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Planning for the future is something we should consistently do. Whether it is saving for retirement or sending children to college, we are always preparing for some aspect of the future. Since there are many different aspects to plan for, some things can get overlooked or set aside. Estate planning is one of the facets of future planning that can easily be put off for later. Estate planning is the process of putting an individual’s personal and financial affairs in order (“Estate Planning,” 2017). This is done by creating an estate plan, or a collection of documents that specify how to distribute assets (Witt & Hoyt, 2021). Often, estate planning seems to be needed only after we pass away, but there are many benefits of preparing and starting estate planning early.

Benefits of the Estate Planning Process

Here, we list some of the benefits of having this process done early:

Potentially Avoid Probate

Estate planning can lead to simplified or expedited probate. Probate is a court process that a beneficiary or executor will need to go through to distribute your property as described in a will (“Estate Planning,” 2017). Probate is an expensive and lengthy process. A properly prepared and funded estate plan can avoid probate and provide for the proper distribution of assets to beneficiaries. Proper planning in advance can ensure that assets are in order based off of the individual’s wishes and gives them peace-of-mind knowing that their family will not have to worry too much about it.

Distribute Assets According to Your Wishes

In the event that there is no documented estate plan such as a will or living trust, the state in which the individual resides typically decides how assets are distributed after death (“Estate Planning,” 2017). The state will determine who gets property based on the relationship to the deceased person. However, proper and official documentation can ensure that assets are dispersed in the way that the individual wishes, since a will or trust clearly defines how assets should be transferred upon death (“Estate Planning,” 2017). It is important to review the designated beneficiaries on investment accounts and life insurance policies to ensure that they are current and up to date. Starting the estate planning process early helps both older adults and their families understand and prepare for this stage of life.

Plan for Incapacity

Estate planning can also help prepare for possible mental or physical incapacity. Mental capacity refers to a person being able to make his or her own decisions. Incapacity, or lacking capacity, either from illness or disability, is defined as the inability to do one or more of the following: “understand information given to them about a particular decision, retain that information long enough to be able to make the decision, weigh up the information available to make the decision, or communicate their decision (“Mental Capacity,”2021). For example, in the case of an older adult, developing Alzheimer’s disease or dementia, or having a stroke can leave one mentally incapacitated. Thus, living wills and health care powers of attorney enable the older adult to decide in advance about life support and to pick someone to make decisions for them about medical treatment. Planning for incapacity before it happens solidifies the individual’s wishes and gives family members a clear understanding of what is to happen in the event of incapacity.

Minimize Family Strain

The death of a loved one is already a very stressful and difficult time. In the event that the deceased does not leave a will or estate plan, it is on the family members to go through the probate process and guess at what the individual’s plans for his or her assets were. Therefore, estate planning can minimize the additional stress and uncertainty between family members once the individual passes. In addition to estate planning, funeral arrangements can also be made during the estate planning process. This is beneficial because the individual can plan ahead to designate a burial place and limit the expense associated with that process.

Will-based vs. Trust-based Estate Planning

When starting the estate planning process, it is important to understand the difference between will-based and trust-based estate planning. Simply, a will-based estate plan does not include a living trust for one’s assets whereas a trust-based estate plan does include a living trust (Sirvent, 2019). Thus, without a trust in place, the family will have to go through probate to gain access to assets, unless the asset has a designated beneficiary (e.g., IRA/401(k)) account or surviving joint tenant. In addition, having a living trust gives the individual the power to manage assets throughout one’s lifetime and ease the transfer of assets in the event of incapacity or death.

Estate Planning Documents

Will

  • A will is a legal document that dictates how assets are to be distributed to beneficiaries upon death.
    • Assets are resources with financial value that may provide future benefit for the individual or group that owns or controls it. Assets can include property, cars, stocks, artwork, life insurance, and pensions.
    • An executor can be appointed to be a personal representative to pay any remaining expenses and distribute any assets.
  • For the will to be effective, it must be filed in probate after death (“Estate Planning,” 2017). Since a will is not effective until after death, it does not account for asset management in the event of incapacity.

Revocable vs. Irrevocable Living Trusts

  • A trust is an agreement among a property owner (trustor) and a trustee (manager of the property) for the benefit of another, called a beneficiary (American Bar, n.d.).
  • A living trust can be an effective tool to manage assets in the event of illness or incapacity.
    • Living trusts aid in the distribution of property and can also be a helpful resource to minimize the risk of elder financial abuse (“Probate Process,” n.d.).
  • A revocable living trust is most often used in estate planning. Transferring assets to a revocable trust will allow for continued financial management of assets during an individual’s lifetime.
    • The revocable living trust also lets assets avoid probate and reduces the chance of personal information becoming part of public records.
    • A revocable trust can be changed by the owner of the trust.
  • An irrevocable trust is a trust the creator cannot make changes to without the consent of the beneficiaries (Hicks, 2021).

Considerations for Non-citizens

In the United States, wills and trusts are commonly used to distribute an individual’s assets and property. However, for non-citizens who reside in the U.S. and own property in a different country, the laws in the other country may affect how the property is distributed. This can also be applied to other assets besides property, such as investment accounts and life insurance. Depending on the country where other assets may be, there are different laws and tax exemptions that may impact asset allocation. Some countries may not accept U.S. wills as valid, resulting in the need for multiple wills (Hickman, 2020). Similarly, some countries do not recognize trusts at all. In planning for these situations, consulting legal experts can help navigate the various legal differences between countries.

