Whether you have a whole lot of money or a little, an estate plan is essential. It protects you and your loved ones, and can also minimize taxes, expenses, fees and the loss of your privacy. A solid estate plan is created by an experienced estate planning attorney who is familiar with the laws of your state, reports the recent article titled “Estate planning checklist: 3 key steps to making a successful plan” from Bankrate.com.
All good estate plans have three key elements: a will, power of attorney and an advance healthcare directive. Each serves a different purpose. Some estate plans also include trusts, but every situation is different. Your estate planning attorney will be able to create the right estate plan for you.
A Will. The will, also known as the last will and testament, is the foundation of all estate plans. It directs your assets to be distributed as you wish. Without an estate plan, the court decides who will receive your assets. That’s the biggest mistake you can make. It’s called dying intestate. Your heirs will be burdened with additional court costs, delays and the stress of not knowing what you might have wanted.
However, financial accounts and property aren’t the only valuable thing protected by your will. If you have a minor child or children, the will is used to name a guardian who will take care of them. It also names a conservator who will manage the child’s financial assets, until they are of legal age. The guardian and conservator may be the same person, or they might be two different people. If you opt to split the roles, be sure the two people work well together.
Power of Attorney. A power of attorney, or POA, is used to give another person legal authority to take care of financial and legal matters, while you are still living. If you are incapacitated, a POA gives someone else the ability to pay bills and manage your affairs. A medical POA gives another person the ability to make healthcare decisions on your behalf. The POA is completely customizable: you can use it to give someone else broad powers to do everything, or narrow powers so they are in charge of only one bank account, for instance. It is very important to have a detailed discussion with the person before you name them. It’s a big responsibility and you want to be certain they are comfortable carrying out all of the tasks.
The Advance Healthcare Directive. This document lays out in detail what you want to happen to you if you are not able to make decisions because of severe illness or injury. If you don’t want to be resuscitated after a heart attack, for instance, you would state that in your advance care directive. It includes a list of treatments you do and do not want. Your family will be able to use it as a guide to help them make difficult decisions regarding sustaining your life, managing pain and providing end-of-life care.
Trusts in Estate Planning. The three elements above form the base of an estate plan, but there are other tools used to achieve your goals. Depending on your circumstances, you will want to incorporate trusts, useful tools for transferring assets of all types. For example, when assets are placed in an irrevocable trust, they are no longer part of your estate, thereby minimizing your estate tax liability. Trusts are also used when parents wish to exert control over how and when money is distributed to children. If the parents should both die, a trust can prevent an entire inheritance coming into the hands of an 18-year-old who is legally old enough to inherit property, but likely not ready for the responsibility.
Trusts also transfer assets outside of the probate process, so they protect the family’s privacy. No one outside of the trustees know how much money is in the trust and how the money is being distributed. Trusts are not just for the very wealthy. They can help you protect assets from creditors, ex-spouses and litigious family members.