I. Form of Ownership. A good estate plan should include a review of how your assets are titled. The form of ownership can affect the availability of estate tax exemptions, creditors’ rights, and which document controls how the asset is distributed at your death.
II. Last Will and Testament. A written Will is a legal document used to direct how your assets are distributed at death and to name important people to:
- care for your child(ren) or other dependents,
- handle your business affairs, and
- handle your children’s property until they are older.
In the event of your disability or incapacity, a Will does not enable someone to step in to assist with the management of your business affairs.
III. Revocable Trusts (also referred to as Living Trusts). The primary reason clients choose Revocable Trusts is to avoid estate administration (“Probate”), the formal court process by which the court oversees the administration of a decedent’s estate (including consolidating assets, paying creditors, and making distributions to beneficiaries).
- In Oregon and Washington, the Probate process is fairly straightforward, although it can take 9 – 24 months;
- Depending on the estate, costs for court fees, legal services, and administration likely ranges anywhere between $5,000 – $50,000.
- There are no tax reasons to use a Revocable Trust instead of a Will. In fact, during your life, your revocable trust is disregarded for tax purposes.
In the event of your disability, the Trustee can step in to assist with management of a wide range of business affairs (e.g. investment management)
IV. Durable Power of Attorney.
- Plans for event of incapacity, not death
- Names agent to handle financial and property matters while you are still living, but incapacitated
- ”Non-springing” – effective upon signing
- “Springing” – only effective upon proof of incapacity
V. Advance Directive. In Oregon, an Advance Directive (referred to as a “Health Care Power of Attorney” or “Living Will” in other states) must be in the form prescribed by law. The Oregon form has two functions:
- Names a person to make health care decisions for you if you cannot make them yourself; and
- States your wishes about life-sustaining treatment decisions
VI. HIPAA Authorization. The HIPAA Authorization is a separate document giving your Health Care Representative and any other authorized individuals the right to view your health information.
VII. Beneficiary Designations. Wills and revocable trusts DO NOT direct the distribution of assets governed by a beneficiary designation, such as many retirement plans (IRAs, 401(k)s, etc.) and life insurance policies. Therefore, it is important to regularly review and make any necessary updates to the beneficiary designations on these types of assets as part of any good estate plan.
Beneficiary-designated assets are subject to some of the most convoluted tax rules in the Internal Revenue Code. If you have retirement plan(s) and/or a life insurance policy, it is especially important to consult an estate planning attorney or other competent advisor to assist you with proper planning.
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