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Estate Plan Essentials

Many people believe that having an estate plan simply means drafting a will or a trust. However, there is much more to include in your estate planning to make certain all of your assets are transferred seamlessly to your heirs upon your death. A successful estate plan also includes provisions allowing your family members to access or control your assets should you become unable to do so yourself.

 

Here is a list of items every estate plan should include:

  1. Will/trust

  2. Durable power of attorney

  3. Beneficiary designations

  4. Advanced healthcare directive

  5. Guardianship designations

Wills & Trusts

A will or a trust may sound complicated or expensive—something only rich people have. That is an incorrect assessment. A will or trust should be one of the main components of every estate plan, even if you don't have substantial assets. Wills ensure property is distributed according to an individual's wishes (if drafted according to state laws). Some trusts help limit estate taxes or legal challenges. However, simply having a will or trust isn't enough. The wording of the document is critically important.

 

A will or trust should be written in a manner that is consistent with the way you've bequeathed the assets that pass outside of the will. For example, if you've already named your sister as a beneficiary on a retirement account or insurance policy (assets that typically pass outside of a will to a named beneficiary), you don't want to bequeath the same asset to a second cousin in the will because it could lead to a will contest. Not to mention that both individuals could become bitter toward each other (and you) during a legal battle.

Trust:  A relationship created at the direction of an individual, in which one or more persons hold the individual's property subject to certain duties to use and protect it for the benefit of others.

 

Revocable Trust:  A revocable trust is a living trust that can be modified or revoked by the grantor, or person who establishes the trust and transfers property to it.

Will:  A legal instrument that permits a person, the testator, to make decisions on how his estate will be managed and distributed after his death

Durable Power of Attorney

It's important to draft a durable power of attorney (POA), so an agent or a person you assign will act on your behalf when you are unable to do so yourself. Absent a power of attorney, a court may be left to decide what happens to your assets if you are found to be mentally incompetent, and the court's decision may not be what you wanted.

This document can give your agent the power to transact real estate, enter into financial transactions, and make other legal decisions as if he or she were you. This type of POA is revocable by the principal at a time of his or her choosing, typically a time when the principal is deemed to be physically able, or mentally competent, or upon death.

In many families, it makes sense for spouses to set up reciprocal powers of attorney. However, in some cases, it might make more sense to have another family member, friend, or a trusted advisor who is more financially savvy act as the agent.

Advanced Healthcare Directive

A written document that allows a patient to give explicit instructions about medical treatment to be administered when the patient is terminally ill or permanently unconscious; also called an advance directive.

 

It can also designates another individual (typically a spouse or family member) to make important healthcare decisions on your behalf in the event of incapacity.

If you are considering executing such a document, you should pick someone you trust, who shares your views, and who would likely recommend a course of action you would agree with. After all, this person could literally have your life in his or her hands.

Finally, a backup agent should also be identified, in case your initial pick is unavailable or unable to act at the time needed.

Guardianship

While many wills or trusts incorporate this clause, some don't. If you have minor children or are considering having kids, picking a guardian is incredibly important and sometimes overlooked. Make sure the individual or couple you choose shares your views, is financially sound, and is genuinely willing to raise children. As with all designations, a backup or contingent guardian should be named as well.

 

Absent these designations; a court could rule that your children live with a family member you wouldn't have selected. And in extreme cases, the court could mandate that your children become wards of the state.

Key Estate Planning Terms

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