What is Estate Planning?
The Definition of Estate Planning
Have you ever asked yourself what estate planning is? Like, what is it exactly? If you looked it up in a dictionary, what would be its definition? Well, Black’s Law Dictionary (the most cited law book in the world) defines estate planning as “the preparation for the distribution and management of a person’s estate at death through the use of wills, trusts, insurance policies, and other arrangements to reduce administration costs and transfer-tax liability.” This is accurate, but it’s full of legal jargon. So, this definition of estate planning makes sense to a legal professional, might not make much sense to the average person.
So, what is a practical or “every day” definition of estate planning? A more accessible explanation of estate planning is that during your life you have collected things (real estate, personal property, vehicles, etc.). And you cannot take these things with you when you die. So, after you die, your things must be owned by someone new. Estate planning is the process by which you, or the state, decide where your things go. That’s it in a nutshell. Now, this is a 10,000-foot overview of the subject. To truly understand it, you must get more in the weeds.
Why Do Estate Planning at All?
On a personal level, estate planning is not just about the distribution of assets, it's about so much more than that. After all, you're going to be gone and you can't take your assets with you, so why would you care where they go? Well, you’d care because you have people you love and causes that you care about. Perhaps you aren't close with your family, odds are you still have friends pets or charitable causes that added value to your life and you believe are more deserving of your property after your death than the government So, whether it’s giving thanks or a sense of duty or obligation to give thanks to provide and care for them, you have an interest in deciding where your assets go after you die. As the owner of the property, you get to decide where it goes.
How Estate Planning Is Done
Now that we’ve discussed what estate planning is and why you’d want to do estate planning, let's discuss how your goals get accomplished. Estate planners accomplish your goals through a collection of different legal instruments. Each one does something different, and instead of writing a convoluted explanation of how they work as one synchronous unit, it would be best to go over the most common estate planning documents and give you a description of what they do.
Wills
A Will is what everyone thinks of when they think of estate planning. They picture a Decedent’s (“decedent” means person who has died) family gathered in a room with a lawyer who reads out the will informing them of what they’ve inherited. In reality, it's quite different.
At its core, a Will is a list of instructions to a judge on how to distribute your assets. The judge does not have to order that your assets to be distributed as listed in your Will, but they usually do. There is a common belief that Wills avoid probate. That’s categorically false. How else is the judge going to get a copy of the Will?
Probate is a court proceeding where a personal representative goes to the court and puts all your creditors on notice that you have died. This allows the creditors to file claims against your estate so they get any money you may have owed them before your family gets what is left over, if anything is. This process can be lengthy, public, and costly (both emotionally & finianacially), but if you have a Will or you don’t have any estate planning at all it is a guaranteed reality for your loved ones.
Revocable Living Trusts
While there are many kinds of trusts, the one most used in estate planning is called a “Revocable Living Trust” or a “Living Trust.” A Trust is an agreement between three different roles. First, there is a Grantor or Trustmaker, who creates and contributes property to the Trust. Second, there is a Trustee who agrees to manage the contributed property by the Grantor for the benefit of the Beneficiaries. Third, a Beneficiary is entitled to receive the benefits of the Trustee’s management of the Grantor's contributed property. The same person can serve in all three roles. In a Revocable Living Trust, the Grantor usually serves as all three roles at first. An important aspect of Trusts is that they must be “funded." This means that any assets that are titled, must have its title is updated to reflect that the trust owns it
Unlike a Will, a Revocable Living Trust can avoid Probate and is commonly used to do so. That isn’t the only difference between the two. Like a Will, you can use a Revocable Living Trust to distribute your assets to the Beneficiaries you choose. However, unlike a Will, you can choose how those assets are distributed. For example, instead of giving an irresponsible Beneficiary their entire inheritance at once, you can include instructions in your Revocable Living Trust to distribute the funds when the Beneficiary reaches milestones. You can also set up your Revocable Living Trust to give your Beneficiaries asset protection. This asset protection could be strong enough keep their inheritance safe from future creditors or divorces, if done correctly.
