Your Protection Strategy Needs a Legal Foundation

Jan 16, 2024 | Budget

Your Protection Strategy Needs a Legal Foundation. Any protection strategy that focuses only on insurance can leave you and your family vulnerable to the threat of a legal system that doesn’t necessarily share your objectives. Absent specific, court-sanctioned directives on your part, your life, and the lives of your family members will be subject to the default provisions of the law that guide critical financial, family, and health decisions when you are unable due to incapacitation or death. A sound protection strategy must incorporate legal protections that expand your capacity to ensure that your expectations and intentions control the decisions made on your behalf. At a minimum, a protection strategy should include a will, a durable power of attorney, a power of attorney for healthcare, and a living trust.

Will

When someone dies, their estate becomes subject to probate proceedings. If a will doesn’t exist, the state becomes the executor. That means the state will decide how your property is to be distributed, and who gets paid first, and, they can even establish guardianship for children. It would be hard to imagine a situation in which the state would dispose of your estate in exact accordance with your wishes. After the delay and costs of an “intestate” probate, your family will suffer far more than you have intended.

A will is a fairly simple document, but it forms the foundation of your estate plan and is the key instrument used to ensure that your estate is settled in the manner in which you desire. While there can be more to an estate plan than just a will, it is the presiding document that guides the process of settling your estate. The probate courts won’t take your will lightly, so you shouldn’t either. Consider all that a will accomplishes for you and your family:

Specifies the disposition of your assets: Without a will, any asset that does not pass by the beneficiary (such as a retirement plan or insurance policy) will go first to a spouse, then to surviving descendants, which may not be what you intended. A will specifies your priorities and directs your assets where you want them.
Name a guardian for your children: You know who would be the best guardian for your children. But, unless a guardian is named in your will, the state will decide who takes care of your children.
Names an executor: The executor plays the critical role of ensuring each provision of your will is followed and your estate is settled in accordance with your wishes. Often times a spouse is named as an executor, however, a contingent executor should also be named.
Accounts for special circumstances: In this day and age, it is not uncommon for family situations to become somewhat convoluted as the needs of blended families have to be considered.

A durable power of attorney

Planning your estate isn’t only about what happens after you die; it’s also about what happens if you don’t die but are incapacitated and cannot make decisions on your own. Your durable power of attorney provides for an agent to manage your legal and financial affairs while you are alive but also survives incapacity.

A durable power of attorney for healthcare

A power of attorney for healthcare is a legal document that grants authority to a person to make medical decisions on your behalf in the event you become incapacitated. This document can also include advance directives that instruct medical practitioners of your desire or rejection of life-sustaining medical intervention in such an event.

Living trust

A living trust is a form of ownership that can hold title to your assets. The primary purpose for doing this is so your assets can be transferred directly to your beneficiaries outside of probate. They are still includable in your estate for tax purposes, but they will be immediately available for your family. Any asset, such as your residence, investment accounts, real estate, a business, and anything asset that doesn’t already pass by the beneficiary (i.e. life insurance, retirement plans). You can also establish timelines for the disposition of your assets.

Legal Protections Action Steps:

Establish your goals: Translate the vision you have for your family’s future into tangible goals. What is it exactly you want to have happen for your family? It’s important to revisit your goals regularly as your circumstances change.
Take inventory: List all of your property and assets and assign values and your intentions for their ultimate disposition.
Meet with an estate planning attorney
Review your beneficiaries: Most people don’t realize the kind of problems that can occur with improper beneficiary designations. If you have dependent children named as beneficiaries, they should be designated as contingent behind a spouse or trust. The best course is to coordinate your beneficiary designations with a living trust which can provide more explicit instructions for the disposition of the proceeds.
Check your titles: Some assets can pass automatically, outside of probate if they are titled properly (i.e. JTWROS)
Assign power of attorney
Draft a will/living trust

Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.