The Significance of Legal Documents
Essential legal documents are vital to ensuring your wishes are carried out, and in many cases can be the difference between a simple process with minimal disruption and a long and arduous one that causes your family stress and frustration. When prepared properly, legal documentation can provide great peace of mind and make times of turmoil and transition easier to navigate. For example, with a properly prepared Power of Attorney, you can appoint someone trustworthy to handle your business, financial or even health care affairs in time of need. A will can provide that your wishes are followed and assets are distributed as you so choose, rather than by the dictates of law . A trust can minimize the tax burden on your estate, provide a clear plan for passing wealth through generations, or help protect your wealth from creditors, spouses and others. Proper planning with a clear, well-executed legal roadmap can also help avoid rubrics such as probate or conservatorship, and other costly time-consuming processes. Having proper legal documents in place helps ensure your wishes will be carried out, provides peace of mind to the person you designate to act on your behalf when you are no longer able to do so, and provides clarity for those who are directly impacted by your decisions.
Last Will and Testament
The last will and testament of an individual states the inviolability of that individual’s decisions in the event that he or she passes away leaving behind assets and/or the care of surviving minors. It identifies those who will inherit his/her estate, and any conditions on their right to inherit. It also appoints the guardian of any surviving minor children. Tax considerations apply to bequests made by the will. A married couple may need to make the will in order to achieve balancing of tax credits abusing the election of Rev 3(2)(a)). For estate tax purposes, the legislation permits the use of a tax deferral under certain conditions. A testator may decide to create a trust for the benefit of his/her minor children, so that the executor of the will may administer it until the children reach the age of majority (refer to the income tax considerations below). The provisions of the will regarding children are legally binding upon the appointed guardian. It is possible to appoint two persons and even to opt for them to act in succession, but only if each appointee is of the age of majority. Minor children cannot be guardians of their sibling(s), regardless of their age. The will names the executor, who can collect on debts owed to the testator and settle any debts and liabilities of his/her estate. The will gives the executor the power to make decisions regarding the distribution of the testator’s estate. The executor has to report and remit to the Receiver General any taxes, costs or other amounts payable on amounts deemed to have been paid as income by the testator at the time of his/her passing. The will provides the executor with the power to pay over to the surviving spouse, child or prisoner of the will prior to obtaining a court order, etc. to do so (Rev 1(2)(c)). A Canadian will must be made in writing. It is not required to be notarized, but the will must be signed by the testator. There is sometimes a requirement that the will is countersigned by the witness. In accordance with Rev 2.2(a) of the Tax Act, a Canadian will may contain a clause, which requires its testator to reside in Canada at the date of death; otherwise, the will shall be considered as made outside of Canada. The date of death is not the deemed year-end date for the estate; it is instead the date of death of the decedent/testator. Under Rev 2.2(b) of the Tax Act, a testator’s will be deemed to be made in Canada if at least one of the following conditions was satisfied: -Residing in Canada at the date of the will; -Having circumstances relating to any of property, assets, debts and liabilities located in Canada or having been deemed resident in Canada at the time of death or at any other time during the current and/or prior year(s). Under subsections 2.2(c) and (d) of the Tax Act, a testator’s will may be changed under a will that meets the requirements of paragraphs (b), (c) and (d) of subsection 2.2 of the Act, without losing the benefits of the above (i.e., double taxation). The will cannot override the law requiring any person under the age of majority to have at least one parent (or guardian) in cases where one or both parents have passed away.
Power of Attorney
It should come as no surprise that in the Goldstein Grcheck & Gorczyca PLLC, we are big advocates of living wills, medical powers of attorney, and financial powers of attorney. However, it should also come as no surprise that many people do not feel they need these documents. Normally, a person’s attitude is that they are doing well enough now, so they do not think about how they will handle things later in life.
General Power of Attorney
A general power of attorney is a legal document where one person gives another the power to act on their behalf. At this point, it should be noted that while this is a legal document in Michigan, the term "power of attorney" has a different name in most other states, where it is called an "attorney in fact". In Michigan, even though both terms are used, the legal document we are referencing here is known as a power of attorney. The general power of attorney can be used while the principal is alive for the handling of a wide range of business affairs, but ends when the principal dies or is physically or mentally incapacitated. The general power of attorney differs from the durable power of attorney in that the durable power of attorney is more limited in scope and enables a person to handle specific assets of the principal after the principal becomes incapacitated. That is the most common misconception about a power of attorney, where the creator thinks that it gives the person who receives the ability to do whatever they want with the creator’s affairs. While the general power of attorney does give someone broad ability to act on behalf of the principal while the principal is alive, the durable power of attorney limits the use of assets to the principal’s needs. In other words, the person assigned the durable power of attorney should use the assets of the principal to benefit the principal, not for personal gain. This is also true for the health care durable power of attorney, where the person assigned can make medical decisions on behalf of the principal.
Durable Power of Attorney
In a durable power of attorney, however, the person authorized to act on behalf of a principal is allowed to act on behalf of the principal if the principal becomes physically or legally incapacitated. In this case, the term "durable" means that the power of attorney continues on even if the principal becomes incapacitated. Sometimes a durable power of attorney may give the agent the authority to gift assets on behalf of the principal, however, without this language, the representative cannot gift assets on behalf of the principal. While the primary purpose of a durable power of attorney is to give someone the ability to act on your behalf when you are unable to, sometimes there are additional purposes to consider. For example, there may be a time where you are physically unable to do certain tasks, such as dealing with the Secretary of State or paying bills online. In this case, the advantages of having someone act on your behalf is obvious. But, there are also other instances, such as an able bodied husband and wife, where one of them may not want to deal with the day to day stress of financial matters. When an older couple enters into this situation where one spouse takes care of their financial affairs, it is not uncommon for the other person to get upset at the idea of giving someone else the ability to access their bank accounts. In this situation the reasons for making someone your agent dopes not have to be because you are incapable of handling your affairs, but simply that you prefer not to handle them.
