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Is Your Estate Plan Strategic Enough?

A well-integrated plan

You may have taken steps to set up your estate plan (making a will, for example, or choosing your health care proxy). But these days signing documents and filling roles may not be enough. You also have to ensure that the people you choose to carry out your wishes have all the information and authority they’ll need.

A modern estate plan takes into account this more integrated, strategic approach. Without it, the state could decide who will care for your minor children; loved ones could dispute your end-of-life care and bequests; and depending on the size of your estate, taxes and legal fees could eat away at your assets.

Here’s how to add that strategic component to your plan.

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Know your power

For a top-notch estate plan, you’ll need more than one power of attorney (POA): a durable power of attorney for finances and a durable power of attorney for health care. These “attorneys” (or proxies, as they’re sometimes called) are people you trust enough to make certain decisions if you’re incapacitated. While the same person can (and often does) serve as both POAs, make sure that if you’ve designated two people, they each know about the other.

A durable power of attorney for finances takes effect immediately when you sign it, but you can also choose a “springing” power of attorney, which would take effect only when your treating physician certifies that you can’t make decisions for yourself. By legally ensuring that others can carry out your wishes, you gain peace of mind now—and you also spare your family the need to get someone appointed by a court.

Note that every state has unique requirements, and you should get professional legal advice when drawing up a power of attorney.

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Set limits

Granting power of attorney isn’t necessarily giving your proxy unlimited control. Your POA documents will specify which areas each person has license to cover. Without these directives, no one—not even your spouse—would have the authority to make those decisions.

You can ask your POA for finances to assume basic tasks—from paying bills to depositing checks—or more complex duties, such as buying and selling assets.

Your health care proxy will be responsible for making sure the preferences that you’ve expressed in your living will (detailed on the next slide) are carried out.

Since your medical choices and your finances are related, you’ll want to ensure that these two people are apprised of each other’s roles, notes Stewart Welch III, co-author of J.K. Lasser’s New Rules for Estate and Tax Planning.

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To your health

Choosing a health care power of attorney is only one part of your end-of-life health plan, of course. What guides that person is your advance health care directive. This document lists your health care preferences, which become effective only when you aren’t able to communicate your wishes. It has two parts: the durable health care power of attorney and your living will.

A living will lets you express your wishes for end-of-life care; it typically covers pain relief and medical treatments such as surgery, resuscitation, ventilators and feeding tubes. You can include as much or as little detail as you want. A helpful guide for choosing both a health care proxy and the type of medical care you might want is the American Bar Association’s Consumer’s Toolkit for Health Care Advance Planning.

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Permission granted

The federal Health Insurance Portability and Accountability Act (HIPAA) of 1996 was passed to protect the privacy of health care information. But its privacy regulations can make it more difficult for your loved ones to gain access to your records.

Ask your lawyer to include HIPAA-release language in your living will, health care power of attorney and financial power of attorney—the latter in order to manage your medical bills—to explicitly state that you give your POAs the right to receive information about your medical condition and care under HIPAA rules.

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What you will

Everyone needs at least a simple will, which allows you to leave your assets and personal possessions to whomever you choose, and to name an executor, who will carry out your wishes after your death. Without one, your property gets distributed to your survivors based on your state’s “intestate succession” laws. In most states, that means that your spouse and your children share in your estate. If you’re single, your assets will go to blood relatives; if you don't have any blood relatives, your assets will go to the state.

A will is also where you’d name a guardian for your minor children. Again, if that role isn’t specified in your will, the guardian would be chosen by the state.

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A revocable living trust, like a will, lets you leave your assets to whomever you choose. You may opt for a trust in addition to a will because assets in a living trust do not have to go through probate proceedings before being distributed to your beneficiaries, as they would in a will. And if privacy is important to you, a revocable living trust, unlike a will, never needs to be filed with a probate court.

There is extra time and expense involved in creating and maintaining a revocable living trust, but if you own a home or other property—especially if you own property in a state other than your primary residence—and live in a state with high probate costs, you may want to consider one. Just be sure you follow through and fund your trust. Simply setting it up isn’t enough—you have to take the step of retitling all the assets in the trust’s name.

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The right people

Many kinds of assets pass on to your heirs not by a will or trust, but under beneficiary designations that you make when you set up certain financial accounts, such as your retirement plan at work or a life insurance policy. You’ll want to review these designations periodically to make sure they reflect your current wishes. (Many an estate planning attorney has a story of a client who neglected to remove an ex-spouse as beneficiary on a financial account.)

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Important Disclosures

Information provided is for general purposes only and is not intended to be a substitute for specific individualized tax or legal advice. Where specific advice is necessary or appropriate, please consult a qualified tax or legal advisor.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The estate planning strategies mentioned here may not be suitable for everyone. Each investor needs to review an estate strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

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