Components of an Estate Plan

What Is an Estate Plan?

An estate plan is a collection of documents that specify how you want your money and other assets distributed, making it easier for your loved ones to handle your affairs during a time of grief.

6 Major Components of an Estate Plan

• Beneficiary Designations – Written decisions you make concerning life insurance policies, retirement accounts and bank accounts. Designations can also be applied to real estate and vehicles if not titled in Trust. Beneficiary designations override the distributions set forth in your will and your trust. Inheritance transferred via beneficiary designations are excluded from Probate proceedings.
  • Payable on Death (POD) and Transfer on Death (TOD) Designation – Allows owners to name a beneficiary. The named beneficiary then receives the property directly without having to go through the probate process. There are no costs associated with applying a POD or TOD beneficiary designation.
    • • POD Designation: typically applies to bank accounts.
      • TOD Designation: applies to personal property and real estate.

• Trust – A legal entity created during life or at death to retain title/ownership of assets contributed to it, and distribute to beneficiaries per written instructions.  Inheritance transferred via the Trust are excluded from Probate proceedings.
  • Revocable Trust – Allows the grantor to alter, amend or terminate the trust without notice. Income is taxable to the grantor and asset value is included in the value of estate at death.
    • Advantages include – avoiding the delay and costs of probate, protecting capital assets for financially inexperienced or spendthrift beneficiaries, making gifts to minors without the need for a court-appointed guardian of the estate.
  • Irrevocable Trust – Can’t be altered, amended or terminated by the grantor. Income may be taxable to the Trust or the beneficiary and asset value is excluded in the value of estate at death.
    • Advantages include – minimizing estate taxes, eligibility for government programs, protecting your assets from creditors with asset protection trusts.

• The Will – A legal document with which the creator of the will (testator) can control the distribution of his or property at death. Inheritance transferred via the Will are subject to Probate proceedings.
  • Pros include – Can be amended, changed, or revoked any time prior to the testator’s death. Can designate primary and contingent guardians for minor children. Can help in the estate planning process by minimizing the estate tax burden at the spouse’s death by maximizing the marital deduction.
  • Cons include – Beneficiaries can contest the will, which can lead to substantial administrative and legal expenses. A will can’t delay the receipt of assets by beneficiaries. A poorly written will can be rejected by the courts and the decedent can be considered intestate.

• Durable Power of Attorney – In the event you become incapacitated, a power of attorney is a document that designates your person of choice, such as a spouse or adult child, to step in and manage your finances.
  • Has the authority to pay bills, manage investments, collect government benefits, file taxes and conduct other financial transactions.
  • A properly drafted DPOA can also help avoid guardianship – a court proceeding that establishes incompetency and places assets under court supervision.

• Health Care Power of Attorney – In the event you become incapacitated, the Power of Attorney takes effect and designates your person of choice to speak with medical professionals and make medical decisions on your behalf.  Additionally, your Health Care Addendum or “Living Will” sets forth your philosophy and wishes as to the execution of life-saving measures.
  • This is especially important because Wisconsin has no next-of-kin statute delegating decision-making power to family members.
  • If you become unable to make health care decisions, without a POA, the court will appoint a guardian for your benefit.

• Regular Review and Revision – Review your estate plan annually or when there has been a change to you family/friend composition and contact an estate attorney to execute revisions.