What is estate planning? In simple terms estate planning involves both planning for the possibility of mental incapacity and planning for certain death.
Estate Planning for Mental IncapacityIf you become mentally disabled, then you'll need to have a two part estate plan in place – one that will take care of your personal decisions and one that will take care of your financial decisions. Otherwise, you and your assets will end up in a court-supervised guardianship or conservatorship.
Advance Medical Directive - The legal document necessary to delegate your personal decisions is called an Advance Medical Directive, also called a Medical Power of Attorney or Designation of Health Care Surrogate in some states. It will allow you to give to the person of your choice the right to take care of your personal needs and make your medical decisions if you're temporarily or permanently unable to do so for yourself.
Financial Power of Attorney - The legal document necessary to delegate your financial decisions is called a Financial Power of Attorney. It will allow you to choose someone to manage your assets on your behalf if you're unable to do so for yourself. If the Power of Attorney is a "durable" one, then this means that the person you choose will have the immediate ability to take care of your property and will continue to be able to take care of it even if you're determined to be mentally incapacitated. If the Power of Attorney is a "springing" one, this means that the person you choose won't be able to manage your assets until after you've been determined to be mentally incompetent.
Estate Planning for DeathUpon your death, you'll also need to have a two part estate plan in place – one that will insure all of your debts will be paid and one that will determine who will receive the balance of your assets.
Last Will and Testament - The basic legal document that addresses planning for death is called a Last Will and Testament. A will contains a written set of instructions to your loved ones as to how you want your estate to be handled after your death. One of the biggest drawbacks of using a will to dictate the distribution of your assets is that the property must go through probate before your family will be able to take legal control of it.
What is Probate?Probate is the court-supervised process of inventorying all of your assets after your death, paying your final bills, and then distributing what's left to your loved ones. The key here is that probate is “court-supervised.” In other words, probate is dictated by the probate laws of the state where you live at the time of your death and can tie up your property for months or even years before your family will have access to it.
Revocable Living Trusts - Estate Planning for Mental Incapacity and Death and Avoiding Probate TooAside from the legal estate planning documents described above, a Revocable Living Trust can be used to plan for both mental disability and death in one document. This type of trust will allow you to control your property while you're alive and well, designate the person of your choice to manage you and your finances if you become mentally disabled, and then list your instructions to your loved ones as to what to do with your assets after you die. Another benefit of using a Revocable Living Trust as part of your estate plan is that your family will be able to gain virtually immediate access to your assets after your death since property held in the trust will avoid court-supervised probate.