As medical professionals, you may have encountered patients with serious illnesses and asked yourself the following questions: What if I was in that situation? Where will my assets go when I die? What will happen to my loved ones, and will they be taken care of? Who would handle my affairs if I became ill? These important questions can only be addressed through effective estate planning.
Everyone needs an estate plan regardless of age, health, and financial or family situation. An effective estate plan provides for the orderly management and disposition of your assets upon your death. In addition, as medical professionals may appreciate, an effective estate plan appoints individuals to manage your financial affairs and make health care decisions for you in the event that you become physically or mentally incapacitated.
The most common estate planning tool is a will, which dictates how your assets pass at death. In addition, a will identifies the personal representative of your estate (that is, the person who will see that your assets pass in accordance with your wishes) and, in many states, identifies the guardian of any minor children. Although a court will make the ultimate determination of who is appointed as the guardian, courts typically give significant weight to the person named in a will.
If you die “intestate,” meaning that you died without a valid will, your assets will be distributed in accordance with your state’s intestacy statutes, and any interested person (as opposed to the individual of your choice) may be appointed as the personal representative of your estate. Therefore, to ensure that your property goes to the individuals of your choice and that your final affairs are handled by the person you trust, a will is essential.
In many states, a revocable living trust can be equally beneficial. Like a will, a revocable living trust will dictate how your property passes at death and appoints a trustee to see that the property is distributed in accordance with your wishes. Revocable living trusts can be great tools for incapacity planning and, unlike a will, are not required to be recorded, so the trust agreement can remain private. The assets that are held in a revocable living trust also avoid the often lengthy and expensive probate process, which generally includes the preparation and filing of a petition to open the estate, an inventory identifying the assets of the estate, and an accounting that details all assets received and distributed, followed by the payment of fees based upon the value of the probate estate.
In many situations, leaving assets to young, disabled, or troubled children would result in catastrophic consequences, such as disqualification for government benefits, dissipation of assets for inappropriate uses, or attachment by creditors. Further, for wealthy individuals, outright distributions to spouses could lead to unnecessary estate tax. Wills and revocable trusts can protect against these issues by requiring that, at death, the decedent’s assets are held in further trust for these individuals.