Estate planning is an essential task for most Americans, but many don’t complete it. Their reasons vary, ranging from lack of funds to confusion about what to do. To help you take this important step successfully, it’s good to start by learning more about what that nebulous term means.
What documents will you create during estate planning? And what should you know about the most common? Here are five to get you started.
1. Last Will and Testament
The most basic document in estate planning is the will. A will simply provides instructions about what you want done with your belongings and assets if you pass away. You may draw up a very detailed will or one which only deals with assets not covered by other documents, such as a trust.
A will, though, is more than just instructions about who gets what physical assets. It may also include personal messages to family or friends, guardianship of pets or minor children, information about intangible assets or digital accounts, and even conditions which heirs must fulfill in order to receive inheritances. Your will must follow state probate rules in order to be considered valid and enforceable.
2. Power of Attorney
A power of attorney is a document that allows someone to make decisions and carry out actions for you if you can’t. This document is generally considered part of estate planning even though it comes into play while you’re alive. Powers of attorney can grant one or more persons the authority to make decisions about things like medical treatment, financial moves, or other specific actions.
You may sign a power of attorney that remains in effect or one that is only good for a certain period of time, such as if someone will handle your finances while you’re outside the country. A power of attorney can be revoked at any time.
3. Healthcare Directive
Like its cousin, the durable power of attorney, a healthcare directive authorizes someone to make decisions if you are incapacitated. However, the Advanced Healthcare Directive (ACHD) limits this authority to medical decisions.
It also provides a way for you to let your wishes about end-of-life care be known in advance. You may stipulate, for instance, at what point you wish for life support machines to be maintained or discontinued — sometimes this is called a living will.
You may think that trusts are only for those with significant wealth to protect. But, in fact, many people benefit from trusts for different reasons. A trust is a separate legal entity into which the grantor transfers legal ownership of certain assets. The grantor usually names themselves as trustee with a backup. The trust may provide for minor children or those with special needs, protect your privacy, and speed up transfer.
Revocable living trusts can be changed or terminated at any time. Irrevocable trusts cannot be changed after their creation. Both allow you to pass on assets to beneficiaries without having to wait for probate to be completed.
5. Beneficiary Designations
Some financial accounts include instructions as to what happens to money or assets in those accounts if you pass away. These are known as beneficiary designations, and they’re assigned separately from will and trust documents.
The most common accounts in which to find beneficiary documents are bank accounts, brokerage accounts, and retirement accounts. Assets passed on through beneficiary designations generally do not have to go through probate. This makes them useful tools, in particular, during the interim when the will may be in probate.
Where to Start
Want to know more about any of these estate planning documents? Have specific questions about how to draft valid documents? Not sure where to start? Begin by talking with the legal document pros at Legal Document Assistance. We provide personalized assistance in understanding, preparing, and completing these and other important personal documents. Call today to speak to a member of our team.