otherwise unable to take care of business. This power of attorney provides for the assistance of a trusted person during the life of the signer. The power of attorney expires the moment the person who signed it passes away.
Advance Care Directives
The ‘Living Will’ and ‘Durable Power of Attorney for Health Care’ or ‘Health Care Proxy’ fall under the umbrella term advance care directives. Medical care providers and medical records often refer to these documents simply as ACDs. Don’t let anyone baffle you with terms. Always ask for an explanation before signing anything.
In a tragic Florida case, young Terry Schiavo entered a permanent vegetative state. No living will existed. Such documents direct medical providers whether or not to prolong life by artificial means. The dilemma never would have made headlines.
Schiavo’s parents fought to keep her alive. Her husband claimed she would have wanted no artificial life support under the circumstances. A Health Care Proxy, or ‘Durable Power of Attorney for Health Care’ as its called in New Hampshire would have decisively elected one person to make decisions with legal authority.
Wills, discussed above, must go to probate court before anything can be done. After a loved one passes away, a will names a personal representative or executor to take care of final affairs. But, that person lacks power to do anything until and unless probate court allows the will and appoints the personal representative or executor. This takes time.
After appointment probate process requires numerous court filings including an account, an inventory and often a bond. A properly drafted trust by contrast springs into action, allowing things to be taken care of without court involvement. A trustee named by the person or persons who formally created the trust can sell property and take care of other property without waiting for appointment and, as long as following the trust language property, without filing paperwork in probate.
Trusts exist in many varieties, carrying out various legal purposes. Volumes of legal materials suggest how trust drafters properly meet the desires of those who want to set up a trust. Lawyers and clients often create trusts to avoid probate, certainly a valuable and efficient goal if that is what is desired and understood.
Other trusts address goals including medicaid planning and shifting the tax burden. As people say, “nothing is as sure as death and taxes”. So question anything that tells you that taxes can be avoided. Taxes can be shifted and minimized, but not avoided. Trusts also address such worthy goals as taking care of children, grandchildren and others making sure a financially responsible person makes key decisions.
Valid Estate Planning Documents vs. Quickie Forms
The internet and other sources sell software claiming to create legal documents. Big box stores where you can also buy paper clips and garbage bags sell quickie forms. The papers printed out might make you think you can sleep nights. A colleague and I examined some of these quickie solutions once and found them lacking some very basic legal formalities required to make the documents valid.
Estate planning presents complexities not always apparent at first. The general definitions provided above are meant to clarify the purposes of these common documents. However nothing here should be taken as actual legal advice, obtained only from a qualified attorney licensed in your jurisdiction.
How Do I Change my Will or Trust?
Reading this far you now know the basics. I always get more questions. For example, after you create a will or a trust how do you make changes? First of all, never write on the will or trust document itself. Such hand writing on the documents, called ‘interlineations’ hold the potential for big problems. People looking for reason to challenge a will find it where an otherwise airtight valid document contains hand written notes added later.
Making changes to a will requires a document called a codicil. Codicils refer back to the initial document, describe any additions or revisions, and must be witnessed and otherwise executed with the same formalities as the original document.
Changes occur in a trust with a document simply called an amendment. But as with the codicil, a valid trust amendment must refer back to the original document, specify the exact changes, and then be witnessed and executed with formalities required by law.