Estate Planning Items Everyone Needs
“I don’t need an estate plan because I don’t have anything.”
“I have plenty of time to make an estate plan.”
These are two of the most common reasons people give for not beginning the estate planning process. However, no one can predict the future and everyone needs an estate plan regardless of his or her financial situation. Leaving unanswered questions makes the process of finalizing your affairs much more difficult on your loved ones. Having a comprehensive estate plan is an important step that cannot wait.
What is an Estate Plan?
An estate plan is a collection of legal documents that specify how you want your financial affairs to be finalized after your death. In addition to paying your final debts and distributing your assets, an estate plan will also:
- Name a guardian and conservator for minor children
- Name an administrator for your estate
- Provide income for your dependants after your death (i.e. trusts)
- Appoint a power of attorney to act on your behalf if you are unable to do so
- Appoint a person to make medical decisions on your behalf if you are unable to do so
- Reduce conflict and arguments between family members by leaving clear instructions
- Protect your assets for your heirs
- Minimize estate, transfer, and income taxes
- Make the probate process easier for your loved ones
Five Estate Planning Items You Need
An Updated Will
An updated will is the most important estate planning item. Wills are easy to create, generally inexpensive, and give you a great deal of power over how your assets and finances are finalized after your death. Administering an estate through probate court without a will can be costly, time-consuming, and frustrating for your loved ones.
With a will you can designate an administrator for your estate (i.e. your executor or personal representative), identify your heirs, distribute property, and avoid family conflicts over what various family members “think” you may have wanted if only you had written a will.
Living Will and/or Healthcare Power of Attorney
A living will expresses your wishes with regard to life-prolonging medical treatments in the event you are unable to make those decisions for yourself. A living will also appoints a person to enforce those decisions for you.
A healthcare power of attorney gives another person the authority to make medical decisions for you if you are incapacitated or cannot make those decisions for yourself for any reason. Some states allow you to include the provisions of a living will in a healthcare power of attorney; however, you should check your state laws to ensure you have the proper estate planning documents for your needs.
Power of Attorney
A power of attorney gives another person (referred to as your attorney-in-fact) the authority to make financial decisions for you. You can choose from several types of powers of attorney depending on your needs and goals.
A general power of attorney gives your attorney-in-fact the broadest powers to act on your behalf. Your agent can transact any business in your name that you can legally do yourself. For example, your attorney-in-fact can open and close bank accounts, buy and sell real estate and other property, file lawsuits and enter settlements, and, manage investments. A general power of attorney terminates upon your death or incapacitation.
A durable general power of attorney gives your attorney-in-fact the same powers as a general power of attorney; however, it does not terminate if you become incapacitated due to a physical or mental illness or condition.
Updated Beneficiary Forms
As part of your estate planning, you need to make sure that you update your beneficiary designations. Assets with beneficiary designations do not pass through your probate estate unless you specifically name your estate as the beneficiary. You should review your beneficiary designations periodically but especially after a divorce, marriage, birth of a child, or death of a family member.
Revocable Living Trust
This may or may not be an “essential” estate planning item for every person; however, it can be very useful for some people. A revocable living trust allows you to transfer property to the trust during your lifetime to be managed by a trustee that you appoint (you can appoint yourself as trustee if you desire).
One of the benefits of a revocable living trust is that the property in the trust can pass directly to your designated beneficiaries outside of probate. You can also direct your trustee to continue managing the trust for the benefit of your beneficiaries after your death. Before deciding whether a revocable living trust is an estate planning item you should utilize, discuss the pro and cons of this type of trust with an estate planning attorney.
The above estate planning items are not an exhaustive list of the tools available to you. An estate planning attorney can help you identify your estate planning goals and recommend documents that will accomplish those goals.