Estate Planning Basics – What You Need to Know

estate planning basics

Have you ever thought about what would happen if you became incapacitated or died?  What would happen to your home and other assets?  Do you have a will and does your spouse know what your final wishes are?  These are very difficult questions for most of us to talk about but think about how difficult these questions would be if your family was left to deal with them alone.  An estate plan is a set of legal documents that will make sure that your final wishes are taken care of.

An estate plan allows you to:

  • Designate someone who will manage your estate
  • Name a legal guardian for your child
  • Choose how and when your heirs will receive your assets
  • Reduce estate taxes and administrative fees
  • Provide for a succession plan or sale of a family owned business

Estate planning can be complex at times so it is advisable to seek advise from a competent lawyer specializing in Estate Planning to help prepare the necessary estate planning forms.  Some items you will want legal assistance with are:

  • Prepare a will so that your assets transfer to your loved ones
  • Check to make sure your accounts are titled properly
  • Have a durable power of attorney so someone can make financial decisions in case you are unable to
  • Draft a living will/health care directive to remove the burden of difficult end of life decisions from family members
  • Make sure you have designated beneficiaries properly for your accounts
  • Setup a trust for the transfer of assets, to cover estate taxes, and for the benefit of minors

 

What is a Will?

A will is a legal document that directs the disposition of your assets after your death and directs the appointment of guardians for children under the age of 18.

When there is no will, the state where you live will decide how to distribute your assets according to the laws of that state. This process is know as probate and varies from state to state. Some states have an expedited process for estates under $50,000 which can ultimately save the estate fees.

In order to avoid probate, it's important to work closely with an attorney to draft a will that carry out your final wishes.

A will includes the following items:

  • Naming of an Executor to carry out the directives of the will
  • Naming of the Beneficiaries – those inheriting the estate's assets
  • Instructions for when and how the beneficiaries will receive the assets
  • Naming of guardians for children under the age of 18

Some assets like life insurance, IRAs, 401ks, and other investment accounts, allow you to designate a beneficiary and avoid probate.

For assets not included in a will and do not have a designated beneficiary, will have to go through the probate process.

What is a Power of Attorney?

A durable power of attorney is a legal document that allows someone to handle your affairs if you become incapacitated. There are three variations: Limited Power of Attorney, General Power of Attorney, and Medical Power of Attorney.

Limited Power of Attorney. Also known as a special power of attorney, gives someone authority to act on your behalf in a limited way, as detailed in the document.

General Power of Attorney. Gives someone broad authority to make legal, medical, business, and financial decisions for the principal.

Medical Power of Attorney. Gives someone the authority to make decisions regarding medical care and treatment if you become physically or mentally incapacitated or unable to make those decisions yourself.

A power of attorney typically expires when: 1) has an expiration date, 2) you revoke it, 3) you become mentally incompetent, or 4) if you die. A durable power of attorney allows the document to remain in force after the principal becomes mentally incompetent.

What is a Living Will?

A living will, or advanced healthcare directive, is a legal document that spells out what care is to be administered if you become terminally ill and will die in a short period of time without life support. It becomes effective only after you are unable to communicate your wishes.

Creating a will on your own can be a duanting task so it is wise to have your legal documents reviewed by a firm that specializes in Estate Planning. Creating a complete estate plan provides you with the knowledge that your wishes will be carried out and your family and loved ones will not have to deal with these difficult issues alone.

Do you have common Estate Plan documents such as a will, durable power of attorney or living will?

estate planning basics

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