Estate planning is a conscious approach to organizing your personal and financial affairs in order to deal with the possibility of mental incapacity and death.
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The biggest mistakes you can make in estate planning are to plan improperly, or to fail to plan at all. Without the proper estate planning documents to protect your wealth and wishes, you can lose out on several benefits. Here are the main benefits to having a clearly laid out estate plan:
- Reducing or eliminating any potential estate tax.
- Making effective transfers during life and death.
- Arranging for efficient business succession.
- Arranging for health care decisions in the event one becomes incapacitated.
- Allowing an estate to avoid probate, which can be costly and cause delays in asset distribution.
- Enabling property to pass to the desired person.
- Planning for the care of and financial well being of children in the event of parental death.
- Fulfilling charitable intentions.
- Enabling peace of mind.
- Giving the gift of clear instructions for your wealth and wishes to your loved ones.
The Foundational Estate Plan
The smartest way to protect your wealth and wishes is to have a foundational estate plan drafted by an estate planning attorney. The foundational estate plan includes four essential legal estate planning documents: a will, living will, a durable power of attorney for health care and a durable power of attorney for financial decisions.
Too often, individuals make the mistake of only having a will and fail to prepare the other three critical documents. The smartest way to protect your wealth and wishes is to have all these valuable documents in place. Another misstep individuals make is either preparing these documents on their own through available resources online or by using an attorney who does not specialize in estate planning. Although it can be less expensive to take one of these routes, the benefits obtained by receiving expert counsel from an estate planning attorney and the risks that are mitigated from improper planning far outweigh the expense.
Although a good majority of your wealth and wishes can be taken care of with language in the below four documents, there are certainly advanced estate planning techniques outside of these documents that can be beneficial to your particular situation. Like any other financial document or product available, it is always important to be educated, and to explore the pros and cons of any such technique with the experts before incorporating them into your estate plan.
A will contains a detailed list of instructions as to how your property should be distributed after you die. If you die without a will, the probate court directs how your property will be distributed according to the state’s intestate laws. If you have minor children, a will should contain provisions for designating a guardian, as well as instructions on how and when your minor children should receive your assets.
Sometimes called a health care proxy, a living will contains a written set of instructions to your physician as to whether or not you want to receive life-sustaining procedures if you have been diagnosed with a terminal condition, end-stage condition, or are in a persistent vegetative state. It also gives guidelines for your family members to follow if you become terminally ill.
Medical Power of Attorney
Sometimes called an advanced medical directive or a durable power of attorney for health care, this document allows you to designate a health care agent to make medical decisions for you if, for any reason, you are unable to make them for yourself.
It can also be used to designate someone to serve as your guardian or conservator in the event a court determines that you have become mentally incapacitated.
Financial Power of Attorney
The financial power of attorney document allows you to designate someone to manage the affairs of your estate, including financial decisions, if you are unable to manage them yourself. It allows you to delegate to the person of your choice the ability to manage assets that are titled in your individual name, including retirement plans, and assets titled in joint names as tenants in common.
Once these documents are in place, you should review your estate planning documents at least every few years, or if there is a significant life change such as the birth of a child, divorce, death or inheritance.
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.