Most people are familiar with the idea of creating a will to determine what happens with their assets when they pass away. However, many do not fully understand why estate planning is important, or when to do their planning. There are many good reasons to plan your estate sooner rather than later.
What Does Estate Planning Include?
A typical estate planning “package” includes the following documents:
- Will: A will is the document that formalizes your wishes for your property at death. While you are not legally required to have a will, if you do not have one, your property will be distributed according to your state’s intestacy laws. These laws decide who inherits your property and in what amounts—typically with a certain amount going to your spouse, if any, and the rest to your children or other close relatives, depending on your situation. Creating a will allows you, rather than the law, to choose your legacy—or who receives your property upon your passing.
- Durable Financial Power of Attorney: A durable financial power of attorney allows you to designate a trusted individual to act on your behalf to manage your financial affairs during your lifetime. This is an important planning document because, as much as we all would like to think nothing would affect our capacity to handle our own financial affairs, we just don’t know. If you do not have a durable financial power of attorney, you may need a court-appointed guardian to help manage your affairs if you become incapacitated. Most people would want to avoid that outcome. Executing this document while you are still mentally well can protect your assets throughout your life and preserve them for your loved ones upon your passing.
- Health Care Power of Attorney: While the durable power of attorney allows you to designate an agent to manage your financial affairs, a health care power of attorney allows you to designate someone you trust to make medical decisions for you if you are unable to make them for yourself. Such decisions include speaking to doctors on your behalf, accessing your medical information, and consenting to certain treatments. By executing this document, you can ensure that your wishes regarding medical decisions are honored in the event you cannot make such decisions in the future.
- Advance Medical Directives: Advance medical directives allow you, if you have certain incurable or irreversible conditions, to specify your life-prolonging wishes, such as whether to receive artificial hydration, nutrition, or respiration. In completing this document, you can choose to have your health care power of attorney make these decisions, or let the instructions stand on their own.
Should You Add a Trust?
In addition to the basic estate planning documents, some people may also choose to form a trust. A trust can help minimize the assets that pass through probate — the legal process of administering an estate. Trusts can also be used to provide certain tax savings and to manage a beneficiary’s inheritance where receiving the inheritance all at once would not be advisable. Trusts, unlike wills, often remain private. Many people choose to create a revocable trust that works alongside their will to pass much of their property at death in a private manner outside of the “probate process.”
When Should You Make Updates?
Once you have executed your estate planning documents, you should not just “set it and forget it.” You should review your estate planning documents every few years and update them upon certain life events such as marriage, divorce, birth or adoption of a child, death of a spouse, beneficiary, or agent, health events, or a significant change in your net worth. In addition, it is important to review and update beneficiary designations on life insurance, retirement accounts, and other assets to ensure those beneficiary designations align with your estate planning documents.
Learn More
There is rarely a one-size-fits-all approach to estate planning. Consulting an attorney who practices estate and trust planning law can help you find the strategy that is right for you. Estate planning is a great way to protect your future, and ensure your loved ones are looked after. For information, visit www.PoynerSpruill.com or call 910- 692-6866.
