An estate plan is something that everyone should have in place. Whether you only need one estate planning document or all of them will depend on your specific situation. While you may already have one component, such as a will, it may not be enough to ensure that all of your wishes are followed. This article can help you develop a solid estate plan that you can update as your life situation changes.
A good estate plan consists of many different components, including what happens to your assets and who should act on your behalf if you are unable to. At a bare minimum, there should be two main components: a last will and testament and a durable power of attorney. In addition to these parts, you can add things such as a trust and even medical directions. These are the main components of an estate plan that you should consider, including in your comprehensive plan.
A last will and testament is a document that you can draft up with an estate attorney. It is a legally binding document that outlines who will receive specific parts of your assets upon your death. This is an important component of your estate plan because if you do not have this in place when you pass, then the state will determine how all of your property is distributed. How this is done can vary from state to state.
The importance of a will is that you can choose who will get what instead of it being decided for you. Whether you have people in your life who you want to specifically leave out or you want to be very specific about who should get what, this is the best course of action. Your will should also appoint someone to be the executor of your estate, otherwise known as a personal or legal representative. This is the individual who will help carry out the wishes that are outlined in your will. If you have children who are minors, you can also outline who you want to serve as the guardian of your children. One thing to keep in mind with a will is that it can only cover probate property. There are lots of types of property that can pass outside of probate. Some examples of this type of property includes things that have a named beneficiary, such as:
All of this cannot be covered by a will, but there are many things that can, including real estate property and even a vehicle that is in your name.
Appointing a power of attorney is key to your estate plan as it is the person that you choose to appoint as your attorney-in-fact. The role of this individual is to act for you when it comes to financial purposes if you ever become unable to make those decisions for yourself. This person would be responsible for taking care of setting up your financial affairs for you and would step in whenever needed. The reason that this is so important is because if you do not have a durable power of attorney set up, then you will not have anyone that can represent you unless this is done on your behalf by a court. If they were to step in, they would appoint a conservator or guardian for your financial needs. This person would have to seek permission from the court in order to take any action while a power of attorney that you choose would not have to take this extra step. Another drawback to this is that the process in court can take time and money that would be taken away from your assets. Additionally, they may not even choose someone that you would prefer to handle your financial affairs. It is always best to add a power of attorney to your estate plan so that you name who you want to take charge of your affairs. Plus, you can save time and money in the process.
A living trust is beneficial because it can be used to manage your estate both before and after your death and can be used to avoid probate for items that would have to go through this process. It is a legal arrangement that is set up between a person, law firm, bank, or an institution and a beneficiary. The person or institution appointed by you to manage the items in the trust is called the trustee, and they hold the legal title to the property. You can choose to have more than one beneficiary, and people often do choose more than one person if they have reason to do so. In many cases, people choose to have one set of beneficiaries during their life—usually themselves—and another set for after their death—usually their children—who will benefit from it after they have passed. As long as it is well-drafted, your trust is something that can continue to be effective even after your death. There are two main benefits of setting up a trust:
Medical directives are important if you want to make specific medical decisions about your life that you do not want to be left up to chance. The kinds of documents that you include in your estate plan can differ by state depending on local laws, which is why it is important to speak to an estate attorney when you are drafting these up. Some examples of these documents include:
With these types of documents, you can choose someone who can make medical decisions for you in the case that you cannot make them for yourself. You can decide to choose a durable power of attorney or a healthcare proxy for this role. You should ensure that you choose someone you trust for this role and make sure that they clearly understand your wishes on a variety of topics.
A living will is a legal document that is used to provide information to your healthcare provider in terms of whether or not to withdraw life support if you are in a vegetative state or even if you are terminally ill. In addition to this extreme component, you can also provide instructions on what should be done if you are in a health state that is not as serious, but still unable to make these decisions for yourself.
This is not really a component of your estate plan, but it does play a role if you have these set up with other accounts, such as your life insurance, an IRA, or your 401(k) plan. It is important to always keep these beneficiaries up to date whenever you update your estate plan. These two components work together to determine how your assets are distributed. If you do not already have these set up for these accounts, it is important to take care of this as soon as possible. If you do not have a beneficiary named for these accounts, then state or federal laws may determine how these benefits are distributed based on the type of account or retirement plan. There are some plans that may automatically distribute your fund to your children or your spouse while others may leave it to your estate, which may have tax consequences that you do not want your beneficiaries to take on. If you really want to control all of your assets and where they go, it is extremely important to name a beneficiary in all of these types of accounts.
These five main components are not right for every individual—it really depends on your estate and what you want to happen to it when you pass. As a rule of thumb, however, you should have a will and a power of attorney at the very least. Your will can contain a lot of different components, so to ensure that you cover everything that you need to, you should work with an estate attorney. For example, if you have children who are minors, you should include a clause about their care and who their guardian will be. If you do not have children who are minors, then you do not need to mention any of this. As you can see, this is an example of something that you may or may not need based on your specific situation. Either way, there are things that you will want to include in your will to ensure that things are distributed as you wish them to be.
The next key item is your power of attorney. This is important because you want to be able to choose someone who will follow your wishes and can ensure that your will is followed as you intended it to be. For this role, you need to choose someone you trust to follow your wishes.
A living will, or other medical directives, should be included in your estate plan if you have very specific instructions for your medical care. If you do not want to be put on life support in a situation that calls for it, then you need to outline this in a living will. Many people feel strongly one way or another in these types of situations, and if you fall into this category, then you should make sure that no chances are taken and that you get your wishes. This is important because if you are unable to make these decisions in the moment for yourself, this legal document will be in place to direct your doctor.
If you do have accounts that call for a beneficiary designation, then make sure that this is completed and up to date at all times. If you do not have these types of accounts, then you do not need to worry about this component.
Some of the most common accounts that ask for beneficiary designations include life insurance policies, 401(k) accounts, accidental death and dismemberment (AD&D) insurance accounts, and various other retirement accounts. If you have any of these accounts, you should check that your beneficiaries are designated and updated as needed.
A living trust is not something that all people need, but if you have things that you want to keep out of your will for tax purposes, then a trust is a great option. Before you open a trust, speak to an attorney to explore your options and ensure that a trust is the right thing for you based on your assets, your wants, and your needs. There are many benefits of using trusts, but depending on your assets and what your goals are, they may or may not be in your best interest to include in your estate plan.
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