Key Planning Documents
There are five estate planning documents you may need to have, regardless of your age, health, or wealth:
Durable Power of Attorney
A durable power of attorney (DPOA) can help protect your property in the event you become physically unable or mentally incompetent to handle financial matters.
If no one is ready to look after your financial affairs when you can't, your property may be wasted, abused, or lost. A DPOA allows you to authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, watch over your investments, and file taxes.
Advanced Healthcare Directives
Advanced healthcare directives let others know what medical treatment you would want, or allows someone to make medical decisions for you, in the event you can't express your wishes yourself.
If you don't have an advanced healthcare directive, medical care providers may prolong your life using artificial means, if necessary. With today's technology, physicians can sustain you for days and weeks (if not months or even years).
There are three types of advanced healthcare directives. Each state allows only a certain type (or types). You may find that one, two, or all three types are necessary to carry out all of your wishes for medical treatment. (Just make sure all documents are consistent.)
- First, a living will allows you to approve or decline certain types of medical care, even if you will die as a result of that choice. In most states, living wills take effect only under certain circumstances, such as terminal injury or illness. Generally, one can be used only to decline medical treatment that "serves only to postpone the moment of death." In those states that do not allow living wills, you may still want to have one to serve as evidence of your wishes.
- Second, a durable power of attorney for health care (known as a health-care proxy in some states) allows you to appoint a representative to make medical decisions for you. You decide how much power your representative will or won't have.
Finally, a Do Not Resuscitate order (DNR) is a doctor's order that tells medical personnel not to perform CPR if you go into cardiac arrest. There are two types of DNRs. One is effective only while you are hospitalized. The other is used while you are outside the hospital.
Last Will and Testament
A will is often said to be the cornerstone of any estate plan.
The main purpose of a will is to disburse property to beneficiaries after your death. If you don't leave a will, disbursements will be made according to state law, which might not be what you would want.
There are two other equally important aspects of a will:
- You can name the person (executor) who will manage and settle your estate. If you do not name someone, the court will appoint an administrator, who might not be someone you would choose.
- You can nominate a legal guardian for minor children or dependents with special needs. If you don't appoint a guardian, the court will appoint one for you.
Keep in mind that a will is a legal document, and the courts are very reluctant to overturn any provisions within it. Therefore, it's crucial that your will be well written and articulated, and properly executed under your state's laws. It's also important to keep your will up-to-date.
Letter of Instruction
A letter of instruction (also called a testamentary letter or side letter) is an informal, nonlegal document that generally accompanies your will and is used to express your personal thoughts and directions regarding what is in the will (or about other things, such as your burial wishes or where to locate other documents).
This can be the most helpful document you leave for your family members and your executor.
Unlike your will, a letter of instruction remains private. Therefore, it is an opportunity to say the things you would rather not make public.
A letter of instruction is not a substitute for a will. Any directions you include in the letter are only suggestions and are not binding. The people to whom you address the letter may follow or disregard any instructions.
The last document, a living trust, isn't always necessary, but it's included here because it can be a vital component of many estate plans.
A living trust (also known as a revocable or inter vivos trust) is a separate legal entity you create to own property, such as your home or investments. The trust is called a living trust because it's meant to function while you're alive. You control the property in the trust, and, whenever you wish, you can change the trust terms, transfer property in and out of the trust, or end the trust altogether.
Not everyone needs a living trust, but it can be used to accomplish various purposes. The primary function is typically to avoid probate. This is possible because property in a living trust is not included in the probate estate.
Depending on your situation and your state's laws, the probate process can be simple, easy, and inexpensive, or it can be relatively complex, resulting in delay and expense. This may be the case, for instance, if you own property in more than one state or in a foreign country, or have heirs that live overseas.
Further, probate takes time, and your property isn't required to be distributed until the process is completed. A small family allowance is sometimes paid, but it may be insufficient to provide for a family's ongoing needs. Transferring property through a living trust can sometimes provide for a quicker distribution to beneficiaries.
Probate can also interfere with the management of property such as a closely held business or stock portfolio. Although your executor is responsible for managing the property until probate is completed, he or she may not have the expertise or authority to make significant management decisions, and the property may lose value. A living trust may transfer the property more smoothly.
Finally, avoiding probate may be desirable if you're concerned about privacy. Probated documents (e.g., your will or the inventory of your probate estate) become a matter of public record. Generally, a trust document does not.
Caution: Although a living trust transfers property like a will, you should still also have a will because the trust will be unable to accomplish certain things that only a will can, such as naming an executor or a guardian for minor children.
Tip: There are other ways to avoid the probate process besides creating a living trust, such as titling property jointly.
Caution: Without certain provisions creating marital or credit-shelter trusts, living trusts do not generally minimize estate taxes or protect property from future creditors or ex-spouses.
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Important Information about Procedures for Opening a New Account
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means for you: When you open an account, we are required by Federal law to ask for your name, street address, date of birth (for natural persons) and other information as required to identify you. This may include a request or requests for confirmatory information such as presentation of your driver’s license and/or other document(s).
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