Other Documents

Durable Power of Attorney vs. General Power of Attorney

  • A durable power of attorney is a legal document appointing someone to act as one’s agent.
    • This agent is granted the specific power to make key decisions on behalf of the individual who appointed them. This person should be chosen carefully since he or she will be able to sell, invest, and spend any available assets.
    • This document is useful in the case of incapacity as the agent’s decisions remain valid and affect long-term choices.  
  • A general power of attorney is an arrangement where an individual authorizes his or her agent to manage some or all of his or her financial affairs. An agent’s duties end if the individual becomes incapacitated.
    • This means that the role of the agent is to provide support to the individual as long as they are still able to make their own decisions.
  • An individual’s traditional power of attorney is only in effect until they become incapacitated. A durable power of attorney will continue during incapacity and then is terminated upon death.

Advance Health Care Directive vs. Health Care Power of Attorney

  • An advance health care directive is a legal document containing instructions regarding medical care preferences in the event of incapacity. This is similar to a durable power of attorney.
    • Advance directives are useful/necessary for when an individual is unable to make health care choices due to incapacitation or cognitive impairment.
    • This document is different from a health care power of attorney.
  • A living will is a type of advance health care directive that details an individual’s intentions regarding life-sustaining measures during a terminal illness.
    • The living will dictates what the individual wants but does not give anyone the explicit authority to speak on their behalf (“Five Most Important Estate Planning Documents,” 2012). This is especially helpful in avoiding family conflicts and/or court interventions in the event of incapacity.
  • Health care power of attorney is a type of advance directive in which a person is named make decisions on behalf of others when they are unable to do so.
    • A health care power of attorney will authorize an agent to specifically make medical decisions on one’s behalf if the individual is unable to do so by themselves.
  • Planning ahead and creating an advance directive can lay out the choices of the patient regarding health care decisions he or she may or may not want (Witt & Hoyt, 2021).
  • In California, a durable power of attorney for health may be used. However, most attorneys are now using the advance health care directive. The advance health care directive normally would include a living will, which states the individuals’ preferences in the event that he/she is in a coma and there is no hope for recovery. It can cover such things as the use of pain medication, hydration, nutrition, length of time before being removed from life support, and more.

How to Get Started

Overall, estate planning can be an overwhelming and lengthy process. However, planning now and being prepared for the future can alleviate stress for both yourself and your loved ones. You might consider breaking up the estate planning process into different areas.

  • Start the Conversation
    • Ask your loved ones if they have started estate planning.
    • Having estate planning conversations now can ensure that your loved ones have adequately planned for their own future, reducing potential stress, time, and expenses for yourself later on.
    • Take some time to think about what your values and wishes are and how you want that to be reflected in your future plans.
    • Estate planning is also an opportunity for you to share these values and have important discussions with your loved ones.
  • Learn about Estate Planning
    • Take some time to understand the different components of an estate plan and what decisions you want to be made during your lifetime and after you pass away. The Family Caregiver Alliance assembled an introductory presentation on estate planning for property owners that can be found here.
  • Ask a Professional
    • Lastly, consulting an attorney during the estate planning process will help ensure that your documents align with your state’s laws.
    • Working with a professional is also important if any changes, updates, or additions need to be made to any of the estate planning documents.

Resources

American Bar Association. (n.d.) Glossary. Retrieved from https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/glossary/#T

California Advocates for Nursing Home Reform (CANHR). (n.d.). Incapacity: Plan for it Now. Retrieved from http://www.canhr.org/factsheets/legal_fs/html/fs_Incapacity.htm

Durable Power of Attorney: What is a Durable Power of Attorney? (2018). Retrieved from https://www.seniorliving.org/law/durable-power-attorney/

Estate, Gift, and GST Taxes. (n.d.). Retrieved from https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/estate_gift_and_gst_taxes/

Estate Planning – Wills and Trusts. (2017). Retrieved from https://oag.ca.gov/consumers/general/estate-finance

Five Most Important Estate Planning Documents. (2012). Wells Fargo Advisors [PDF file]. Retrieved from https://saf.wellsfargoadvisors.com/emx/dctm/Marketing/Marketing_Materials/Estate_           Planning/0000581958.pdf

Hickman, C. (2020). Can a Non-U.S. Citizen Create an Estate Plan in the U.S.? Retrieved from https://hjlawfirm.com/can-a-non-u-s-citizen-create-an-estate-plan-in-the-u-s/

Hicks, C. (2021). Choosing Between Revocable and Irrevocable Trusts. Retrieved from https://money.usnews.com/financial-advisors/articles/choosing-between-a-revocable-and-irrevocable-trust-for-your-client

Mental capacity. (2021). Retrieved from https://www.mentalhealth.org.uk/a-to-z/m/mental-capacity

Pour-over Will. (2015). Pour-over will. Retrieved from https://www.law.cornell.edu/wex/pour-over_will

Witt, S. & Hoyt, J. (2021). Senior Living Definitions. Retrieved from https://www.seniorliving.org/care/definitions/

Sirvent, F. (2019). Will-Based Plan vs. A Trust-Based Plan ­- What’s the Difference? Retrieved from https://www.keystonelawfirm.com/estate-planning/difference-between-will-and-trust-plan/