What Are The Basic Items In An Estate Plan? What Does Each Item Do?
An estate plan should involve a health care proxy and a living will. A health care proxy appoints an agent to make medical decisions on behalf of another individual, and a living will is comprised of written instructions for what kind of care should be given to an individual in the event that they cannot communicate the instructions themselves. Massachusetts is a health care proxy state, Connecticut historically has been a living will state, and Rhode Island by statute recognizes both. I don’t know where a client will be when they need a health care proxy or living will, so we give them both so that they have a good plan. An estate plan should also involve a HIPAA authorization form, which will state that the individual’s medical information cannot be released without their permission, or only to specific individuals who have been named. A HIPAA authorization form should be on file so that the power of attorney could get a statement from the individual’s doctor stating that they’re incapacitated, as this would give the power of attorney authority to act. If there is not a HIPAA authorization form on file, then a doctor would be unable to release a certification of incapacitation, and the power of attorney would therefore be unable to do their job. This would require us to go to court to get a HIPAA authorization form on file.
There should also be something called a contract to plan. This is a relatively new technique that’s in the statutes of most states that have adopted something called a uniform probate code. A uniform probate code states that a person or a couple in contract with one another will do certain things in their estate plan, such as make a bequest to a certain person or promise to leave things to certain people in return for other promises or services. Having a contract to plan can be very important. For example, when second marriages and children from both marriages are involved, each spouse would probably want to leave things to each other at their death, but the surviving spouse would have no obligation to make sure that the assets are returned to the children of the first to die; a contract to plan can create that obligation so that a couple can be comfortable leaving things to one another and know that the ultimate beneficiary of their share of the estate will go to their own children. A contract to plan could also be important if there are no prior marriages. For example, if the surviving spouse were to remarry and accidentally leave everything to the new spouse, then the new spouse might not leave anything to the children of the first to die; a contract to plan would protect the children from these kinds of contingencies to make sure that they ultimately receive the inheritance that the first to die would have wanted them to receive.
In addition to a contract a plan, an estate plan should always include a will. In a trust-based estate plan, a will is really nothing more than a safety net in case there’s something that was unintentionally left outside of the trust. The will is there to catch the assets that were owned only in the deceased individual’s name. A revocable trust is really the centerpiece of the modern estate plan, and it is where assets such as ownership of the home, non-retirement investments, savings bonds, treasury notes, and treasury bills are transferred. The transfer of such assets will allow for the probate process to be avoided. An estate plan will also include funding documents, deeds, and a series of other things that will make sure the trust is going to be cohesive.
For many families, we will also write a separate trust to be the beneficiary of the retirement accounts at the death of the survivor of the married couple or at the death of an unmarried client. This will allow us to provide asset protection for the retirement plan and provide for something called a stretch out so that we can defer taking money out of retirement accounts for as long as possible. Of course, the beneficiary designation would have to be updated in order to reflect that we want the retirement plan to go to the separate stand-alone trust.
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