Advance Healthcare Directives
“Advanced Healthcare Directive” is the term used in Florida for what is called a “healthcare power of attorney” or “medical power of attorney” in other states. It is made-up of two core documents. One is called a “Living Will” and the other is called a “Designation of Health Care Surrogate.”
Living Wills
A Living Will gives instructions to your healthcare providers on when they should stop providing life sustaining care. You are stating that under these circumstances, you’d like for someone to “pull the plug.” The most common scenarios covered by Living Wills are ones where you are unresponsive, and it is unlikely that you will ever recover or become responsive again. It is not a Do-Not-Resuscitate Order, which informs healthcare providers to try to revive you if your heart stops beating. A Do-Not-Resuscitate Order should be provided to you by the hospital tending to you.
Designation of Healthcare Surrogate
A Designation of Health Care Surrogate gives someone the authority or the ability to make healthcare decisions for you. For example, if you are incapacitated and your doctor says you need to receive a specific round of treatment, but this type of treatment goes against your religious beliefs, your health care surrogate would be able to refuse that treatment on your behalf.
Other Healthcare Documents
Other healthcare-related documents that should be part of your Advanced Healthcare Directive but aren’t universally included are a Uniform Donor Form which dictates how your body tissue can be used after you die and an Authorization for Release of Protected Health Information under HIPAA, which allows your healthcare provider to release your medical records to your healthcare surrogate, which are otherwise protected or confidential under the federal law.
Powers of Attorney
A Power of Attorney is an arrangement that allows another person to make decisions on your behalf. You are responsible for that person’s decisions despite the fact you didn’t make them. In legal terms, the person receiving the power to make binding decisions it's called an “Agent.” The person who is bound by the decisions of the agent is called a “Principal.” In estate planning, Powers of Attorney are used to appoint someone for continuous management of your responsibilities. For example, if you have a Power of Attorney, the Agent can access your bank accounts, to pay your rent, mortgage, or other bills even if you if you are incapacitated.
An important aspect of the Power of Attorney is when the Agent’s decision-making authority stops. One common question is whether a Power of Attorney remains effective when the Principal becomes incapacitated? Whether it does depends on the words used in the document itself. If the Power of Attorney says it is “durable” the Agent will continue to have decision-making authority for the Principal even if they are incapacitated. If the Power of Attorney does not contain the word “durable” or the Power of Attorney explicitly states it is not durable, the Agent lose their decision-making authority if the Principal becomes incapacitated.And importantly, under no circumstances does a Power of Attorney remain effective or an Agent keep their decision-making authority after the Principal has died.
Another important aspect of Powers of Attorney is the amount or scope of power given to the Agent. If the word “General” is used in a Power of Attorney, it gives a broad range of powers to the Agent and their decision-making authority extends to a wide variety of areas. If the word “Special” is used in a Power of Attorney, it is limited in scope, and the Agent’s decision-making authority only extends to what is covered by the Power of Attorney.
How It All Comes Together
Your Estate Planning Attorney should work with you, by providing counselling and education about the law to come up with a plan that will get your goals accomplished. After that, your Estate Planning Attorney will use some or all of these documents to create a plan that accomplishes said objectives, makes sure your wishes are known, and spares your loved ones unnecessary headache and heartache.
Is This Everything I Need To Know?
This is barely scratching the surface! There's so much more to learn, but it should be enough to answer the question "what is estate planning?" and the question "what is the definition of estate planning?" Understandably, this subject and what it covers can be overwhelming to think about. However, when you're ready, if you’re interested in doing right by your loved ones and keeping them out of court & out of conflict, reach out to TealAcre to get it handled correctly.
Contact us at email@tealacre.com, (352) 224-9811, or at tealacre.com and register for a webinar or a complimentary 15-minute consultation.