Financial Planning 101: Part 12
Estate Planning Basics

by Gerald Townsend, Financial Editor
December 2009

This is our final installment of the “Financial Planning 101” series. During 2009 we’ve had articles discussing the steps in setting financial goals, establishing adequate insurance, devising tax strategies, financing your home purchase and developing an investment portfolio. This month addresses the basic steps of the estate planning process.

What are the key estate documents?

Will
Your will describes how you want your property distributed at your death. In the absence of a will, North Carolina has provided rules for the distribution of your property. These rules are known as the laws of Intestate Succession. The Intestate Laws are very strict, and most likely do not agree with your own distribution preferences.

Probate is the legal process of proving that your will is legal and valid. It ensures that property passes to the beneficiaries named in the will. However, many types of property do not pass through your probate estate and instead pass directly to beneficiaries, outside your will:

• Property Held in Joint Names—If held as “joint tenants with right of survivorship” or “tenancy by the entirety”, this goes directly to the surviving joint tenant.
• Life Insurance—If you have named a beneficiary of your life insurance policy, the death benefit does not “pass through the estate,” but instead goes directly to the named beneficiary.
• Retirement Plans—Similar to life insurance, it goes directly to the named beneficiary. Keep in mind that for life insurance and retirement plans, if you have not named a beneficiary, or if the beneficiary has died and you have not named a contingent beneficiary, distributions are payable to your estate.

For families with young children, a will provides the opportunity to name a guardian to care for the children in the event both spouses die.

Revocable (Living) Trust
A revocable (living) trust is created during your lifetime and enables you to reduce or avoid the costs and delays of probate as well as naming a trustee to help manage the assets placed into the trust, should you be unable to manage them yourself. Property placed into a revocable trust at your death goes directly to the named beneficiary of the trust.

Durable Power-of-Attorney
A Durable Power of Attorney (DPOA) is a document in which you authorize someone else to perform certain financial and legal acts in your place. It can be limited in scope or very broad and remains effective, even if you should later become incapacitated.

Health Care Power-of-Attorney
With a Health Care Power-of-Attorney you appoint someone else to make health care decisions for you if you are unable to make these decisions. This includes the power to consent to your doctor giving, withholding, or stopping any medical treatment, service, or diagnostic procedure. This may be the same or a different person named under your DPOA.

Living Will
A “Living Will” is also known as a “Declaration of Desire for a Natural Death.” It is a statement that you do not want your life prolonged by extraordinary measures if you have a terminal or incurable illness or if you are in a vegetative state.

Attorney or Do-It-Yourself?
Should you use an attorney or try and save some money by doing it yourself? Beyond the actual drafting of the legal documents, a qualified estate planning attorney asks the probing questions and suggests strategies few of us might consider by ourselves—so for many people—and especially in more complex situations—using a professional is the best approach.

If you are determined to follow a DIY approach, there are a number of helpful Web sites such asnolo.com or legalzoom.com. In addition, you can obtain free copies of various advance care documents at nclifelinks.org as well as being able to register these documents and later retrieving them online.

Gerald A. Townsend, CPA/PFS, CFP^®, CFA^® is president of Townsend Asset Managment Corp., a registered investment advisory firm. Email: Gerald@AssetMgr.com