An estate plan is crucial to managing your asset-base upon death the way you desire… so the courts do not do it for you.
Legal Terms Related to Estate Planning
A will, called a last will and testament, is a written document that explains how an individual desires their property to be distributed or dealt with after their death. The individual who creates the will is called a testator (male) or a testatrix (female). The action of giving an asset (or gift) to those outlined in the will is called a bequest and the receivers of those assets are referred to as beneficiaries. A will defines who the beneficiaries are and also appoints a personal representative.
Personal Representative (formally Executor or Executrix)
A personal representative, which used to be called an executor (male) or executrix (female), has many important duties to carry out. His or her role is to follow the terms of the will, distribute assets to named beneficiaries, pay debts, and close the decedent's estate. A personal representative is a type of fiduciary.
A fiduciary is someone who handles someone else’s assets and assumes the duties that come with it. This is a somewhat broad title, which means there are different types of fiduciaries that assume certain responsibilities in different situations. Specifically, a personal representative is the fiduciary that administers the estate of another person.
A will has the ability to appoint a personal representative and establish the powers given to them. The duties of a personal representative are to carry out the terms of the will, administer estates, make sure all taxes and disbursements are made, and close the estate. Your personal representative is in charge of distributing the assets outlined in the will to the corresponding beneficiaries. This action is called disbursement.
How Does Estate Planning Work?
It’s important to set up a proper estate plan in the unfortunate event you become incapacitated or pass away. The purpose of an estate plan is to establish your final wishes and make sure they are followed. There are three key documents to look at when forming an estate plan: a will, power of attorney medical, and power of attorney financial.
A will, called a last will and testament, lays out memorial requests, designates assets to certain beneficiaries, and appoints a fiduciary (personal representative). A will also lays out how assets or situations will be handled in the case you pass away. For example, if you have minor children, a will appoints a guardian over them or over assets given to them in the case you pass away. Without this document, the court will appoint a guardian. This is why the best time to create a will is after having your first child. A will also handles the remainder or residuary of the estate. Creating a will is an essential step in forming a proper estate plan.
Unlike a will, which only goes into effect after an individual has passed, a power of attorney goes into effect when an individual is still alive but unable to handle their own affairs (incapacitated). Powers of attorney (POA) allows another individual to stand in your shoes and make decisions for you that you would otherwise make yourself. This could mean a variety of different things, from handling mortgage payments, to making medical decisions. Establishing this document will ensure your life decisions are in the hands of someone you trust. A power of attorney medical grants an appointed individual the ability to make strictly medical decisions on your behalf, while a power of attorney financial is drafted strictly for financial decisions.
Functions of an Estate Plan
An estate plan has many different functions. It designates a personal representative, previously called an executor (male) or executrix (female), who carries out the specific terms of the will. The personal representative appointed is bound to follow the terms of the will and cannot go outside of said terms. An estate plan also lays out specific bequests, which are gifts given to appointed individuals. The individuals who receive these gifts are called beneficiaries. It also outlines specific instructions for the funeral, any memorial or ceremony requests, religious regulations, etc.
After all assets are distributed, there is still the question of what to do with the remainder of the property. The residuary clause in the will disposes of the rest of the estate once the personal representative distributes all the bequests to the beneficiaries. The personal representative or executor will take everything that is not a special request and distribute them to the beneficiaries you list. A will allows you to outline how you want the remainder of the estate to be handled.
A proper estate plan also helps you avoid probate. Probate is the settlement of an estate after an individual has passed in court. Many people try to avoid probate as it is a long and tedious process. Intestate probate occurs when an individual dies without a will. Testate probate occurs when an individual dies with a will but needs letters testamentary to transfer certain assets or property. Both types aren’t preferable, but intestate probate is the primary one to avoid. Intestate probate can result in court procedures that last between nine months and three years. Additionally, it is five to ten times more expensive than an estate plan. Thankfully, intestate probate can be avoided with a proper estate plan.
It’s highly important to ensure your assets and property will be handled exactly how you want after you pass away. Creating an estate plan also saves your family time and money from intestate probate and difficult decisions.
How We Can Help
Baxter Legal Services can aid you in creating a plan for an effortless transition of assets to your designated beneficiaries. We will help you decide who will inherit your assets, who will handle your financial affairs if you are incapacitated, and who you want to make medical decisions for you if you are unable to make them for yourself. Creating a sound estate plan is a demonstration of a responsible and thoughtful legacy that will be appreciated by your loved ones. Contact us today to get started on your estate plan.