Basic Estate Planning Documents Explained
Last Will & Testament
The Will is a written instrument executed with the formalities required by state law, whereby a person makes a disposition of their real and personal property to take effect after their death. The primary purpose of the Will is to dispose of the probate property to named beneficiaries. If you die intestate, meaning without a Will, the probate court will apply state law to appoint an administrator to handle your affairs and determine who is entitled to your property upon your death. Not only is it costly to an estate to leave such decisions to the probate court, but also the choices made under the laws of intestacy may not coincide with your wishes.
The Will also names a fiduciary, known as the executor or executrix. The responsibility of the executor or executrix is to collect the assets of the estate, pay the debts of the decedent and the estate, make the proper filings with the Probate Court, and distribute the assets to the appropriate beneficiaries. Generally, an Executor or Executrix must post a surety bond as the fiduciary of your estate, the premium for the bond being payable out of your probate estate. However, you can waive the bond requirement for your Executor or Executrix, thereby saving money for the probate estate.
The Will may also appoint a particular individual to serve as guardian for minor children. Like the Executor or Executrix, the guardian must also post a surety bond unless the Will provides for it to be waived.
The Will transfers only that property which is part of the probate estate. A probate estate does not include assets that pass by contract, by beneficiary designation, or by operation of law. Some examples of assets that are not part of a decedent’s probate estate include: property held in trust, life insurance proceeds payable to a named beneficiary, retirement plans that pass pursuant to a beneficiary designation, joint with right of survivorship property, payable on death accounts, and transfer on death accounts.
The Living Will is a document which governs the withholding or withdrawal of life-sustaining treatment from an individual in the event of an incurable or irreversible condition that will cause death within a relatively short time, and when such person is no longer able to make decisions regarding his or her medical treatment.
Ohio Revised Code §2133.02(A) permits “an adult who is of sound mind” to “execute at any time a declaration governing the use or continuation, or the withholding or withdrawal, of life-sustaining treatment.” This includes the right to withdraw nutrition and hydration if a declarant is in a “terminal condition” or “permanently unconscious state.”
The Living Will, colloquially referred to as the “pull the plug document,” is an advanced directive, whereby you make the decision now as to what happens to you if you were to end up in a comatose and permanently unconscious state with no chance of recovery. Generally, the Living Will includes a designation of one or more persons to be notified by the attending physician when such treatment would be withheld or withdrawn pursuant to the declaration.
Health Care Power of Attorney
Ohio Revised Code §1337.12 permits an adult who is of sound mind to create a valid durable power of attorney for health care to authorize a designated agent to make health care decisions on their behalf if they lost the capacity to make informed decisions for themselves. The power of attorney is “durable” in that it survives the incapacity of the principal. Additionally, the Health Care Power of Attorney is “springing,” meaning that your agent will only “spring” into action on your behalf when your attending physician determines that you are incompetent.
A health care decision is any choice you would normally make that affects your health. This can include the authority to give informed consent or to withdraw consent for any medical treatment. However, the person holding the Health Care Power of Attorney will not be able to refuse or withdraw consent to health care needed to maintain life, which is why it is often necessary to execute both a Living Will and a Health Care Power of Attorney.
Financial Power of Attorney
A financial power of attorney is a grant of authority from one person, known as the “principal” to another person, known as the “attorney in fact,” in which the principal grants specified powers to the attorney in fact, to act on behalf of, and with the same authority as, the principal. The powers can take effect immediately when signed, or spring into action upon the occurrence of a specific event.
A power of attorney can be general or limited. A general power of attorney grants the attorney in fact the authority to do anything the principal can do, while a limited power of attorney grants the attorney in fact the authority to execute only the tasks described in the document creating the power. Most often, the powers include:
- The ability of the principal to handle all bank accounts
- Write checks
- Pay bills
- Handle CDs, stocks, and bonds
- Deal with real property
- Hire and fire professionals
- Almost any legal act which the principal commonly does for themselves
Additionally, a power of attorney may be durable or non-durable. A durable power of attorney survives the incompetence of the principal. If the principal becomes disabled, the durable power of attorney will permit the attorney in fact to continue to act for the principal, whereas a non-durable power of attorney does not survive the incompetence of the principal. Generally, it is preferable to create a durable, general power of attorney. This will allow the attorney in fact, typically the spouse, to manage the principal’s affairs if the principal becomes disabled without the need to go to probate court to have a guardian appointed.
It is important to ensure that the person designated as the agent is trustworthy. The power of attorney can be terminated in writing by the principal at any time, and automatically ends at the death of the principal.
There are three basic types of trusts: a testamentary trust, revocable living trust, and an irrevocable living trust. A testamentary trust is a trust that is contained in a will and does not go into effect until the death of the testator and the admission of the will into probate. This trust is especially useful when providing for the care, education, maintenance, and welfare of minor children.
A revocable living trust is a document established during the grantor’s lifetime, for transfer of property to a trustee for the management of property during the grantor’s lifetime or beyond. This trust is an effective estate planning tool used for avoiding probate and advanced planning for children, businesses, farms, real estate, etc.
An irrevocable living trust is a trust established during the grantor’s lifetime for the disposition and management of property. An irrevocable trust cannot be revoked or modified by the grantor once established, as the grantor relinquishes title and control of the property transferred into this type of trust.