“Estate planning” is difficult to define because it could mean something different for every individual. As no two estates are exactly the same, no two estate plans can be identical. “Estate planning” is frequently a process that we follow to accomplish specific goals, such as avoiding probate, providing a system of asset management for individuals who need help, and saving money on taxes and long-term care. Although each plan is different, there are several common tools that almost every estate should consider. The following is a brief summary of some of the most common tools.
Last Will. A last will does not help to avoid probate; rather, it is a document that nominates a “Personal Representative” and provides instructions for how to administer assets that are owned by a decedent.
Power of Attorney. These documents allow a living individual, referred to as the “Principal”, to designate another, known as an “Agent”, to act on the Principal’s behalf. The Principal can grant the Agent as much or as little authority as the Principal wants. For example, a Principal can give the Agent “general” power to do everything the Principal could do, or limited power to carry out a specific transaction. Hawaii adopted new rules relating to Powers of Attorney in 2014, so it may be important to update powers of attorney documents that pre-date the current laws.
Advance Health Care Directive. People sometimes lose the ability to make medical decisions for themselves. An Advance Healthcare Directive allows an individual to make decisions about his or her health care before the individual loses this ability. For example, through an Advance Health Care Directive, individuals can provide instructions about their wishes for life support, pain medication, artificial feeding and hydration, or even organ donation.
Trusts. There are many types of trusts that could be used for a variety of purposes. There are three parties to every trust: settlor, trustee, and beneficiary. A “settlor” specifies how the assets owned by the trust will be managed. A trustee carries out the instructions of the trust. A beneficiary is the party for whom the trust assets are held. One common type of trust is a “revocable living trust”. The settlor of the trust reserves the right to modify the trust instructions during the settlor’s lifetime. One of the primary purposes of the revocable living trust is to avoid probate, as the assets held in the trust will be administered by the trustee according to the terms of the trust, without the need for a probate proceeding.
*This writing is intended as general information only and not as legal advice. This writing does not establish an attorney-client relationship between the author and any reader.
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Important Estate Planning Tools
