When tragedy strikes, you want to have a solid plan in place. This is especially true when it comes to estate planning. You might put off estate planning because you don’t need it anytime soon. However, it’s always best to plan ahead.
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Careful estate planning can prepare you and your family for many situations that you might face. For example, you could become incapacitated. Would your family know how to act on your behalf if that happened? Would they know who should make the financial or medical decisions for you? What happens when you die? If you become incapacitated or die without a sound estate plan, a court could end up making decisions that affect you and your family.
Estate planning isn’t just for the wealthy, and the estate planning process is not complicated. Estate planning can benefit you and your loved ones regardless of age or net worth.
Components of a Rock Solid Estate Plan
While the idea of putting together an estate plan may seem daunting, estate planning can make life easier and give you peace of mind. Whether you want to make sure that you’re not put on life support, or you want to ensure that specific items in your estate go to a certain family member, there are estate planning documents to address your concerns. If you want to make sure that you’ve covered your bases, consider including these legal documents in your estate planning toolbox:
With careful planning, you can have a rock-solid estate plan. Your family may avoid the cost and hassle of probate court proceedings to make decisions on your behalf. Your spouse and children can receive what you’d like them to have when you’re no longer here. Finally, making your wishes clear makes it less likely that your family will end up in a legal battle over your assets.
Most people think of a last will and testament when they hear “estate planning.” Wills serve an important purpose in estate planning because a will allows you to leave property to your loved ones and ensure your loved ones are properly taken care of when you die.
In a will, you’ll be able to name the beneficiaries of your estate. Beneficiaries are the people who receive assets from your estate. You could name family members, friends, or even charitable organizations as beneficiaries of your estate. Not only can you leave houses and cars to beneficiaries, but you can also leave specific items of sentimental value to a particular person.
You can also name guardians in your will. If you have minor children, you can name someone you trust to take care of them in case you die before they reach adulthood. It’s also a good idea to name a backup or successor guardian. A backup guardian can assume the role of guardian for your children if your first choice is unwilling or unable to serve.
You’ll also be able to name the person you’d like to serve as your executor. An executor or personal representative is the person who manages the assets of your estate. This person is responsible for paying off debts and distributing assets per the instructions you leave in your will.
What happens if you don’t have a will? If you die without a will, a court could decide who will distribute the assets of your estate and who will receive the assets. Courts follow the laws of intestacy in making these determinations. The court’s determination might not match up with what you would’ve wanted. The probate process could go much more smoothly for your family if you state your wishes in a will.
Durable Powers of Attorney
Powers of attorney are important estate planning tools that can benefit you and your family in various ways. A power of attorney is a legal document that gives someone else the authority to act on your behalf in some capacity. The person you authorize to act on your behalf is an agent or attorney-in-fact.
There are two main types of powers of attorney a financial power of attorney and a health care power of attorney.
- A financial power of attorney grants an agent the authority to pay bills and withdraw money from bank accounts on the principal’s behalf.
- A health care power of attorney grants an agent the authority to authorize a medical procedure or access medical records on the principal’s behalf.
Powers of attorney help your family if you ever become incapacitated. If you cannot make financial or medical decisions for yourself, someone will have to make them for you. If you have a power of attorney, your family won’t have to worry about going through the courts before someone can make these decisions for you. This saves your family the time and expense of court involvement.
If the purpose of your power of attorney is to make sure someone can make decisions for you if you are incapacitated, you’ll want to have a durable power of attorney. Generally, powers of attorney end when the principal becomes incapacitated. If a power of attorney is “durable,” it means that it continues beyond the principal’s incapacity.
If you decide on signing a power of attorney, make sure you pick someone you trust as your agent or attorney-in-fact. You can even choose more than one person. Remember that your agent or agents will have the duty and the power to act in your best interest.
Advanced Healthcare Directives
You may not have spent much time thinking about the type of health care you’d want if you were in a coma or vegetative state. However, it is important to think about the healthcare decisions you’d like someone to make for you if you could not make these decisions for yourself.
