There are many legal strategies involved in estate planning, including wills, revocable living trusts, irrevocable trusts, durable powers of attorney, and health care documents. New clients often say that they do not have an estate plan. Most people are surprised to learn that they actually do have a plan. In the absence of legal planning otherwise, their estate will be distributed after death according to Virginia's laws of intestacy. Of course, this may not be the plan they would have chosen. A properly drafted estate plan will replace the terms of the Commonwealth ’s estate plan with your own.
Your last will and testament is just one part of a comprehensive estate plan. If a person dies without a Will they are said to have died "intestate" and commonwealth laws will determine how and to whom the person's assets will be distributed. Some things you should know about wills:
Trusts come in many "flavors," they can be simple or complex, and serve a variety of legal, personal, investment or tax planning purposes. At the most basic level, a trust is a legal entity with at least three parties involved: the trust-maker, the trustee (trust manager), and the trust beneficiary. Oftentimes, all three parties are represented by one person or a married couple. In the case of a revocable living trust, for example, a person may create a trust (the trust-maker) and name themselves the current trustees (trust managers) who manage the trust assets for their own benefit (trust beneficiary).
Depending on the situation, there may be many advantages to establishing a trust, including avoiding probate court. In most cases, assets owned in a revocable living trust will pass to the trust beneficiaries (or heirs) immediately upon the death of the trust-maker(s) with no probate required. Certain trusts also may result in tax advantages both for the trust-maker and the beneficiary. Or they may be used to protect property from creditors, or simply to provide for someone else to manage and invest property for the trust-maker(s) and the named beneficiaries. If well drafted, another advantage of trusts is their continuing effectiveness even if the trust-maker dies or becomes incapacitated.
A power of attorney is a legal document giving another person (the attorney-in-fact) the legal right to do certain things (powers) for another. What those powers are depends on the terms of the document. A power of attorney may be very broad or very limited and specific. All powers of attorney terminate upon the death of the maker and may terminate when the maker (principal) becomes incapacitated (unable to make or communicate their own decisions). When the intent is to designate a back-up decision-maker in the event of incapacity, then a durable power of attorney should be used. Durable Powers of Attorney should be frequently updated as banks and other financial institutions may hesitate to honor a document that more than a few years old.
Advance directives are written documents that specify the type of medical care a person would want should they lose the ability to make (and communicate) their own decisions. There are two types of advance directives: a durable power of attorney for health care and a living will. A durable power of attorney for health care, also known as a health care proxy, is a document in which the maker gives another person (known as the patient advocate) power to make medical treatment and related personal care decisions.
Anyone over the age of 18 may execute a durable power of attorney for health care, and this document is legally binding in Virginia. Some people confuse this with a "living will," which is a written statement informing doctors and family members what type of medical care should be given (or withheld) in the event of terminal illness or permanent unconsciousness, and the patient is no longer able to make or communicate decisions about their continued care.
Two key differences between these documents are that 1) the durable power of attorney for health care designates who makes decisions while the living will provides guidance on what those decisions should be; and 2) a durable power of attorney for health care is legally binding in the commonwealth of Virginia, while a living will is not. Doctors and hospitals may comply with a living will, but are not legally compelled to do so.