An estate plan is more than the sum of its parts, whatever they are
We talk about estate plans all the time, but it occurs to us that we have not really reviewed the individual components of an estate plan. This is definitely an a la carte menu: Personal circumstances dictate what any one person needs at any given time. Still, it is useful to have an idea of what you should be thinking about, if only to impress colleagues at that office holiday party.
Will. We discussed wills in detail in our June 29 post, aptly titled "What is a will?" A will is a document that appoints a personal representative and provides instructions for how the testator's property will be distributed following his death. A will may also include specific instructions about funeral arrangements, and, perhaps most importantly, appoint a guardian or guardians for any minor children or other dependents. If you do not have a will, your property will be distributed according to Michigan law.
Trust. Trusts come in different shapes and sizes and may be established long before death or even by a will. A trust sets money aside for a specific purpose and identifies both the trustee and the beneficiary. The trustee may be anyone or an institution. It is the trustee's job to manage the funds or property in the trust according to the trustor's wishes (the trustor is the person that establishes the trust) as specified in the trust document. The beneficiary is the person (or people, entity or entities) that, well, benefits from the trust. This is the person who receives the payouts or the services stipulated in the trust agreement.
Power of attorney. A power of attorney is a document that hands control over a person's affairs to another person. The person who receives the power is the attorney in fact. The person granting the power is the ward. A power of attorney he ward's day-to-day existence for any specified length of time. Further, one ward may have more than one attorney in fact: One may take care of the ward's financial affairs, while the other oversees the ward's medical treatment.
Durable power of attorney. A durable power of attorney appoints an attorney in fact if the ward becomes incapacitated. Michigan law requires a durable POA to include specific language identifying the document as a durable POA. For example: "This power of attorney is not affected by the principal's subsequent disability or incapacity, or by the lapse of time", or "This power of attorney is effective upon the disability or incapacity of the principal."
Health care proxy/advance health care directive. This document appoints an attorney in fact to make health care decisions for the ward if and only if the ward is unable to make decisions on his or her own.
Life insurance. Either a term, an umbrella or a whole live policy can benefit a surviving loved one without the tax issues a cash bequest might have.
Consult with an experienced attorney to determine which of these tools suits your circumstances best.