An estate plan is much more important and useful than people think. Often thought of as something that’s only relevant when it comes to distributing someone’s belongings, an estate plan can do much for someone during their life and for their loved ones after that person passes away.
Below are five important components of an estate plan that you should have and why you should have them.
Will
Most people are familiar with wills. These are the legal documents that outline the decedent’s final wishes, which commonly include how their estate should be distributed. Wills allow the testator (will-maker) to designate heirs to inherit property and an executor to carry out the administration of the estate. Wills are useful for more than just dealing with property, though. If someone dies with minor children or another dependent in their care, their will can assign a new guardian to care for that person.
Trusts
A trust is a legal document that holds assets for one or more beneficiaries. There are many different types of trusts that can fulfill broad or specific purposes. This can reduce the time it takes for beneficiaries to receive inheritances, reduce the cost of settling an estate, and keep family affairs private (because probate is a matter of public record).
Revocable trusts are useful when a grantor (trust maker) wishes to retain the flexibility to change the terms of the trust during their lifetime. Irrevocable trusts are good options for grantors who wish to protect property against their creditors and estate taxation, for the benefit of their beneficiaries.
Advanced Health Care Directives
Advanced directives for health care are someone’s pre-determined decisions about how they wish to be treated by medical staff if they are unable to communicate their wishes. Advanced directives are particularly useful when someone is too ill, injured, or cognitively impaired to direct their own health care, particularly end-of-life care options.
A person’s wishes for medical treatment can be outlined and explained in a living will. They can also designate a trusted friend or relative as a health care proxy, who will have the legal authority to make health care decisions on the designator’s behalf when their advanced directives don’t address a specific situation.
Power of Attorney
A power of attorney legally allows an agent (someone you trust) to act on your behalf. A power of attorney can be useful for elderly individuals who are no longer able to keep track of their own finances and want an adult child or trusted friend to help them do so. A power of attorney can also be invoked when someone becomes incapacitated and someone else needs to step in to pay their bills and manage their finances while they are unconscious or otherwise unable to manage their financial affairs.
Powers of attorney can be customized in all sorts of ways. They can be set to trigger when a specific event occurs and end under specific circumstances as well. They can also give broad or specific powers to the agent as necessary.
Beneficiary Designations
Beneficiary designations are important – but often overlooked – components of an estate plan. If you have a life insurance policy or retirement accounts, it’s important to make sure you designate one or more beneficiaries to receive these funds. It’s important to keep in mind that beneficiary designations supersede your will, so be careful about who you select and review your selections on an annual basis.