Some people in Kansas City, when they hear the phrase “estate planning,” think of creating a will, and then end it there. However, there are many different kinds of documents that make up a well-rounded estate plan. That being said, there can be some confusion as to what these various types of documents accomplish.
First of all, let’s discuss the difference between a power of attorney and a health care power of attorney. A power of attorney is the legal document that gives another person the authority to make both financial decisions and legal decisions for you if you become incapacitated and no longer can do so yourself (or sometimes, even when one is still competent). A health care power of attorney, in comparison, allows you to select someone to make health care decisions should you be unable to do so due to incapacitation.
In addition, it is important to keep in mind the difference between a will and a living will. A will is the legal document that dictates who you want to inherit your assets after you pass away. If you do not have a will when you die, your assets will be distributed per your state’s intestacy laws, which may or may not be to your liking. A living will, on the other hand, is a legal document that contains the information about your health care wishes should you face a terminal illness or otherwise become incapacitated. For example, it can dictate what life-preserving measures you would like, or would prefer to refuse, if you become incapacitated.
Finally, we will briefly touch on the difference between a revocable trust and an irrevocable trust. Both kinds of trusts serve as a means for gathering your assets in a way that avoids probate and then distributes your assets to your beneficiaries. However, assets placed in an irrevocable trust cease being in the control of the creator of the trust. Assets placed in a revocable trust, on the other hand, can be changed, as can beneficiaries.
This is only a very brief overview of some commonly confused terms in estate planning. For further information about powers of attorney, health care powers of attorney, wills, living wills, revocable trusts and irrevocable trusts, it may help to speak to a legal professional, who can further educate you on these topics.
Source: WealthManagement.com, “Clearing Up Common Estate Planning Misconceptions,” Scott Grenier, June 10, 2016