Components of 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 

1. 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 a 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.

2. 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 – Avoids the delay and costs of probate, protects capital assets for financially inexperienced or spendthrift beneficiaries, makes gifts to minors without the need for a court-appointed guardian of the estate.
• Irrevocable Trust – Cannot be altered, amended, or terminated by the grantor. Income may be taxable to the trust or the beneficiary. The asset value is excluded from the value of estate at death.
  • Advantages include – Minimizes estate taxes, provides eligibility for government programs, protects assets from creditors with asset protection trusts.
• Testamentary Trust – Terms are outlined in the Last Will and Testament.  Estate assets must pass through the Will via the Probate process before landing in the Testamentary Trust.  The trust is irrevocable once created (see definition of irrevocable above).
  • Advantages include – Can be modified while the person is still alive since the trust has not come into existence yet. It’s helpful if the decedent has minor children and wants their assets distributed to them if they pass prematurely. It can also provide instructions that funds be distributed to the beneficiaries at specific milestones.

3. 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.

• Advantages 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.
• Disadvantages 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 having died intestate.

4. 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, adult child, or friend, 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.

5. 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.  

Living Will (Advance Directive) – A Health Care Addendum or “Living Will” is a written, legal document, specifying the type of medical care or life-saving measures that an individual does or does not want in the event they are unable to communicate. The medical directive terminates upon the death of that person. 

• 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.

HIPPA Authorization – A form that must be completed by a patient to authorize a medical professional to release information to an identified representative or power of attorney.  Without HIPAA authorization, disclosure of private health information would violate HIPAA Rules and could attract a severe financial penalty and may even be determined to be a criminal act.

• Advantages include – Have the ability to update and make changes before you become ill, can limit the family from dealing with financial burdens, and provides necessary information when you can’t. 
• Disadvantages include – The doctors always have the final say, despite statements/requests from family members.  By signing the “Living Will”, you are deciding today on the treatment you will receive in the future unless changes are made. 

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