PLANNING FOR THE UNEXPECTED
Anyone Who Has Anything Needs a Will, Power of Attorney and a Living Trust
In General
Anyone who owns anything of value needs three things to document their intentions and protect their interests. These three critical documents are a will, a durable power of attorney and a living trust.
What is a Will and Why Do You Need One?
A will is a written, signed document where you state how you want your assets distributed when you pass away. If you don't have a will then your assets will be distributed pursuant to state law and your estate will be subject to "probate."
Probate is a potentially lengthy and costly legal procedure where a court determines how to distribute your assets and pay off debts. I've seen many cases where the legal fees incurred in probate proceedings were astronomical.
If you die without a will ("intestacy") then it could be the case that your surviving spouse would only receive some of your assets and the rest may be shared with children or surviving parents. The absence of a will might allow distant family members to file claims against your estate in order to obtain a share of it.
I've attended many probate proceedings and they can get ugly quickly and degenerate into a feeding frenzy where anyone with a legally defined interest can file suit. Usually, the lawyers are the only winners. One of the ugliest experiences I've had in this context is when a client of mine passed away unexpectedly. He owned a small business and a home. Once news of his death became public his ex-wife (who he divorced some twenty years earlier) drove all the way to Bangor, Maine from South Carolina to attend the reading of the will (she skipped his funeral). She was convinced he was going to leave her a large bequest and was bitterly disappointed to find out otherwise. She contested the will and hired a lawyer on a contingent-fee basis to pursue litigation against the estate.
Anyone who has any significant assets should consult with a competent attorney and prepare a will. You should do this when there is no doubt of your mental competency. But having a will is only Step One in a three step process. Keep reading!
What Is a Power of Attorney and Why Do You Need One?
Again, anyone with assets of any kind should obtain a power of attorney where you designate who will act on your behalf in the event of your disability or incapacity. A power of attorney is especially important for business owners who should clearly state who would step into their shoes and sign paychecks, contracts, loans, cash checks, buy or sell assets, etc. if the business owner is unable to act.
You may name your spouse as your agent to act on your behalf. This can be especially important in the event you become incapacitated and can no longer speak for yourself. If a patient wants life-sustaining procedures withheld or withdrawn where a terminal medical condition exists an advance directive can be used to state your wishes. Speak up now, when you can. What are your wishes? What instructions do you want your family members to follow?
What Is a Living Trust and Why Do You Need One?
The final step in preparing for the unexpected is to create and fund a living trust. A living trust is a revocable entity that holds your assets. As trustee of your own trust you retain full control until you pass away or become legally incapacitated. Then, someone you have previously named takes over as the trustee and carries out your intentions and wishes concerning your assets.
Living trusts are the most effective way to avoid the high legal costs and potential drama of probate court. Since probate proceedings are open to the public the family of the deceased loses a significant degree of privacy at the worst possible time. By naming a successor trustee in advance you can minimize court involvement in the event of your incapacity or death.
After you create a living trust the concluding step is to fund it with all of your assets including your home, financial investments, life insurance, etc. Funding the trust consists of simply re-titling your assets in the name of your trust. After your living trust is fully funded you no longer legally own anything! This is why there would be minimal court involvement in the event of your death or incapacity.
Living trusts have no impact whatsoever on your income taxes. Everything stays the same because the IRS treats living trusts as disregarded entities - they don't exist for income tax purposes.
Act Now Not Later
Life is full of unexpected misfortunes. Few people care to plan for death or disability. But it only takes a small investment of time to obtain a valid will, power of attorney and living trust. These are essential documents at least as important as a drivers license. Find a competent attorney who practices in this area of law and get the job done.
I discourage people with any kind of significant assets from trying to do this on their own. While there are indeed free websites and cheap forms available at Staples the best answer is to do it right by using a qualified lawyer.
George Adams
Certified Public Accountant Master of Business Administration
Tel: (207) 989-2700 E-Mail: GeorgeAdams@IntelligenceForRent.com
450 South Main Street: The HQ of IQ
Brewer, Maine 04412-2339
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