Medical Power of Attorney
If I were to wager that the least favorite legal document to sign is the medical durable power of attorney, I would be a millionaire. Who wants to sign a document where a stranger can make medical decision on your behalf? Who knows which hospital they pick? However, if you are ever unable to make decisions for yourself, whether it be because of an incapacity or a scheduled procedure where the doctor requires a second person to make decisions for you, it is very important that you have someone you trust to make decisions for you.
While the general durable power of attorney and the medical durable power of attorney are two of the most commonly discussed powers of attorney, there are many more different forms of power of attorney, giving various different powers to the person named as agent. Even if you are not concerned about making sure someone manages your affairs during any incapacity, it is still wise to get a medical durable power of attorney and a very limited general power of attorney that only allows a person to handle your business for your specific needs, such as paying household expenses.
Living Will and Health Care Proxy
Your estate plan may include a living will, which dictates your wishes when it comes to the types of health care you want to receive if you become unable to express them. A health care proxy, on the other hand, empowers a trusted friend or family member to make medical decisions on your behalf. These are important documents for end-of-life care planning.
Revocable Living Trust
A revocable living trust is a vehicle within which you can place your assets during your lifetime, and preserve them for your heirs. During your lifetime, you are the "Trustee" (or manager) and can buy and sell assets as you wish, change the terms of the trust, remove assets, and change who will inherit your assets after your death. It is a "Revocable" trust because you have the power to do all of these things. A trust is sometimes thought of as being a "Will substitute." A Will only becomes effective when you are dead. Most people don’t want their assets transferred to their beneficiaries when they die. They want to enjoy those assets while they are still living. The Revocable Trust allows you to do this.
The primary benefit of a revocable living trust is that your estate is not required to pass through the Probate Court in Georgia. Most people believe that their estate must pass through the Probate Court if they do not have a Will that places everything in the Court. This is not true. If your assets are placed in a revocable living trust, they do not have to pass through the probate court . As a matter of fact, your trustee can administer your estate without ever having to file a court action, as long as you have designated your Trustee or Successor Trustee and specified how your assets are to be divided.
This brings up another important point. It doesn’t matter what state you are domiciled in at your death. The assets placed in the Trust are administered according to the terms of the trust. When properly set up, the Trust provides for seamless management of your assets if you are living and whether you are incompetent or disabled.
We sometimes refer to the Revocable Living Trust as a Private Will. The reason we call it a Private Will is because it avoids the public nature of probate and because it does not require any public disclosure of the Trust’s terms and finances. As soon as you die, your assets will not appear on the public register, people cannot come search for your name, and family members will not have to go to the Register of Wills, Clerk’s Office or the local newspaper to locate a copy of your Will. There will be no hearing, no bond, no inventory, and no property values that are known to the general public. The administration of the Trust can be handled outside the view of the public.
Advance Directive
An advance directive is a legal document that is put in place ahead of time to express your wishes for medical care after you become unable to speak them for yourself. This instrument is sometimes called a living will. It is quite possible that your advance directive might state that you wish for your life to be prolonged by artificial means, until you die naturally, or it might specify that once you reach a certain level of physical incapacity, the doctors should let you die.
Some people become extremely depressed when they think about these things. However, if you wait too long and then become incapacitated in some unexpected way, you might feel even more depressed because you could have stated your wishes at an earlier time but missed the opportunity to do so.
As discussed in the previous section, the Health Care Proxy appoints someone to make medical decisions for you in the event you are not able to do so for yourself, now or in the future. An advance directive usually contains a statement in which you direct the person who is your agent under the Health Care Proxy to be guided by your clear preferences if the time comes when you cannot express them to others. An advance directive can also specify a course of treatment that you do or do not want to receive.
Advance directives serve two important purposes. First, they inform those close to you of your values and wishes. Second, they relieve your family and friends of some difficult decisions. As you can see, they are an essential part of health care planning.
Beneficiary Designations
In addition to wills and trusts, a number of other essential legal documents also frequently require careful drafting and execution. These include beneficiary designations on life insurance policies, retirement plans, annuities, and bank accounts. However, simply having a policy or plan and properly executing the beneficiary designation is not enough. The document itself must be consistent with the client’s situation and be kept up to date and in sync with related estate planning documents. Otherwise, all too often courts have been called upon to decide who is entitled to the proceeds, especially when there are multiple beneficiaries named and the beneficiary changes several times during the life time of the insured or plan owner.
As a case in point, a client who is in the process of getting a divorce names his wife as the primary beneficiary of his life insurance policy. The policy provides that if no primary beneficiary survives the policy owner then the contingent beneficiary receives the benefits. Shortly thereafter the divorce action is filed. Unfortunately, because proper planning was not made in advance, an estate planning attorney, experienced in these matters is required to go to court to make sure the policy proceeds go where the policy owner wanted them to go. In this case, that was his children.
Digital Estate Planning
In an increasingly digital world, it is important to include digital assets in estate planning. This means digital investments, email accounts, social networking sites, pictures, online content, and ad revenue streams; basically, anything that is part of a digital property portfolio. More than ever, organizing the account and password information for digital accounts is crucial for a smooth transition of digital assets . Because passwords and access codes are often needed to collect and transfer digital treasures, a digital executor can be assigned. A digital executor can step in and handle the responsibilities of guarding and transferring digital assets in the event of a person’s death. Since the majority of people have adopted part or the entirety of their business online, and have built a reputation or following, it is important to choose wisely when deciding on a digital executor.