Estate planning can sound overwhelming but simply put it arranges for the transfer of your estate after your passing.
An estate is made up of all the tangible property owned at death before it is distributed by a will, trust, or intestate laws. An estate may contain both real property (real estate, including houses and investment properties) and personal property (all other property, including bank accounts, securities, jewelry, and automobiles). Typically, the process of estate planning involves in-depth consultation with professional advisors such as lawyers, financial planners, accountants and insurance representatives.
What is Estate Planning?
Estate planning benefits those with any amount of assets that have a direct wish for after their passing. Making an estate plan ensures that all property will be distributed according to your personal wishes and that those who are benefiting from the estate receive the largest distribution possible with a minimum amount of delay and cost. Estate planning allows you to decide who will benefit from your estate, and to what extent. Estate planning also ensures that the estate will not be depleted by taxes at death. Estate planning allows you to make important decisions, providing financial security, appointing a guardian for minor children, and securing funeral arrangements.
Basic Estate Planning Documents
An estate plan is created to achieve your long-term financial goals. The basic documents used in estate planning are listed below. However, your specific estate plans depend on many factors such as the size of the estate, the purpose of distributions and to whom the beneficiaries are.
- A Will. A will outlines who will inherit what. Wills often appoint a guardian for minor children or specify what funeral arrangements should be made at the time of death. All wills pass through probate, which can be lengthy and expensive. In the absence of a will or other testamentary instrument, the state will distribute an individual’s estate according to the laws of intestacy. Generally, under the current law, assets are divided in a particular order, to provide for a surviving spouse, children, parents or siblings.
- The Trust. A trust is an arrangement by which a trustee distributes assets to a beneficiary according to the terms of the trust. A beneficiary may be a family member, a friend, a charity or a pet. A trust may be created during the individual’s life, or it may be created by will. A trust created by will transfers property to the trustee at the time of the individual’s death. By creating a trust, the beneficiaries of the estate can often time bypass the probate process.
- Health Care Directives. Health care directives ensure that an individual’s medical wishes will be carried out when they become unable to make their own health care decisions. Health care directives include a health care declaration and a power of attorney for health care. Health care directives, also known as “living wills,” set forth an individual’s personal decisions regarding health care at the end of their lives. A power of attorney for health care gives an appointed person control of all health care decisions leading up to the person’s death.
- Financial Power of Attorney. Finally, a financial power of attorney appoints a third party to handle an individual’s finances when they can no longer take care of their own financial affairs. A financial power of attorney designates a trusted professional to fulfill this position.
For more information on some of the changes to the 2017 Estate Planning Considerations please check out our Estate Planning Guide.