What is an Estate Plan?
What do people mean when they talk about estate planning? You might think only those who are wealthy and or own a lot of complicated property should make an estate plan. However, this is not the case. If you have any sort of assets whatsoever, then you can benefit from making an estate plan. Whether you own a car, a house, or investment accounts, an estate plan can help you protect the property you’ve worked hard to earn.
Even if you have few assets, an estate plan can include instructions for your end-of-life health care, funeral arrangements, and other provisions to ensure that your wishes are honored at that time.
A set of specific instructions can help reduce the emotional difficulty of your passing for your loved ones. Even if all you leave behind is personal property, an estate plan can make sure that any sentimental or important items end up in the hands of the right person instead of causing strife among friends or family members.
Without these legal plans, your assets could end up in court and the probate process could take many years. Additionally, a court may have to appoint someone to make decisions about your end-of-life health care if you do not have provisions already in place for when you are not able to make decisions on your own.
What is a Will and Trust?
A will is a legal document that ensures all property you have legal rights to is distributed to your beneficiaries according to your wishes. A beneficiary, in this context, is someone who receives something under the will. A spouse you leave your house to, a child you leave your car to, and a friend you leave your favorite shawl or your best golf clubs to would all be beneficiaries under the will. A will allows you to make specific gifts of personal property. A will can also designate guardians, if you leave minor children or others who are dependent on you. A will can pour assets into a trust for more effective administration. Having a properly written and executed will according to your state’s laws is a vital part of a good estate plan. It helps you make sure your beneficiaries receive what you intend them to receive.
A trust is a form of property ownership by a trustee, subject to specific and legally enforceable instructions set forth by the trust maker in the trust agreement for the beneficiaries. It is a private, efficient and effective vehicle that transfers assets from you to your children and other beneficiaries. A well established trust can avoid the publicity, expense delay and uncertainty of probate. It can reduce taxes on your estate and beneficiaries. It can handle assets that need special care such as real estate, retirement plans, guns, art, digital and intellectual property. It can help you qualify for medicaid and veterans benefits. It can spread distributions over time to prevent improvident spending. It can protect assets from the reach of creditors. It can fund the care provided by guardians. It can supplement the public assistance of persons with special needs. It can implement charitable giving in tax advantaged ways. It is a highly flexible and effective way to deliver your assets to your beneficiaries how and when you want.
What is a Power of Attorney?
A power of attorney is a legal document that allows an agent that you choose to act on your behalf. It can be effective immediately or a later time, contingent on some event or condition. A durable power of attorney is effective when you are incapacitated – when you are not able to act yourself. There are two main types: a healthcare power of attorney and a financial power of attorney.
State laws allow you to designate a person or persons, your healthcare representative or agent, to make healthcare decisions on your behalf. This can include decisions about end-of-life care, life support measures, resuscitation, and other medical treatment.
State laws also allow you to designate a person or persons to handle your property and financial assets and transactions. Broad, far ranging or specifically limited powers can be granted to your agent under your financial power of attorney. While you are living, the agent can handle your property and day-to-day financial transactions such as paying bills, making investments, transferring assets, gifting, employing professionals to assist you, etc.
Both powers of attorney are necessary in the event you become incapacitated or diagnosed with a terminal illness; both should be created before you reach a point where the court might decide you’re unable to act for yourself.
These documents come into play when you fall ill enough that you are not able to make your own decisions – or when you appear to be reaching that point as your health declines with age. If you do not appoint someone to hold your power of attorney, anyone who can genuinely claim they have an interest in your well being, could ask the court to declare you incapacitated and appoint themselves, or another person you have not chosen, to oversee both your healthcare and the management of your assets.
What is a Beneficiary Designation?
We’ve already discussed a beneficiary in the context of a will or trust. However, some types of property need not pass through a will or trust – this includes things like IRAs, 401(k)s, bank deposit accounts and insurance plans. These financial assets allow you to designate beneficiaries and contingent beneficiaries in the original plan documents or subsequent change of beneficiary designations.
Naming beneficiaries and contingent beneficiaries for any property you have that is not required to pass through your will helps ensures that the property ends up in the hands of the person that you want to have it.
If you don’t properly name your beneficiaries, a probate courts might have to decide for you who will receive those funds. As you can see, it’s important to ensure that all of your investment accounts and insurance accounts have appropriately designated beneficiaries.
What are Guardianship Designations?
If you have minor children, or children who are disabled or otherwise unable to care for themselves, it is important to designate a guardian for them. A guardian will have many of the same rights and responsibilities you normally would as your child’s parent. The guardian will be in charge of your child’s finances, personal care, safety, and well being.
This makes the guardianship clause one of the most important parts of your will. If you have minor or disabled children, make sure you do not leave the guardianship clause out. You want to appoint a guardian for your children so that the decision doesn’t fall to a probate judge. You are in the best position to determine who would raise your children well, in the way you want, if you should pass away before they become adults. If nominate a guardian beforehand, you are able to choose someone who has parenting views similar to your own, is financially stable, and would be willing to raise and care for your children.
Why Does It Matter?
If you ignore the need to make an estate plan, your estate may go into probate after you have become incapacitated or passed away. “Probate” means that the court decides what happens – what healthcare you receive and what happens to your assets while you are terminally ill, who receives your property after your death, who raises your minor or disabled children.
While the court would try to make the best decisions possible, you have far better knowledge of how much life support you want to receive, who you want to be in charge of your health decisions when you aren’t able to make them, who should receive your assets when you’ve passed, and who should be responsible for raising your children.
Without an estate plan, your assets could get tied up in court until a judge designates who gets what. By creating an estate plan, you can ensure your wishes are followed, reduce the expenses associated with taking your estate through probate, and save your family from having to battle it out in court.