A complete and up-to-date estate plan is something that every adult should have. The benefits of well-done estate planning are enormous – not only peace of mind, but also organization for your thoughts and decisions about your financial life. But too many people put off or ignore their estate plan, with the greatest reason for this usually being that it is overwhelming.
While it’s true that proper estate planning requires time, mental effort, and decision-making, it will likely seem far less daunting if you approach it one part at a time. In actuality, there are five components of an estate plan with distinct legal meanings, making it easy to tackle the planning process in sections.
If you are creating or updating an estate plan in New Jersey, the legal team at SGW Law is ready to help. Our experienced attorneys will walk you through these five estate planning sections, answering your most pressing questions and advising you on your best options for each. Contact us today for skilled and trusted assistance with your NJ estate plan or read more on the components of estate planning below.
Will
A will is the common, short name used for the document that is called a “will and testament” in full. This is the most well-known part of estate planning in casual conversation and popular culture. As seen in both fiction and real life, a will instructs how its creator’s assets are to be distributed after their death and who will take care of those holdings until the distribution. The creator of the will is called the testator, the assets are collectively known as the estate, and the person managing the assets is the executor.
The above is the precise, minimum definition of a will, but there are many more aspects involved, any of which can affect the validity of the document and whether it does what the testator intends. This is why a will is a common plot device in fiction, and why most people choose to consult an attorney when writing one.
For example, if the testator has a previous, different will, they need to clearly revoke that will in the new document to avoid inconsistencies. Wills famously need to be signed by two witnesses in order to be valid, and those witnesses must be “disinterested” – they must not be inheriting anything in the will. But what parts of the will are invalidated if a witness becomes a beneficiary depends on jurisdiction.
Furthermore, a will can include binding instructions for things other than granting assets to beneficiaries. As an example, if you are making a will while you have children who have minors, the document should name guardians for them. Wills are associated with a long list of special terminology, which your attorney can help you understand. And while most readings of wills are not as dramatic as they are in books or movies, you must write precisely to prevent both small and major disputes among your heirs.
Trusts
Rather than directly leaving an asset to your heirs in a will, you may also place that asset in a trust. From the perspective of most people, trusts are among the most complicated parts of an estate plan, largely because they create a three-party relationship. Trust property is transferred on its owner’s death to a trustee, who is obligated to manage the property on behalf of the trust’s beneficiaries. In fact, while the trustee is the legal owner of everything in the trust, the beneficiaries are “equitable owners” and have many rights other than the expectation of financial benefit. Beneficiaries can file suit to have a trustee removed if the trustee has violated terms, for example.
Trusts are versatile, and there are several common purposes they are used for:
- Investments can be placed in trust for an heir who is a minor and used to pay for that heir’s college education. In this case, the beneficiary usually gains ownership of the remainder of the trust upon reaching a designated age.
- Trusts are also used by people who hold certain kinds of debt so that their intended heirs, not their creditors, can receive the property in trust. There can also be tax-related advantages to setting up a trust.
- Finally, trusts set up for all of these specific purposes have the general benefit of lowering the time and costs of the probate period.
Durable Powers of Attorney
The components of estate planning don’t only cover tangible property and assets. A durable power of attorney (POA) is the authorization that contains instructions for events – your legal and financial affairs. Similarly, the parts of estate plans aren’t solely post-mortem documents. If you can no longer manage your affairs yourself during your lifetime, your durable POA may go into effect.
Any adult can be named to represent you in a POA – “attorney” in this case means someone acting in your stead, not necessarily a licensed attorney-at-law. That person’s tasks outlined in the document can be narrow or broad. To name an example, they may only be instructed to see an intellectual property lawsuit to its conclusion, or they may be given long-term control of the finances of a business. Besides ensuring continuity in these matters, a POA will avoid less-than-ideal situations such as court-appointed guardianship.
A point to remember is that power of attorney documents have several subtypes. Many of these can become invalid if the creator is living but incapacitated – it is durable POAs specifically that continue in case of incapacitation.
Healthcare Proxies
Another type of estate plan document that can take effect during the creator’s life, a healthcare proxy designation works similarly to a POA, but covering medical affairs. In a healthcare proxy, a trusted person is appointed to make decisions regarding your medical treatment.
This document can be distinguished from a different but related kind of estate planning document, an advance healthcare directive (living will), which contains instructions about your medical care but does not name someone to carry out these decisions. In order to completely make sure your care accords with your personal wishes, you should complete both a healthcare proxy and a living will that are in agreement. This point is especially true if you have multiple family members who could otherwise be responsible for your care, as having legal instructions of your own makes conflict much less likely.
Beneficiary Designations
In contrast to a will, which is primarily concerned with assets that are currently owned – real estate, cash, and so on – beneficiary designations are useful for distributing assets you may not have access to yet. Examples of financial instruments that utilize beneficiary designations include life insurance policies, 401(k) accounts and IRAs, and private or public sector pensions.
Designating beneficiaries tends to be straightforward, and it is also very helpful for your heirs. Doing so will give them access to your assets easily and with no probate period. The law places great importance on beneficiary designations because they override instructions in a will on an account-by-account basis. The biggest consideration here is making sure your beneficiaries are up-to-date. Changes in your life – a new spouse, newborn children, or one of your heirs predeceasing you – mean you must rethink your beneficiary designation.
Contact Our NJ Estate Attorneys
An estate plan is not a single document, but is made up of several components, each of which covers its own form of asset distribution or life situation. With the help of the NJ estate planning attorneys at SGW Law, all parts of your estate plan can work harmoniously to give you maximum peace of mind and make sure everything goes smoothly for your beneficiaries and your legacy. Get in touch with us now for easier, better estate planning.