Good legal documents are the foundation for an estate plan. For a business owner, this takes on added importance. By better understanding common estate planning terms and documents, you can gain important insight into the role they can play for you and your family.
Will – This is a document that takes effect at death. It’s a legal document that directs how your estate will be managed and distributed after your death. Your will controls the distribution of your probate property and names a personal representative (executor) to handle the probate process. It also names individuals to serve as guardians for minor children. If you die without a will, state laws will control how your property will be distributed regardless of your wishes. This can lead to unexpected costs and taxes.
Power of Attorney – This is a document that is in effect while you are living. A POA gives another person the legal right to handle some or all of your financial affairs if you are unable to handle things yourself. You choose this person. A Durable POA continues this authority should you become incapacitated.
Medical Power of Attorney and Advanced Health Care Directive – These are documents in effect while you are living. A Medical POA gives another person the legal right to make medical decisions for you if you cannot. You choose this person. An Advanced Healthcare Directive provides direction to healthcare providers if you become incapacitated or terminally ill. It specifies whether you want certain life-prolonging measures.
Testamentary Trust – This type of trust is created as part of your will and takes effect upon your death. This a way for you to put in writing your specific desires as it relates to the management and distribution of your property (how and when). In the trust document, you designate an individual or a trust company to serve as the trustee. The trustee controls this process.
Buy-Sell Agreement – This is a written agreement that documents an owner’s specific desires as it relates to the management and distribution of the business in the event of the owner’s death, disability or departure. When there are multiple owners, this agreement should also address disagreement and divorce. A buy-sell agreement is like a will for the business. It is a critical document for every business owner.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.