As we wrote in part one of our estate planning series, estate planning is a method of organizing your affairs. A thoughtful estate plan can make one’s passing less stressful on loved ones and family. Because it states the deceased’s wishes, an estate plan can reduce the number of difficult decisions family members must make while grieving. A comprehensive estate plan involves more than deciding how to pass on one’s property after death. It includes other planning tools such as power of attorney, funeral plans, and succession plans for small and family-owned businesses.
What is “power of attorney”?
Power of attorney is the written authorization for a specific person to act on behalf of another. Power of attorney is a common estate planning tool for it ensures that a person’s affairs are maintained should that person be unable to make decisions for his or herself.
The person to whom power of attorney is granted is called the “agent,” and the person executing the power of attorney is called the “principal.” The agent can make decisions relating to many matters—financial, medical, business, and even property—on behalf of the principal. The principal defines the scope of the agent’s power.
There are two types of power of attorney which are important to estate planning: general and durable. General power of attorney is effective upon the happening of a specific future event, such as the principal’s incapacity. It is well-suited for an estate plan because it becomes effective only if needed. Durable power of attorney, on the other hand, goes into effect immediately. It is often used to help facilitate property transfers, or, if the principal is expecting to be unavailable to make important financial decisions.
Who should I appoint as power of attorney?
Great care should be taken when appointing power of attorney because of the significant authority conveyed to the agent. The agent should be competent, thoughtful and prepared to effectively manage affairs, whatever they be. Most importantly, the agent must be trusted. Selecting an agent is a deeply personal decision, but it can be made easier with the help of the right attorney who can further explain the intricacies of the decision.
What is a funeral plan?
A funeral plan, also called the final disposition instructions, is an estate planning tool that is often overlooked given the sensitivity of the topic. A funeral plan usually states the desired disposition of one’s remains; for instance, whether one wants to be buried or cremated. It may further detail the person who has control over the remains and the desired location and conditions of a final resting place. Where possible, an estate plan should also address the financial aspect of one’s passing.
What is a succession plan and why is it important?
A business succession plan is a detailed plan that provides information on who will, and how to, run the business after one’s passing. Many small and family-owned businesses fail during the transition after an owner’s death because of power-struggles, lack of a new business structure and even proper knowledge regarding the manner in which the business operated. A business succession plan can help ensure that a business survives this transition period while providing continuity and maintaining the business’s value and culture.