The word "durable" means that your power of attorney remains valid even if you become incompetent or incapacitated. This is a very important point because without a durable power of attorney for finances, a court proceeding for guardianship or conservatorship is probably inescapable. A costly and largely unnecessary exercise.

You may revoke your durable power of attorney at any time (as long as you are competent). If you do not revoke it, your durable power of attorney ends at your death.

Extreme care should be taken when drafting a durable power of attorney. If it's not drafted right, you could end up in court or be subjected to financial exploitation.

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What is a "health care directive"?

A Health Care Directive allows you to: (1) appoint a person known as an agent who can make health care decisions for you; and (2) clearly inform others of your health care wishes. Historically, two separate documents were required to accomplish this: a Living Will and Medical Powers of Attorney. Today, only one document is required-but, it must be carefully drafted to effectively meet your goals.

Your health care directive can appoint anyone over 18 that you trust to make medical decisions for you and tell your physicians, family, and friends what kind of care you wish to receive. For example, it often states whether they should give you life-sustaining treatment if you are in an irreversible coma, persistent vegetative state, or have a terminal condition.

**NOTE: You should have an attorney review any older health care documents to make sure they are still valid.

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The "size" of your estate is important from a tax perspective. Prior to 2006, your estate could be subject to estate taxes if the total value of all of your assets (including life insurance death benefits) is $850,000 or greater. Similarly, your estate could be subject to federal estate taxes if the total value of your assets is $1.5 Million or greater.

The "nature" of the assets comprising your estate is also important to consider. This is because different types of assets will transfer on death in different ways. Some of your assets may pass by "beneficiary designation." In other words, certain types of accounts enable you to state who will receive the proceeds at your death. Typically, these would include assets like: life insurance death benefits; retirement accounts; and annuities. You may also hold certain assets jointly with another individual, with "rights of survivorship." In these cases, the jointly held assets would pass to the remaining joint owner of the asset. The most common example would be real estate held by spouses as "joint tenants." Finally, many of your assets may be held in your name individually, without beneficiary designations. If so, these assets will need to go through a process called "probate" in order to pass to the next generation.

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What is Probate?

Upon your death, your Will is admitted to the Probate Court, and becomes a public document. Your property is gathered and inventoried, your debts are paid, and everything left over is divided among your heirs. While your personal representative is responsible for "probating" your Will, the process is generally controlled by the court and probate attorneys.

Certain delays are built into the probate process. It can be cumbersome, time-consuming, expensive, and distressing during a family's time of anguish and exposure. As a result, many individuals desire to avoid this process.

Can Probate be avoided?

Yes. Probate can be avoided with careful planning. There are several techniques available that enable your estate to avoid the time, expense, and public nature of a probate. But the most comprehensive and streamlined way to avoid probate is by placing your assets in a carefully drafted Revocable Living Trust, because trust assets, in most situations, can be distributed to beneficiaries almost immediately after the death of the trust-maker (i.e., grantor).

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What is a Revocable Living Trust - And Is it right for me?

A majority of our clients utilize a Revocable Living Trust ("Living Trust") as the cornerstone of their estate plans. Properly drafted, a Living Trust offers complete asset control to clients during their lifetime; provides for them and their loved ones in the event of their incapacity; and on death allows them to pass their assets to their loved ones without the costs, delays, and publicity associated with probate.

In order to understand the benefits of a Living Trust, we must contrast it with a Will.

A Will is a "testamentary instrument." In other words, a Will takes effect only upon your death. A Living Trust, on the other hand, takes effect as soon as it is signed and assets are transferred to it. Both a Will and a Living Trust set forth your directions for the distribution of your assets upon your death. But unlike a Will, a Living Trust also directs the management of your assets during life. Consequently, if you have a properly funded Living Trust, your "successor trustee" can simply continue to manage the assets in your trust without court intervention or supervision.

At death, assets held by you "inside" your Living Trust do not have to go through the probate process. All of your assets will simply pass according to the instructions you left in your Living Trust and, although an administration process is still necessary, it does not involve the time, expense, and publicity of probate court intervention.

Simply put, by transferring your assets to your Living Trust, you maintain control of the assets during your life but have removed those assets from the probate process after your death.

Upon your death, the trust may terminate or may continue for the benefit of your family, depending upon your instructions. Most often, the trust includes instructions specifying that upon your death or upon the death of your surviving spouse, your children or other loved ones will become the "remainder beneficiaries" -- the persons who enjoy the trust assets remaining after your death.

A revocable living trust provides flexibility, enabling you to control how and when your assets will be distributed to loved ones or charity after your death. You may, for example, pass assets with "strings attached." Many practitioners believe that clients should never leave anything of any consequence to their loved ones outright, or "free of trust." They believe that everything should be left in trust for the heirs' benefit in order to protect the heirs in a way they cannot do for themselves. If you chose to follow this philosophy, you could, for example, specify in your trust that each of your children is to serve as his or her own trustee (or along with cotrustees) for his or her lifetime and that the trust provide for your children's needs as they arise. In this way, you have allowed each child to manage his or her own funds in the way he or she desires; yet, by retaining everything in trust, you have to some degree protected each child's assets from the claims of creditors, which could easily arise from a failed business venture, an overzealous litigant (e.g., as a result of an auto accident), or even an ex-spouse in a divorce. You may also avoid a possible second estate tax when your child dies and the assets pass to your grandchildren.

By leaving assets in trust, you may be concerned that you will be overly controlling your children after your death. But you can provide as much latitude to your children as you like; your attorney drafts the terms of the trust in accordance with your wishes. Thus, the terms can be as restrictive or as nonrestrictive as you choose, on the basis of your knowledge of each child's situation.

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Is joint tenancy a good idea?

In limited circumstances, joint tenancy can be an acceptable form of title. The most obvious example of a proper use of joint tenancy is when a young married couple (with no federal or state estate tax exposure) jointly owns a home. This arrangement will avoid probate at the death of the first spouse. But probate would be required when the home needs to pass to the children at the surviving spouse's death.

Some of the more common problems that arise when you own property/accounts as joint tenants with another individual are: (1) you lose some control over your property; (2) you subject your property to the creditors of the other joint tenant; (3) you may create unintentional gift tax problems; and (4) you could increase your exposure to unnecessary capital gain and estate tax liability.

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What are estate taxes, and can I avoid paying them?

In the simplest of terms, the "estate tax" is a tax on your ability to transfer wealth at your death. While many of us spend countless hours each year working with tax advisors to reduce our annual income taxes, few of us pay any attention whatsoever to our potential estate tax exposure. This is odd in light of the fact that the top federal estate tax rate is currently at 48% (2004), and will incrementally decrease to 45% (2009).

Each individual Minnesotan is entitled at death to transfer, free of estate tax, assets worth $850,000 (2004) - the applicable estate tax exemption. On the federal level, the applicable estate tax exemption is currently $1.5 Million (2004). Once these threshold levels are exhausted, estate tax liability will be imposed - unless the individual has engaged in proper estate tax planning.

Many people labor under the misconception that their estate is not "big enough" to consider estate tax planning. Most often, these people have forgotten just how much wealth will transfer at death. Consider the following person:

There are effective ways of reducing your estate tax liability. They vary in complexity and require advice from qualified legal and tax counsel. Below are some options that might have relevance in your particular situation:

Protect your child's inheritance from their spouse in the event of divorce;