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When to include Incapacity in your Estate Plan
The purpose of estate planning is to guide the transfer, and management, of your property in a manner that makes sense for your family. While it may sound simple, it can only be achieved through careful planning. Failure to plan carefully may result in unintended beneficiaries receiving your property, or result in unnecessary transfer taxes.
While planning for death is a significant aspect of the process, estate planning deals with more than just asset transferal upon your death. It can provide for asset transferal through gifts during your lifetime. Additionally, prudent planning can include management of assets in the event of incapacitation.
There are several considerations driving the process of estate planning. Family is important, so it’s vital that you consider not only who should receive your assets, but how, and when. Should your children’s inheritance be managed in a trust, or should they receive it outright? At what age should a trust terminate, and should your spouse be a beneficiary? Who should act as a trustee? Would a program of gifts over a lifetime make more sense?
In addition to those family considerations, tax considerations are just as important. State and federal transfer taxes apply to lifetime transfers and gifts at death. It’s vital to understand how to minimize those transfer taxes.Unfortunately, some will make poor planning decisions, or fail to make any decisions with regards to estate planning. There are a variety of legal issues that may crop up during estate planning, including: wills, special needs trusts, power of attorney, estate tax planning, living wills, and guardianship.
Planning for Incapacity
If, for any reason, you become incapacitated and you are unable to manage your assets, it’s vital that someone has the authority to act on your behalf. While you are competent, you can execute a durable power of attorney. You can name a financial institution or an individual to manage your assets. You can also create and fund a living trust. In the case of a living trust, you can name a trustee that will manage assets transferred to the trust. As the creator of it, you reserve the right to revoke or amend the trust, as well as the power to withdraw the assets, or change the trustee.
If you become incapacitated later, the trust assets will be managed on your behalf by the trustee. A living trust offers a more flexible and efficient way to manage your assets than a durable power of attorney. This is because provided the terms of the trust permit it- distributions can be made to benefit you and your family. Additionally, the assets that sit in a living trust aren’t subject to probate.
In the case of a living will, you can request that no artificial life-sustaining measures will be taken if you have a terminal medical condition, or you are permanently unconscious. You can choose to appoint a Health Care Proxy, who will make health care decisions for you if you are no longer able to.