Generally speaking, estate planning is the process of planning for your welfare and needs in the future and planning how your assets will be distributed when you pass away. Estate planning also involves tax and business planning.
Discussing estate planning is difficult because it means facing your own mortality. It is extremely important however, because without proper estate planning, your wishes could end up not being fulfilled and your family can end up fractured.
Many people think they do not need estate planning because they don’t have very much money. What they don’t consider is what happens to them if they lose capacity or if they die with young children. Persons in blended families with kids outside the relationship don’t consider what will happen to what money they do have when they are gone. Almost everyone should do some type of estate planning, even if it is just a healthcare document.
Estate planning usually involves a will and/or trust, and supporting documents for healthcare and finances. These documents generally consist of the following:
– a will is a document that states your wishes, names a guardian for your children, and goes through the court process known as probate
after you die. A will is effective only at your death and names an executor to validate the will with the courts and distribute your assets to the beneficiaries you have named in the will. Wills are generally simple documents (but not always). They are also generally easier and less expensive to create which is a reason some people do a will over a trust.
– A trust is a written agreement created by an individual who names a trustee to manage the assets they transfer to the trust. Often times the initial trustee of a trust is the creator. At the creator’s death or incapacity, a successor trustee takes over and manages the assets as instructed in the trust agreement. Since the trust has provisions that include how your assets will be distributed after you die, the trust becomes a substitute for a will and generally, the assets in the trust will not have to go through probate like a will would.
– A healthcare document states what your wishes are should you become incapacitated, and what happens with your remains when you die. This is a very important document, and everyone should have one to insure they are not kept on life support when they didn’t want to be, that they are not buried when they wanted to be cremated, and so on.
Power of Attorney for Finances
– A power of attorney is a written authorization to act on another’s behalf regarding their financial affairs. These documents generally give the agent (person named to act) great power over the creator’s finances and should be considered carefully before created. Powers of attorney expire upon death and are no longer valid at that time.