Tax Blog

6 Essentials of Estate Planning, Part 1: Will/Trust and Durable Power of Attorney.

Whether you are creating a plan for a large, complex estate or a small, modest estate, these 6 essentials should be included in your plan: will/trust, durable power of attorney, letter of intent, beneficiary designations, healthcare power of an attorney, and guardianship designations. Part 1 of this series will review the basics of the first three items listed (wills/trusts, durable power of attorney, and letters of intent).

A will or trust is generally one of the main components of an estate plan, regardless of the amount of assets owned. A will ensures that property is distributed according to the intent or wishes of the grantor upon death. A trust is similar in operation; however, trusts often help to limit estate taxes and related legal challenges. Consistency is very important to consider when drafting a will or trust. If an individual has already named one beneficiary to an asset on a retirement account, or otherwise, and then attempts to bequeath the same asset to another in their will or trust, the will/trust will likely be contested.

Durable power of attorney creates a legal right in another individual to act as an agent of an individual (known as the principal) to make legal decisions when the principal is no longer able to do so themselves (e.g. real estate transactions, settlement issues, etc.…). The power of attorney may be revocable by the principal; so long as they are physically able, mentally competent, or upon their death. For married couples, it makes sense to create reciprocal powers of attorney.

A letter of intent is a document left to a principal’s executor or beneficiary. The letter of intent defines what the principal wants done with particular assets after their death or incapacitation (e.g. special requests or funeral details). This document can help inform a probate judge of the principal’s intentions; however, a letter of intent is not a valid legal document according to law.

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The Center for Financial, Legal & Tax Planning, Inc.

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