In prior articles, I’ve written at length about the importance of having a thorough estate plan and the terrible things that can happen – to your family, your assets, and even to you – if you don’t. This week, we’ll take an in-depth look at the anatomy of a good estate plan, exploring the specific legal instruments that make up a comprehensive plan, and how each instrument functions within the bigger picture of the management and distribution of your estate.
You probably know that one of the primary purposes of an estate plan is to distribute your assets, property, and other belongings after your death. What you may not realize, however, is that a comprehensive plan provides for the management and distribution of your assets both: (1) at your death and (2) during any period in which you are unable to manage your affairs due to incapacity. So a good estate plan doesn’t just take care of the family or loved ones you leave behind – it actually takes care of you as well.
Although there are a number of unique legal instruments and strategies available to accomplish even the most complex estate planning and asset protection, under Illinois law, virtually everyone – no matter how simple your asset picture or family situation – should have a valid Will, and Powers of Attorney for Healthcare and Property. In some circumstances, you may also wish to create a Revocable or “Living” Trust.
Will. Under Illinois law, a Will names an executor to manage your estate, and specifies how (and to whom) the executor should distribute your “probate” property, or any property that would be subject to a probate proceeding after your death. Probate property does not include assets whose ownership would automatically pass upon your death, such as to a surviving joint account holder or to a named beneficiary. In addition to providing for the distribution of your assets, a Will also names a guardian to care for your minor children after your death. Although necessary, a Will has many limitations as well – for example, having a valid Will does not prevent your estate from going through a probate proceeding, nor does it govern or manage your assets before your death or during any period of mental incapacity.
Powers of Attorney. Statistically speaking, at age 30, you are more than twice as likely to become disabled than you are to die. A comprehensive estate plan recognizes and plans for this possibility, by setting out a plan for managing your assets and your healthcare decisions in the event that you are incapacitated due to injury, age, or illness. A Power of Attorney for Property (or “POAP”) names an agent to manage your financial affairs, keeping your best interest in mind, during any period in which you are incapacitated. The agent acting under your POAP can manage your bank accounts, pay your bills, deal with government agencies or benefits providers, and manage virtually any other financial or business transactions on your behalf. A Power of Attorney for Healthcare (or “POAH”) names an agent to make healthcare decisions for you while you are incapacitated, including decisions about life support or other life-sustaining measures. The POAH Also authorizes your agent to make anatomical gifts and arrange for the disposition of your remains after your death.
Revocable or “Living” Trust. A Revocable or “Living” Trust is a legal entity that is created during your lifetime to manage your property both during your life and after your death. In order to be effective, your assets must be transferred to your trust in a process known as “funding” the trust. During your life, you act as trustee and manage the Living Trust for your benefit. Assets in the trust can be spent, sold, traded, loaned, and used as collateral – just as they would if you held them in your individual capacity. When you are unable to act as trustee, whether due to death or incapacity, the successor trustee named in the trust instrument steps in to manage the assets in the trust, allowing for a seamless transition and no interruption in the management of trust assets. While you are incapacitated, the successor trustee manages trust assets for your benefit; after your death, s/he distributes or manages the assets for the beneficiaries you name in your trust. In addition to this seamless management of assets after incapacity or death, a fully-funded Living Trust also avoids probate proceedings after your death, and can allow you to restrict or control the timing of distributions of trust assets to successor beneficiaries.
As with most legal matters, the particular details of your specific situation will dictate the types of instruments that should be included in your estate plan. If you haven’t taken these important steps to plan for yourself, your assets, and your family members, contact an attorney who can advise you on how best to plan for your specific situation.
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Disclaimer: This article provides legal information of a general nature and is not intended as legal advice, nor does it create an attorney-client relationship with any person or group of persons. Should you wish to obtain legal advice concerning your particular situation, contact an attorney.