It doesn’t matter if you are single, married, have children or not, or don’t have “lots” of money. An estate plan will greatly help your family by giving them direction and letting them know your wishes. If you do not have a plan, odds are you will leave a mess behind for family and friends to clean up, which is not how you want to be remembered.
The purpose of an estate plan is to provide financial stability for your family, make sure your minor children are cared for and to facilitate the payment of debts and the transfer of assets to your chosen beneficiaries. It also tells your survivors where your personal items, such as furniture, art, clothing, tools and jewelry, should go. An estate plan can be basic or complex, depending on your individual circumstances, and just a few simple documents will make all the difference.
Will or trust
A will or trust lets you direct how your debts will be paid, how your property will be distributed, who shall administer your affairs, and who will be named as legal guardian for your minor children. This is the cornerstone of your estate plan.
In a will, you name a personal representative or executor as the person responsible for following the directions you set forth there. In a trust, you name a trustee who will have those responsibilities. He or she will pay any debts remaining when you die and distribute your assets to the beneficiaries you list in the document. If you have life insurance, the executor can work with the insurance company to pay death benefits to your named beneficiaries.
Assets passing to your heirs or others according to your will are subject to probate, which is a court-supervised process. Assets held in a trust will avoid probate. Account ownership and type can be structured to avoid probate, and this is often a goal of an estate plan.
A will or trust doesn’t have power to direct the distribution of accounts or policies that have beneficiaries already named. For instance, company retirement plans, IRAs, insurance policies and transfer-on-death accounts have listed beneficiaries, and these assets will pass directly to the named beneficiary regardless of what your will or trust states.
Accounts or assets that are owned by more than one person can be set up with rights of survivorship and automatically pass to the other owner(s).
Durable power of attorney
A DPOA authorizes someone, your attorney-in-fact, to make financial decisions on your behalf in the event of your incapacity. Your attorney-in-fact can pay your bills, collect income for you, make investment decisions and file tax returns.
Directives generally consist of a medical power of attorney and a living will and are often combined into one document. These documents let your family and physicians know what medical treatment you want (or don’t want) if you are unable to express your own wishes.
A medical power of attorney names a person to make medical decisions for you. You can limit the power this person has in the document. A living will allows you to approve or decline certain types of medical care if you have a terminal illness or injury. You can determine which “life-sustaining” measures should be taken on your behalf, including do-not-resuscitate instructions.
The people you name in your documents have significant responsibilities. Consider whom you trust, their capabilities and willingness to accept these duties. Estate planning is worth the time and effort and will ultimately be a great gift to your family and friends.