What will happen to your family and assets after you pass away? Proper estate planning ensures care for your loved ones and distributes your property according to your wishes.
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What is Estate Planning?
Estate planning is the process of preparing for the care of yourself, your loved ones, and your property in case of your incapacity or death.
Creating an estate plan is one of the most important things you can do to protect your family and property. A proper estate plan also reduces stress on your loved ones who are already grieving.
Proper estate planning provides for:
- The care of your minor children and dependents
- Your care when you can’t make financial or medical decisions due to incapacity
- Distributing assets like cash and real estate
- Minimizing estate taxes, inheritance taxes, or legal fees
Yet many people shy away from estate planning because it seems overwhelming, and they don’t know where to start.
How Do I Start an Estate Plan?
There is no one-size-fits-all approach to estate planning. How complicated your plan needs to depend on your stage in life and situation — many factors that change over time.
Fortunately, you can always change, add, or delete provisions in your legal documents as your situation and needs change.
Here are some questions to consider before you begin estate planning:
- Do you have children or other family members who cannot provide for themselves? If so, you should choose a guardian to take care of them and arrange for their care, support, and maintenance should you die or become incapacitated.
- Do you have a significant other or partner you want to protect? Although couples who aren’t legally married may feel as if they are married, they need to plan very carefully. Unmarried couples do not have inheritance rights as a surviving spouse.
- What financial accounts do you have? You should check all your bank accounts, including checking and retirement accounts, to ensure your beneficiary designations are correct. If you do not have a beneficiary designation, that asset may go to the probate court and will not transfer directly to your beneficiary.
- Do you have any significant personal property? Precious jewelry, cars, and other possessions can make lovely gifts. But it is up to you to ensure your items get to the people you want.
- Do you own any real estate? If so, plan to transfer the property to a beneficiary. Or sell the real estate for the benefit of your loved ones.
- Do you have a business? Plan for someone to handle your business when you are alive but incapacitated. Make a succession plan for the company when you pass.
- Do you want someone to handle your financial decisions when you are alive but incapacitated? If you are suddenly incapacitated, do you want someone to step in to pay bills and manage your financial affairs?
- Do you want someone to make health care decisions when you can’t speak for yourself? If you have an illness or injury where you can’t make medical decisions, do you want someone to speak for you and advocate in your best interest?
- Do you have specific wishes for end-of-life care or when you have a terminal illness? If you are dying, do you want life-prolonging measures taken? Putting your wishes in writing relieves your loved ones of the burden of making these decisions.
- Do you have specific wishes regarding funeral arrangements? This question might be difficult to consider. You can leave instructions for burial, cremation, donating your body or organs, and other wishes for your remains. Leaving clear instructions will save your loved ones the trouble of determining your wishes after you have passed away.
Estate Planning Tools
Many legal documents and other tools help with incapacity, end-of-life care, and death. These tools become part of your estate plan and give you the peace of mind that you are protecting yourself, your family, and your estate.
Last Will and Testament
A will is a legal document for disposing of your assets and making your last wishes. In a will, you can:
- Choose a personal representative to distribute your estate according to the terms of your will (called a personal representative or executor).
- Designate someone to care for your children (called dependents) or pets.
- Distribute your property to designated beneficiaries.
Financial Power of Attorney
This document designates someone as your agent or attorney-in-fact to make financial decisions and manage financial affairs on your behalf. It can be a durable power of attorney which continues when you are incapacitated. You decide on the authority you want to give your agent, including the power, among other things, to:
- Manage your finances and bank accounts.
- Pay bills and settle claims.
- Handle investments, brokerage accounts, and assets.
- File income taxes, federal estate taxes, and manage your taxable estate.
You decide when a power of attorney is effective and what power you give your agent.
Medical Power of Attorney
This document (sometimes called a health care power of attorney) designates someone to make medical and health care decisions on your behalf. They become your health care proxy or health care agent. They can access your medical records, speak with health care professionals and make health care decisions for you.
Living Will
A living will is not technically a will. A living will document outlines your instructions concerning your end-of-life medical care and treatment. A living will is also called a health care directive or advance health care directive. If you are facing an end-state illness or terminal condition, you direct what life-prolonging measures you want (or don’t want).
Life Insurance Policies
A life insurance policy provides immediate cash upon your death to the beneficiary you designate in your policy.
Other Accounts With Beneficiary Designations
Some financial and retirement (IRA) accounts, retirement plans, and annuities ask you to designate a beneficiary to receive these assets when you die.
Joint Tenancy
Joint tenancy is one way for people to have joint ownership of an asset, such as a home or bank account. There are numerous considerations involved in joint tenancy, so be careful when choosing this form of ownership.
Transfer on Death or Pay on Death Designations
In many states, you can create a transfer on death designation for real estate and other accounts. This is generally referred to as a transfer-on-death or pay-on-death designation. To create this, you need to complete a legal form that identifies the beneficiary of your property or bank account upon your death. Upon your death, your beneficiaries can easily receive the property you designated for them.
Trusts
There are many different types of trusts for different estate planning purposes: living trusts, irrevocable trusts, testamentary trusts, and special needs trusts. Generally, a revocable living trust is a trust that you can create to manage your property while you are alive and then provide for the orderly distribution of the assets upon your death while avoiding probate. There are many legal considerations when creating a trust, so you should consult an estate planning attorney.
Estate planning solutions to fit your needs.
What Happens After Death?
After you pass away, your personal representative administers the terms of your will. The personal administration gathers your estate assets and handles the probate process. If assets pass through a beneficiary or transfer on death designation, a trust, or joint ownership, those assets pass outside of the will. The other assets pass according to the will’s provisions and may require probate conducted in a probate court.
If you die without a will, it is called dying “intestate.” The court follows your state laws to distribute your estate. These laws vary between states, but the general focus is to distribute to family members, so if you desire to leave your estate to friends, charities, or others, you must prepare your estate plan to accomplish this.
Learn More About the Estate Planning Process
For more information regarding estate planning issues and creating your own estate planning documents, check out FindLaw’s Legal Forms and Services to create important documents such as your will, financial power of attorney, health care power of attorney and living will.
