A proper estate plan ensures that your family receives the things you value most. It also allows you to name someone to make medical and financial decisions on your behalf if you can’t speak for yourself.
Unfortunately, many people put off the process because discussions about money, personal goals and mortality can roil family relationships. But procrastinating only favors the IRS. Read on for further insights into Estate Planning.
While it might seem that estate planning is only for wealthy people, everyone should have a plan. Your estate is the sum of all your possessions, including your home, investments, life insurance, personal belongings and even checking and savings accounts. An estate plan outlines how these items should be transferred either upon death or in the event of incapacity. It also allows you to name guardians for minor children and specify your funeral wishes.
Without a will, state law will determine how your assets are distributed and who cares for your children. A will also appoints an executor who is responsible for executing your plan. It is important to review your estate every few years and after significant events like marriage, birth of a child or retirement.
Another aspect of an estate plan is to create a trust. A trust allows you to avoid probate, which is a lengthy and expensive process for your loved ones. The trust also helps keep your family’s private affairs private and may minimize estate taxes.
You should consider how your assets are titled and whether you need to change any beneficiary designations on insurance policies or retirement accounts. It is not uncommon for errors to occur on these documents, and these mistakes can have a big impact on your family upon your incapacity or death.
A living will, which is a type of advance directive, is part of your estate plan and defines your wishes for end-of-life treatment. This document can include instructions for when you want to be removed from life support and what medical treatments you wish to receive or not receive.
It is a good idea to keep all of your estate plan documents in one place, and it is essential that you share the location with your family. It is also a good idea to make a list of all of your assets and provide it to your executor along with copies of all of your legal documents. This will help prevent confusion and ensure that your wishes are followed exactly as you intended them to be.
Trusts
Trusts are an important component of estate planning. They provide a way for people to pass on wealth to their loved ones, while minimizing taxes and ensuring that assets are handled the way they want them to be. Trusts can be used in a variety of ways, from transferring money to heirs to providing tax advantages and helping qualify a loved one for Medicaid. There are several different types of trusts, so it’s important to understand what they can do and determine whether they are appropriate for your own situation.
Depending on your goals, you may want to consult with an estate planning professional to create a trust document, or use a “do-it-yourself” online service. You will also need to consider who you would like to have control of your assets and who should take care of any minor children. This is an important step that many people overlook.
Once you’ve completed the necessary paperwork, it is critical to review it regularly and update as needed. Many problems can arise from not keeping proper records or having outdated documents. A small error or oversight can cause significant issues for your family after your death or incapacity. Incorrect beneficiary designations, missing or invalid account titles and improperly drafted documents can lead to costly attorney’s fees and tax consequences.
The five key tools you need to make sure your wealth and affairs are properly managed include a will, power of attorney, living will, life insurance and trusts. They can all work together to help you plan your estate and achieve your financial goals.
Powers of Attorney
A power of attorney is a legal authorization giving someone else the right to make decisions on your behalf. It can be as broad or narrow as you wish, and it can either be durable or non-durable. A power of attorney is usually part of an estate plan, but it can also be set up as a standalone document. It is important to understand the different types of powers of attorneys, and to select an agent (also known as an attorney-in-fact) whom you trust and who will be able to carry out your wishes.
Typically, a power of attorney is set up to allow an agent to handle financial and/or medical matters. The most common type of POA is a durable POA, which contains unique wording that allows it to remain effective even in the event of your incapacitation. This is a good way to plan for accidents, medical emergencies, and eventual cognitive decline in later life. Most people will include a durable POA along with their last will and testament.
There is also a springing power of attorney, which allows an agent to act on your behalf only if certain circumstances occur. This is often a more reliable option, because it only kicks in when needed, rather than automatically. However, there are some things that a springing POA cannot do, such as getting married or selling property on your behalf.
Regardless of the type of power of attorney you choose, it must be properly executed to become effective. This includes signing it in front of witnesses and a notary. Some states have additional requirements, such as that the agent must be an adult.
It is important to review your power of attorney documents frequently, as circumstances may change. Whenever there is a major life event, such as the birth of a child, death of someone important to your estate plan, marriage, divorce, or moving to another state, it is a good idea to update your powers of attorney. In some cases, it may be best to consult an estate planning lawyer to help you create and update your documents.
Health Care Directives
Health care directives are legal documents that allow you to express your medical treatment preferences and appoint a representative who can speak for you when you cannot make decisions. These documents are often referred to as “living wills” or “medical powers of attorney.” Each state has its own laws and terms, so you will want to review your state’s resources to find out what form and requirements apply.
Creating an advance health care directive can be one of the most important steps in estate planning. It reduces the likelihood of conflict and confusion among family members during a crisis, and helps your loved ones carry out your wishes. In addition, the process is generally easier and less expensive if you start early.
The most important step in planning for your health care future is having conversations with loved ones. The National Institute of Aging (NIA) provides conversation guides and worksheets to help you get started.
Once you have completed your advance health care directive, you will need to put it in writing. You should keep an original in a safe place and give copies to your doctor, family members, and health care agent. You should also keep a log of who has a copy, so you can easily contact them in an emergency.
A common misconception is that advanced health care directives are only for old or ill people. However, a medical emergency can happen at any age. Advance health care plans can help ensure you receive the type of care you want, avoid unnecessary suffering, and save your loved ones time, stress and money.
To get started with your healthcare advance directives, you can click on the links below to download free state-specific forms. You can also visit your financial advisor for assistance. He or she may be able to provide you with referrals to local estate planning attorneys. In addition to a financial professional, consider talking with your physician and your religious leader to discuss your plan and ensure your wishes are understood. This will help your family and your healthcare providers make the best decision for you.
