Overview of a Basic Estate Planning
Estate planning is planning in advance what you want to do with property that you own when you become deceased or should you become incapacitated. Estate planning is one of the most important steps a person can take to make sure that their final wishes regarding how their property is to be distributed is honored and that their loved ones are provided for.
An advantage of estate planning is that it allows you decide how you want to transfer your property after you are gone, instead of leaving it up to the state to decide for you. If there is no will or estate plan is in place after a person dies, then the state will distribute the property for you according to the “intestacy laws”. The intestacy laws outline the proper order in which the property of a deceased will be distributed.
Estate planning is often overlooked or put off for more immediate concerns, but there are many disadvantages of not having an estate plan or will in place, which can affect your relations and the people you love. For instance, if you don’t plan ahead and leave it to the state to distribute your property, then certain groups of people such as close friends or stepchildren could be left out. The reason why they could be left out is simple; because the state does not take into consideration your desires, your wishes or your wants. Also, if there’s someone with a financial need that you wanted to help, the state would also not take that into consideration. The state must follow the hierarchy outlined by the intestacy laws.
Some common reasons people give for not having an estate plan:
(1) An estate plan is only for the wealthy or
(2) I have no or limited assets – bottom line – if you own anything of value (real or personal property) then you should have an estate plan
(3) An estate plan is only for older retired persons or
(4) I am too young – bottom line – any adult at any age should have an estate plan if you own anything that you value. Estate planning is for everyone.
(5) An estate plan takes too much time and I am too busy or
(6) nothing is going to happen to me – bottom line – the time to plan is now because we cannot predict what will happen in the future.
All property owned by you at the time of your death is considered your estate, for example real estate, bank accounts, stocks, life insurance policies, and personal property.
An estate plan can help:
- Identify your beneficiaries – family members and other loved ones that you wish to receive your property.
- Ensure the transfer of your property to your beneficiaries.
- Best utilize estate planning mechanisms such as wills, trusts, beneficiary designation, and titling of property.
- Indicate your wishes for life-prolonging medical care
- Especially important for families with young children – you can use your estate plan to name a guardian for your minor children should something happen to both parents and to provide for your children’s future should anything happen to you.
- Outline your funeral arrangements
A great benefit of estate planning is the peace of mind that comes from knowing that your family will be provided for and taken care of.
A basic estate plan:
Includes a Will, (consider a trust), Advance Directives and Financial Power of attorney.
A will is one of the most important components of the basic estate plan. It is an instrument used to communicate whom you would want to give your property to after your death. The persons that inherit your property will be the beneficiaries and a will allows you to tell everyone how you would want your property to be distributed among the beneficiaries. If you have no will in place at the time of your death then the state will decide how your property is distributed by following the intestacy laws of the state and without regard to your wishes or desires. A will can be used to revoke prior wills and codicils, appoint a personal representative (administrator or executor), protect your business, and name a guardian for your minor children, if something should happen to both parents.
A trust allows individuals to name who controls their property in the trust, who are the beneficiaries and how the beneficiaries will receive inheritances. It allows you to place conditions on how your property is distributed among your beneficiaries, upon certain circumstances happening or upon death. Revocable trusts (also called living trusts) are created during the lifetime of the creator of the trust and can be altered, changed, modified or revoked. An irrevocable trust is one which cannot be altered, changed, modified or revoked after it is created. Once a property is transferred to an irrevocable trust, no one, including the trust creator, can remove the property out of the trust. A will is also useful even if you have a trust because most trusts deal only with specific assets such as life insurance or a piece of property, but not the entirety of your estate property.
ADVANCE DIRECTIVES (used for healthcare decisions)
Advance directives are witnessed written documents in which you would give specific instructions regarding your desires concerning any aspect of your health care. A Living Will provides for a competent adult’s withholding or withdrawal of life prolonging procedures in the event that such person has a terminal condition, has an end stage condition, or is in a persistent vegetative state. A healthcare surrogate is a person that you designate to make all your healthcare decisions on your behalf, if for some reason you become unable to do so. This person can be anyone that you designate such as a sibling, aunt, uncle, or even friend. Whomever you choose, it should be someone who knows your healthcare wishes and will carry them out should you become unable to do so.
If by any chance there is no designation of a healthcare surrogate, then all the health care decisions will be made for the patient by a proxy, which is usually an ordered list per state law.
POWER OF ATTORNEY (POA) (used for financial decisions)
Power of Attorney is an official writing that grants authority to an agent to act in your place as principal. You can also have a durable power of attorney. This is used to give a person whom you trust, the authority to handle all of your financial or property needs, should you become unable to handle your own affairs. However, you need to make sure that you appoint only a trusted person, whom you know will act in your best interest.
The Bottom line – You should have a plan that is based on your instructions, so that you can ensure that it will provide for and protect your family and loved ones. Thus, you will be able to take care for your family members even after your death. Plan in advance and have peace of mind.