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ESTATE PLAN Overview
Estate planning arranges for the transfer of an individual's estate at death. An estate consists of all property owned by the descendant at death before it is distributed by will, trust, or intestacy laws. An estate may contain one or both real property (real estate, including houses and investment properties) and personal property (all other property, including bank accounts, securities, jewelry and automobiles).
PURPOSE OF ESTATE PLANNING
Estate planning benefits all (those with large estates and those with small/modest assets). Creating an estate plan ensures that all property will be distributed according to your wishes (who receives it, what they receive, and when they receive it). Estate planning also ensures that the estate will not be destroyed by taxes imposed on the transfer of assets at death. In addition to providing financial security, estate planning encourages individuals to make important decisions in advance, such as appointing a guardian for minor children, choosing healthcare preferences, and securing funeral arrangements while they are still competent and alive.
BASIC ESTATE PLANNING TOOLS
A number of tools may be utilized to ensure the best possible distribution of assets and to achieve the goals of the owner. The BASIC instruments used in estate planning are listed below. However, each estate and each individual involve a different set of facts and circumstances. Therefore, individual estate plans depend on the size of the estate, the grantee’s individual comfort level, the number of beneficiaries, and the purpose of distributions.
The Will. A will speaks on your behalf at death. It sets forth who will inherit what property and when. Additionally, wills among other matters, often appoint a guardian for minor children or specify what funeral arrangements should be made at the time of death. All wills must pass through probate, which may be a lengthy and expensive process. In the absence of a will or other testamentary instrument, the court will distribute an individual's estate according to the laws of intestacy. Generally, under the intestacy system (where there is no will), assets are divided in a particular order, to provide for a surviving spouse, issue, parents or siblings. Males, in particular, may not always be aware of all of their biological children.
Health Care Proxy and Healthcare Directives. Health care proxies ensure that an individual's medical wishes will be carried out per their wishes when they become unable to make their own health care decisions. Health care directives, also known as "living wills," set forth an individual's personal decisions regarding end of life decisions (ie. Blood transfusions, maintain or withhold life support, etc.). A power of attorney for health care gives one control of all your health care decisions leading up to one’s death. The most famous case involving this issue was the Terri Schiavo case in Florida. Had she executed a healthcare directive, her wishes would have been easily determined.
(Financial) Power of Attorney. A power of attorney (POA) appoints a third party to handle an individual's finances and other matters (such as turning utilities on or off, selling real estate, and accessing bank accounts), when they can no longer take care of their own affairs. A power of attorney may designate a friend, family member, or a trusted professional to fulfill this position and allows that third party to act. A power of attorney can limit the agent’s powers or be very broad and general. It can also be made durable in the event of incapacity of the grantor.
The Trust. A trust is an arrangement by which a grantor removes assets from their name and places them in a trust. A named trustee administers the trust, and distributes payments or property to a beneficiary(ies) according to the terms of the trust. A beneficiary may be a family member, a friend, a charity or a pet. A trust may be created during the individual's life, or it may be created by will. The latter is also known as a testamentary trust and transfers property to the trustee at the time of the individual's death as indicated in the will. By creating a trust, the beneficiaries to the estate bypass the probate process because the assets are transferred prior to death. Trust are also often used as Medicaid (nursing home) planning tool.
Life Estate. A life estate is one’s right use or occupy real property during his or her life (called the life tenant) but does not retain the life to sell the property. In legal terms it is an estate in real property that ends at death when full ownership of the property pass to another person, called the remainder man. The life tenant has both the right to live or to rent the property, but is also responsible for its maintenance, upkeep, and payment of taxes.