Would you want to be put on life support? If so, how long would you want doctors to provide life-sustaining treatment? How do you feel about organ donation? You can use advance healthcare directives and living will to spell out precisely what type of treatment you would or wouldn’t like to receive if doctors determine you are in a vegetative or terminal state.
What’s the difference between a durable power of attorney for health care and a living will? Both documents can come in handy if you cannot make medical decisions. You should have both documents in your estate plan to ensure you’ve covered as many different scenarios as possible. However, there are differences.
You do not need to be in a permanent or terminal state of illness for a durable power of attorney for health care to take effect. Suppose you’re in a condition that renders you unable to make decisions about your health care. In that case, your agent or attorney-in-fact can make decisions on your behalf under the durable power of attorney.
The durable power of attorney for health care and the living will are estate planning tools that can be used together. For example, you could sign a durable power of attorney for health care that names your cousin as your agent. Rather than having your cousin make decisions about your health care, you could instruct your cousin to carry out the wishes you’ve outlined in your living will.
Alternatively, you could name a person to fulfill your wishes in the living will. If you name an agent in a living will, the agent is not allowed to make decisions that go against the instructions in your living will.
Depending on your circumstances, you and your family might benefit from creating a trust. A trust assists with a wealth management plan if you have significant assets. If you have dependents with special needs, a trust helps ensure your family has the money they need while keeping other benefits. There are several types of trusts. For example, if you have a child with mental or physical disabilities, you can establish a special needs trust. If you worry about creditors trying to reach assets held in a trust, you can create an asset protection trust.
Many people find that a revocable living trust suits their family’s needs. A revocable living trust is an attractive option because:
- The trust maker creates the trust during their lifetime.
- The trust maker can change or revoke the trust.
- The trust maker controls the assets in the trust and instructs how to distribute the assets.
When you create a revocable living trust, you transfer property or real estate to the trust. The trust then becomes the owner of the property (due to the transfer of title). The trust maker, however, continues to have control over the assets in the trust during his lifetime. Trust makers who use living trusts for this purpose often make themselves the initial trustee. They name a successor trustee who acts as a fiduciary to handle the assets in the trust after they die. A revocable living trust usually becomes irrevocable when the trust maker dies.
You might wonder how a revocable living trust differs from a will. You can use both of these estate planning tools to transfer property to your loved ones. However, there are differences between revocable living trusts and wills.
One big difference is that assets in a trust aren’t subject to the probate process. That is because assets in a trust are no longer assets in your estate. Avoiding probate court can be critical if you’re concerned about estate taxes.
Another difference has to do with privacy concerns. Wills become public records, while trusts are private. If you are concerned about others being able to access records about your assets, you might be interested in using a trust.
Depending on your situation, you may or may not benefit from a trust. Since trusts can be costly and complex, it is best to consult with a local estate planning attorney.
What to Do Once You Have a Solid Estate Plan
Once you’ve put together a sound estate plan, think about where you will store your estate planning documents. It’s important to keep your documents safe and where your loved ones can locate them if something happens to you. Suppose you are in the hospital. Can your agent access your health care power of attorney to show doctors? If your family can’t access these documents when needed (for example, in a safe deposit box), they might have to go through a court process to gain access to them.
It’s a good idea to provide copies of your estate planning documents to the people and institutions you know will need them. For example, provide a copy of your financial power of attorney to your bank, and give a copy of any healthcare directives to your medical providers.
You’ll also want to update your estate plan as needed. Consider revisiting your estate planning documents when a major life event occurs. For example, suppose you get married or have a child. In that case, you may want to change your beneficiaries on life insurance policies, retirement accounts (such as a Roth IRA or 401k), or more substantial changes to your estate plan.
Not Sure Where to Start?
Estate planning can address the many issues you and your family could face in your lifetime. It could also help to prepare you for retirement or death. In any case, proper estate planning can give you the peace of mind of knowing that you’ve done what you could to make difficult times just a bit easier for your family. To get started, you can use FindLaw’s state-specific online estate planning forms to create your will, power of attorney documents, and advance medical directives. Or consult with an estate planning attorney to create a plan for you.