Three Essential Components of a Basic Estate Plan
Today, I am providing you with a little more information on the three essential components of a basic estate plan. Understanding each component and the supporting documents, will help to ensure that you have a solid estate plan in place to provide clear guidance for loved ones, both during your lifetime and upon your death.
1. Last Will and Testament
A Last Will and Testament (“Will”) is a fundamental document in any estate plan. The Will provides a road map for how and to whom to distribute your assets and the person you want appointed as your decision maker (known as your executor), in the event of your death. For those with minor children, the Will is the only document in which you can appoint a legal guardian for said children, ensuring they are cared for by someone you trust. Without a Will, state laws will determine the distribution of your assets, which may not align with your desires.
2. Advanced Directives and Financial Power of Attorney
Advanced directives, such as a living will and a healthcare power of attorney, are critical for outlining your healthcare preferences if you become incapacitated (i.e., unable to make and/or indicate your preferences regarding medical decisions, as determined by your primary or attending physician). A healthcare power of attorney authorizes your healthcare agent to act on your behalf as to any medical decisions in the event you become incapacitated. Whereas a living will declaration is a document in which you specify the types of medical treatment you do or do not want to receive in the event you enter into a permanently unconscious or vegetative state. NOTE: Under Ohio law, if you do not have a living will, you must be in a vegetative state for up to one year before your family members can apply to the Probate Court to withdraw artificial nutrition and hydration.
A financial power of attorney designates a trusted person to manage your financial affairs if you are unable to do so, ensuring that your bills are paid, and your finances are managed according to your wishes.
3. Asset Titling/Beneficiary Designations
Proper asset titling (i.e., how the account or asset is owned) and beneficiary designations (i.e., specific instructions on the person(s) that will inherit that asset or account upon your death) for assets and accounts are essential to ensure that your assets are transferred smoothly and directly to your intended beneficiaries. Reviewing and updating the titling of assets such as real estate, bank accounts, and investments, as well as the beneficiary designations on life insurance policies, retirement accounts, and payable-on-death accounts, can help avoid probate and ensure that your assets pass directly to your loved ones without delay or confusion. In Ohio, we can even add beneficiary designations to real estate and vehicles. For example, if a married couple owns property in Toledo, Ohio, jointly with rights of survivorship, this property will pass to the surviving spouse outside of probate upon the first spouse’s death. However, upon the death of the surviving spouse, this property will become a probate asset. To resolve this issue, you can record a transfer on death affidavit (“TOD Affidavit”) for the property. This TOD Affidavit acts as a beneficiary designation on this property to transfer this property upon the death of the surviving spouse to the designated beneficiaries. The transfer will happen automatically (although additional paperwork will be required to “clear title” to this property) and will avoid probate.
By incorporating these three essential components into your estate plan, you can have peace of mind knowing that your wishes will be honored, and your loved ones will be taken care of in accordance with your stated intentions.