There are various types of trusts that can help ensure that your assets are used for the benefit of your loved one while avoiding any unintended consequences, some of which include the following:
- Special needs trusts, which allow the trustee to use the trust funds for the benefit of the disabled beneficiary without disqualifying the beneficiary from important government benefits.
- Spendthrift trusts, which can protect the trust assets from claims of creditors or property division in a divorce action.
- Marital trusts, which can be used to reduce taxes and ensure that property will be distributed pursuant to your wishes upon the death of your spouse.
- Dynasty trusts, which can be used to protect assets for many generations and, in doing so, reduce the amount of federal and state transfer taxes.
Whether you use a will or revocable living trust, it is critical to coordinate the beneficiary designations of assets such as retirement accounts and life insurance policies, as well as any other account that passes by beneficiary designation. These beneficiary designations trump the provisions of your will and revocable living trust. Likewise, property owned jointly with another person as joint tenants with the right of survivorship, or with a spouse as tenants by the entirety, will pass directly to the joint owner and not pursuant to the terms of your will or revocable trust.
An effective estate plan involves not just planning for death, but also for your incapacity. A durable power of attorney allows you to select an agent or agents to manage your property during your lifetime. The power of attorney can become effective immediately so that the agent can act on your behalf upon execution of the document or the power of attorney can become effective only if and when you become incapacitated.
A durable power of attorney for health care (or advance health care directive) permits you to appoint an agent to make health care decisions on your behalf in the event that you cannot make your own decisions. In addition, should you become permanently unconscious or in a terminal condition, it permits you to appoint an agent who can withhold or withdraw life-sustaining treatment. With a living will, you can express in writing the circumstances under which you do or do not want artificial life-sustaining measures.
With respect to these powers of attorney, the persons that you appoint as your agents should be people that you trust. It is also important to have conversations with your designated agents to ensure that they understand their responsibilities and your wishes. Without these powers of attorney, in the event of your incapacitation, a court will appoint a guardian. The guardian may not be the person you would have appointed, and it will result in annual, and burdensome, court filings.
As busy medical professionals, it may be difficult to find time to develop an estate plan and you may believe that there is plenty of time to do it in the future. It is important to begin thinking about your estate-planning goals and to speak with an attorney to help develop and draft your estate-planning documents. If you already have estate-planning documents, it is important to review those documents periodically to ensure that your estate-planning objectives have remained the same and, if they have changed, to update your documents.
No one knows what the future will hold, so it is important to consult with a local attorney to establish or review your estate plan now. If you do, you will be comforted by the fact that you and your loved ones will be taken care of in accordance with your wishes if you are unable to do so in the future.
Mr. D’Emilio is a managing member and Mr. Riley is an associate at McCollom D’Emilio Smith Uebler, Wilmington, Del.