Three Estate Planning Documents Everyone Needs
Estate planning is a broad concept encompassing financial planning and related aspects. As important as it should be, most people tend to exclude it from their financial planning. There are also some people who underestimate the size and value of their estate and do not give their estate plan the attention it deserves. Estate planning is crucial and should be done in a timely manner to avoid any ambiguities for the future. To begin with, here’s what an estate implies:
An estate comprises everything that you own and possess. For instance, your real estate, investments, savings, vehicles, bank accounts, pension plans, Social Security benefits, assets, life insurance, and other types of personal and financial belongings, are all covered under the umbrella of your estate.
What is estate planning?
Estate planning refers to the planning and management of an individual’s personal belongings and financial assets in case of their death or incapacitation. A good estate plan ensures a smooth transition of the assets to heirs and beneficiaries without unnecessary involvement of the court and legal authorities. It also acts as an efficient hedge against taxes.
To ensure your estate plan is robust and up-to-date, you must possess certain documents that declare aspects like inheritance and guardianship clearly.
Here are the three most important estate planning documents you should possess in your plan:
1. A Will
A will is an inheritance document that declares who inherits your assets and belongings upon your death (if there is no joint ownership of the assets). Having a will can help resolve several issues that otherwise would require the involvement of the court or some declarations and acceptance on the behalf of beneficiaries. Here are some cases where a will can be extremely helpful:
- Estate distribution upon the original owner’s demise: If the original owner of the estate passes away, a will acts as a self-declarative of who gets the possession of the underlying assets and in what proportion.
- Assigning a guardian to minor children: As a parent of minor children, you can assign who will take up their guardianship if you weren’t around anymore. This will allow you to select the person who holds the best interest of your family and children. You can also specify what benefits the guardian gets upon taking this responsibility.
- Asset preservation along with long term medical care for a surviving spouse: A will allows you to specify any medical care facilities you want your spouse to benefit from as and when desired.
- Setting up a trust to take care of the assets on the behalf of minor children or grandchildren: You can declare your wish to set up a revocable or irrevocable trust to take care of your belongings till the time your children or grandchildren attain the legal age of 18 to gain legal access of your estate.
- Setting up an additional trust to take care of a critically ill or disabled family member: A will also allow you to declare your wish of setting up an additional trust that will look after your surviving spouse, disabled children, or other members of the family. The duties and benefits of trust are specified in the will.
2. A Power of attorney (POA) for financial affairs
A durable power of attorney is a document that assigns an elected person to take care of your assets and belongings in case of your incapacity. Such a person is called a designated agent who can sign papers of financial importance and other matters in your absence. A POA is a necessary document as it outlines who gets to make decisions on your behalf when you are around anymore.
In addition to this, a POA should contain specific information on how your designated agent is supposed to act and be present in all transactions related to your estate. Hence, it is important to pick someone who will be easily available and holds the best intentions in the interest of your family.
3. A Power of Attorney (POA) for healthcare or a healthcare directive
A healthcare power of attorney is a document that comes into action if the primary owner is still alive but not in a condition to make decisions. While most people consider estate planning only in the case of their demise, the importance of a medical care directive cannot be neglected. There could be a situation when the owner of the estate is suffering from a critical illness, disability like paralysis, or mental incapacity due to a disorder or disease. In such cases, a designated agent for a healthcare directive can represent the owner of the estate and make financial decisions on your behalf.
A medical directive also pronounces your medical wishes. For example, you can decide details like whether or not you wish to be on the life support, the will to donate any of your organs, agreement to take pain relief medications, etc., with your healthcare directive.
Benefits of a good estate plan with these three documents
A good estate plan that is inclusive of these three critical documents will serve you three benefits:
1. Acts as protection for heirs and beneficiaries
An estate plan is very helpful in times when the original owner is no more and there is a legacy of assets to be taken care of. Even if there is just one home, the rightful owner will always be in question without an estate plan. Hence, with a proper and well thought of estate plan in place, this confusion can be easily avoided.
2. Acts as protection for minors
As discussed above, an estate plan is extremely helpful when the legal heirs are minors. Along with declaring the inheritance of your assets and belongings, you can also declare a guardian for your children who will take care of them in your absence.
3. Acts as protection against taxes
The federal and state estate taxes can cost you a lot in the absence of an unplanned estate. Even though your family will be legally entitled to all your assets and belongings, taxation can take away a good piece of your hard-earned money from them. Hence, it becomes necessary to plan your estate efficiently to save up on taxes wherever possible.
To sum it up
Estate planning is an extremely crucial exercise that requires proper planning and execution of several aspects. The activity is not limited to your beneficiaries or heirs but also important in situations where you are still present but may need the support and representation of someone else. These three documents ensure that you are well prepared for any probable circumstances.
Do you need help with estate planning? You can get in touch with financial advisors to ensure that you plan the best for yourself and your loves ones.