4 Key Elements of Estate Planning
It's critical to have a plan so your financial goals are met after you're gone
The topic of estate planning is one that most people aren't comfortable talking about. While most don’t want to consider what's going to happen after death, it is critical to do so if you have possessions or financial assets you'd like to leave to your family and friends. Creating an official and legalized plan ensures that your wishes for the distribution of your assets are carried out.
There are four main elements of an estate plan; these include a will, a living will and healthcare power of attorney, a financial power of attorney, and a trust.
Last Will and Testament
An estate plan commonly includes a last will and testament, commonly known as a will, which outlines your wishes for the assets that you own at your passing. It allows you to name the people you'd like to leave something to upon your death.
In most states, without a will, your assets follow a process called probate, in which the state determines how your assets are distributed based on state law. A will allows your assets and family to skip the probate process and be distributed as you wish.
As you are creating your plans to leave your possessions to family and friends, consider discussing your plans with a few of your closest and more trustworthy heirs to alleviate any issues or disagreements that may present themselves after you pass.
It is best to draw up your will when you have significant life changes, such as getting married or divorced; once you have a child it is imperative to create a will and establish a chain of legal guardianship for your child if something were to happen to both parents.
Life changes should be followed by an update to your estate planning documents.
Your circumstances dictate a suitable place to create your will. If you are single, some online resources such as LegalZoom can be suitable. When your life becomes a more complex—a spouse, children, a small business, financial assets—it is usually a good idea to speak to an estate attorney.
Healthcare Power of Attorney and Living Will
A healthcare power of attorney (HPOA) is a signed legal document in which you name a single person as your healthcare decision-maker in the event that you can’t make decisions yourself.
A living will, also known as an advanced medical directive, outlines your wishes regarding medical care in the event that you are incapacitated, terminally ill, or unable to communicate. This is a statement of your wishes as they relate to decisions about life support and any kind of life-sustaining medical intervention that you do or don't want.
It is generally best to get these documents drawn up at the same time as your will. If you have specific requirements that need detailed documentation, seeing an estate attorney is more suitable.
Financial Power of Attorney
Similar to the healthcare power of attorney, a financial power of attorney outlines who you want to make your financial decisions on your behalf should you become incapacitated. Without this document, no one will have the authority to step in and handle bill-paying, investment decisions, or other financial matters.
Like the HPOA, it’ best to create this document at the same time as your will. If you have specifications or large financial assets that require detailed financial documentation, it’s best to see an estate attorney.
Establish a Trust
A trust is a legal entity that can own your assets (while living or at death) and be controlled based on your wishes outlined in the legal document that created the entity. For example, a trust would allow you to dictate how you wanted your child to benefit from your assets throughout their life.
You may want to include stipulations that assets are used in a certain way or received at a certain time. A trust is a way to protect assets from being used in a way that you would not see fit if you were in control of them.
Trusts can be set up as care mechanisms for the elderly, periodic income for descendants, or to be used for certain expenditures or circumstances.
There are several advantages to having a trust, however, it is not necessary unless you are worried about the oversight or care of your assets at your passing. Ultimately, you are trusting your heirs to manage and use your assets properly should you pass away.
If you have a sizeable insurance policy or estate and/or children, a trust is worth discussing with an attorney to determine the right parameters and language for your situation.
Estate Planning Is Essential
Is your estate planning in order? If not, you should consider getting these important documents in place as soon as possible. You want to ensure that your assets are distributed and that your descendants are cared for in the manner that is best for them when you're gone—while assuring yourself you've done all you can.