• Estate Planning 101: The Documents You Need and Why

    by Tyler Conley, MBA, CFP®, CEPA®, Financial Planner | October 17, 2023

    “Who actually needs estate documents and what estate documents are applicable to me?” is one of the most common questions I get when onboarding new clients to a comprehensive financial plan. The short answer is that any legal adult should strongly consider having a will and powers of attorney, at a minimum. However, a case can be made for all adults to become aware of/knowledgeable about the different estate documents that exist and how they are applicable in different scenarios. Below is an overview of each of the basic estate planning documents and how they could be important to your long-term financial and physical wellbeing.

    Health Care Power of Attorney

    The first estate document we strongly encourage people to have on file and review frequently due to regulatory/industry changes is a health care power of attorney. This document is applicable for anyone from an 18-year-old going away to college to a 90-year-old in an assisted living facility. The health care power of attorney identifies both a primary and a successor attorney-in-fact, aka the person selected to carry out the power of attorney, based on the wishes of the principal, aka the person granting the power of attorney. This attorney-in-fact is permitted to make only health care-related decisions on your behalf. In exercising this authority, the attorney-in-fact must act consistently with your desires as stated in the health care power of attorney document. The attorney-in-fact also must act in accordance with any limitations in the health care power of attorney document and with any statement you have made regarding your desires, including consent to procedures or treatments, withdrawal from life prolonging treatments, artificial nutrition/hydration, and tissue/organ donation upon death. In most cases, the health care power of attorney is no longer effective upon the passing of the principal.

    Advance Health Care Directive/Living Will

    A second estate document often confused with the health care power of attorney is the advance health care directive (AHCD)/living will. This document primarily focuses on end-of-life treatment preferences, providing specific instructions regarding life-prolonging measures. By comparison, a health care power of attorney document covers a broader spectrum of health care decisions and can take effect during the individual's incapacity. The advanced healthcare directive (AHCD) / living will only go into effect when a person is deemed to be in a terminal condition and/or a state of permanent unconsciousness. The AHCD/living works as a clearly stated guide for health care professionals and loved ones in making decisions that align with the individual's expressed wishes. Ensuring there is an AHCD/living will may help avoid unnecessary and long-lasting family drama when difficult decisions need to be made in tense and challenging medical scenarios.

    Financial Power of Attorney

    Another power of attorney estate document that is strongly recommended is the financial power of attorney. In a financial power of attorney document an attorney-in-fact is selected, along with a successor attorney, which grants this trusted agent the authority to act on behalf of the principal-agent in financial matters. The ability to act on behalf of the principal agent can have a springing functionality, limited functionality or a durable functionality.

    • allows the attorney-in-fact to act in scenarios in which the principal agent cannot act or is incapacitated in some manner.
    • grants the attorney-in-fact power/duties only for a specific period.
    • allows the attorney-in-fact to make decisions for the principal-agent while they are still functioning and not incapacitated without consulting them.

    A financial power of attorney document can also be referred to as a general power of attorney or a power of attorney of property. These financial power of attorney powers are automatically extinguished upon the principal's death.

    Last Will and Testament

    The first three estate documents explained above are needed when a principal is living; however, a principal’s last will and testament applies upon their death. A last will and testament is a legal document that communicates a person's final wishes pertaining to their assets. The legal document often also provides an overview of their next of kin, along with specific instructions about what to do with their possessions. The document will indicate whether the deceased leaves their assets to another person, a group of beneficiaries, wants them transferred to a trust, or wishes to donate them to charity. The last will and testament can, when applicable, give directions for care of dependents and pets, the management of accounts for these loved ones, and financial interests.

    In scenarios where dependents are involved there is often language creating a testamentary trust for the dependents’ benefit. The grantor/principal of a last will and testament (the creator of the trust) leaves instructions for a named executor detailing how their assets are managed by a trustee and when/how these assets are to be distributed to beneficiaries. This testamentary trust is established and funded only after the grantor/principal’s death.

    Aside from the care of dependents, the primary reason for having a last will and testament is to allow the grantor/principal to have some control over what happens to their assets after their death. If a person dies intestate, or without a will, their estate including the distribution of all assets, is settled by the courts. In a scenario where parents die without a will, the courts will appoint a guardian for minor children.

    As mentioned above, the last will and testament is used for settling a person’s estate which often goes through a lengthy and possibly expensive probate court settlement process. In most cases, estates are required to go through probate in the state of Iowa. There are a few exceptions to this rule, such as having an estate valued at less than $25,000 that only includes personal property.

     In scenarios where all the grantor/principal’s assets have a named beneficiary then probate could be avoided. The timeline for probate settlement can vary widely depending on the size and complexity of the estate being settled. Unless there are specific exceptions, the law requires it to be completed within five years of the person’s death.

    Revocable Living Trust

    The best way to avoid having an estate go to probate in Iowa is by planning while the principal is still alive. A revocable living trust with named beneficiaries that includes all the assets of the estate will allow for the estate to avoid probate. When establishing a revocable living trust nothing is permanent until the death of the grantor, thus allowing the trustee (most often the grantor/principal) to make alterations, amendments and cancellations as their life evolves. Only after death of the grantor does property transfer to the beneficiaries of the trust. Revocable trusts allow beneficiaries to avoid probate court and guardianship or conservatorship proceedings. It also provides personal/family privacy when settling the estate since probate court proceedings are public record.  

    In scenarios in which the grantor owns property in multiple states the principal/grantor would be subject to opening probate estate settlement in multiple states if not utilizing a revocable living trust or other legal vehicle/tool. 

    Lastly, through the utilization of a revocable trust and avoiding probate the grantor can avoid the hypothetical high costs associated with probate settlements. For estates with a value greater than $200,000 attorneys can bill up to 2% of the gross assets of the estate (not including life insurance proceeds). Additionally, in many probate settlements involving real estate/property an appraisal of the asset will be required by a professional appraiser. Another cost which should be factored in is the actual probate court costs. Probate court costs vary depending on the county that is handling the estate but are often determined based on the size of the estate, as well as how many court orders are needed during the case. For example, an estate can estimate that court costs will be $30 for the first $25,000 of value, plus $25 for every $25,000 after that.

    Where to Start

    Although the above information may seem daunting, by partnering with an experienced CERTIFIED FINANCIAL PLANNER™ practitioner and a knowledgeable estate attorney the process can be made significantly less burdensome. These professionals have the knowledge and experience to guide you through problematic areas and provide guidance/input when making tough estate document related decisions. Additionally, upon executing the estate documents you’ve selected, your CERTIFIED FINANCIAL PLANNER™ practitioner will assist you in updating your beneficiaries as applicable to align with these estate document(s) wishes. With the creation of the above estate documents, your wishes/desires can be implemented even when you are not able to do so yourself.

    Tyler Conley, MBA, CFP®, CEPA®, Financial Planner
    Tyler (TC) Conley grew up in Ankeny, Iowa, and is a second-generation CERTIFIED FINANCIAL PLANNER™ practitioner in the Des Moines community. He joined the team at Syverson Strege in 2019 as a CERTIFIED FINANCIAL PLANNER™ practitioner. He also holds Certified Exit Planning Advisor (CEPA®) and Certified Divorce Financial Analyst (CDFA®) designations. In his role at Syverson Strege, Tyler puts an emphasis on developing strong relationships with clients through the comprehensive financial planning process which helps provide clarity and understanding on clients’ pathways to financial success.

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