No matter how much money you have, it is important to have a basic estate plan in place to protect your family and assets after your death. An estate plan can be as simple as a last will and testament extremely detailed to contain a power of attorney, a living will, and even a trust. We will cover each of these tools in order.
The first and often the most important instrument to implement is your last will and testament. A will is a legal document that outlines your wishes regarding your assets after your death. Many people make their own wills using software or forms they download from the Internet, but this is not always a good choice. The requirements for wills are different from state to state and are not always easy to interpret. If you do not create a will that can be validated in probate court, your estate can be disposed of as if you had never written a will. The bottom line is that hiring a professional to help draft your last will and testament is a smart choice and can be done for a reasonable fee.
Your will sets out your wishes regarding your property, but what if you become incapacitated and cannot direct others about your wishes? This is where powers of attorney come into play. A power of attorney authorizes another person to act on his behalf in business and legal matters. A durable power of attorney allows another party to act on his behalf if he becomes incapacitated and unable to make decisions on his behalf. A health care power of attorney is a durable power of attorney that is specific to health care situations.
A living will communicates your intentions regarding medical care if you are unable to communicate them on your own. A living will is usually created in conjunction with a health care power of attorney. The living will spells out your wishes, and the health care power of attorney allows someone else to act on those wishes.
Trusts are another mechanism that will allow you to disperse your property while placing restrictions or requirements on the property. Trusts are not just for the rich. If you have dependent children to leave money to, you can hold it in trust until they reach the age you choose. Trusts can also be an effective means of minimizing the taxes associated with your estate.
Lastly, we are going to cover some of the tools that are available to help you manage your tax burden at the time of your death. Life insurance is one of the main methods of managing taxes at the time of death. There is also a wide variety of trusts that are also effective. Estate planning for tax consequences is one of the most complicated aspects of estate planning, and a professional can help you put together an appropriate plan.
Now that you’re familiar with some of the estate planning tools, it’s time to start the process. Whether you go it alone or enlist the help of a professional, the first step is to create a list of all your assets. Once you have your list of assets, you will need to make a decision about what you would like to see happen to each asset after your death. Should it go to family, to your soul, to your favorite charity, or to some other place that is near and dear to you?
Estate planning can seem like a daunting task, but knowing that it is very important and taking it one step at a time will help you complete the process. Hiring professionals to help you through the process is also extremely helpful and highly recommended.