Planning is an important element of any successful venture. Whether you are just starting your first business or you have been operating successful companies for years, you need to take the same care in planning your personal affairs as you take with your business. Regardless of your family status or your station in life, taking stock of both the life planning and the death planning aspects of estate planning will ensure that you are taken care of while you are living and your family and possessions are secure when you die.
Life planning
Life planning starts with your power of attorney and advance health care directive. Injury or illness can strike anyone, so these planning documents are essential for everyone. A power of attorney allows you to name another individual who can act on your behalf for financial purposes. There are several different types of powers of attorney. The most common type is a general, durable power of attorney, which allows the person you choose, your “agent,” to deal with any of your property in the same way that you could deal with it yourself. You can tailor your power of attorney to be limited in scope to a particular task or asset. Your power of attorney can also be “springing,” so that your agent can only act for you when you are unable.
An advance healthcare directive is similar to a financial power of attorney except that it allows you to appoint an agent to make healthcare decisions for you if you are unable. You can also choose how you would like to be treated under a number of scenarios, such as if you are in a coma or you have sustained a serious, life-threatening injury. That portion of the advance healthcare directive is often known as your “living will.” Although there is no way of knowing exactly what could happen to you, your agent and healthcare provider will use your living will to make the best possible decisions for you. You should always communicate openly with your loved ones and medical providers about your wishes so that they can provide for you in the best way possible.
Death planning
The most essential element of death planning is your will. Without a will, your property will be distributed according to the laws of “intestate succession.” To make sure that your possessions are given to the right people, you can list specific items that you want to go to particular individuals, such as giving grandma’s wedding ring to your oldest daughter. After making specific gifts, you can decide who will receive the rest of your property and in what percentages. In addition to the ability to name takers of your property, you can name a personal representative who will distribute your property when you die, and a guardian who will take care of your minor children. Nominating your children’s guardian in your will can help to avoid lengthy court proceedings at an already difficult and scary time for your children.
“Will substitutes” are invaluable in estate planning. Will substitutes create certainty in your planning and speed up the process of administering your estate at death. If you own certain property in your own name at death, including a house or land, your estate must go through the probate court to transfer that property to the person who you have named in your will. Creating a trust during your life can avoid the need for probate. While you are living, you can continue to deal with trust property in the same way as if you owned it directly. By naming a “successor trustee,” the trust property can pass to your chosen beneficiaries at your death outside of the court system.
Naming beneficiaries on insurance policies or “payable on death” accounts are also will substitutes because they operate to transfer your property to the named beneficiaries by contract rather than according to your will. Many LLC operating agreements allow the members to designate beneficiaries of their membership interests at death. You should review your beneficiary designations regularly, especially when you undergo a major life event like a marriage, divorce or when you have children.
Life planning and death planning are both fundamental to an effective estate plan. Ensuring that your power of attorney, advance health care directive, will, trust and other will substitutes are established and regularly maintained makes it possible for you to focus on your business knowing that your personal affairs are in order.
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