An estate is a collective sum of an individual’s net worth, including all land and real estate, possessions, financial securities, cash, and other assets that the individual owns or has a controlling interest in.
An estate plan is a collection of documents that protects your assets and personal property (your “estate”) and explains how you want to pass them down. It documents your wishes and specifies exactly who will guard those wishes and act on them in your absence.
Estate planning involves identifying who you want to give your assets to and when (during your lifetime, at death or sometime after death). Estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death.
Your estate plan may also include:
Many financial advisors would recommend starting an estate plan the moment you become a legal adult and updating it every three to five years after that. The reason for this is because at 18, you are newly responsible for your finances, healthcare, and power of attorney; and you want to consistently make sure everything is accounted for. However, for most young adults an estate plan is the furthest thing from mind — which is normal.
But there are a few common life events that warrant prioritizing your estate plan that one should never ignore. No matter what your age, consider the following life occurrences as signs to start (or update) your estate plan:
Will planning can be a relatively simple process that involves creating a last will and testament. Your will can dictate who should take care of your children after your death, who should take over your business if you have one, who receives your assets, and other property-related wishes. Your last will and testament will also require the appointment of an executor, who will be responsible for ensuring that all of the instructions left in your will are followed. Creating a will helps your family avoid disputes over your property and makes legal decisions after your death easier. It can also help save them money, because if no will is left, your family will have to pay attorneys and rely on a public trustee to execute your will properly.
To many, will planning and estate planning are one and the same. While the terms may seem interchangeable, they are actually very different processes. Both provide your relatives with instructions about how your property should be handled after your death, but estate planning goes even further to outline your wishes regarding your health, finances, and more, even while you’re living. An estate planning lawyer can help you determine what type of planning you need and can assist you with creating all of the documents necessary for a comprehensive estate plan that will easily and accurately distribute your property and more after your death.
Yes, your will is an important piece of the estate planning process. An estate plan is a comprehensive plan that includes documents that are effective during your lifetime as well as other documents that aren’t in effect until your death. Together these documents contemplate who has the power to make healthcare and financial decisions on your behalf during your life, and who receives your assets at death.
A trust is another method of estate transfer—a fiduciary relationship in which you give another party authority to handle your assets for the benefit of a third party, your beneficiaries.
A trust can be created for a variety of functions, and there are many types of trusts. Overall, however, there are two categories: living and testamentary. A will can be used to create a testamentary trust. You can also create a trust for the primary purpose of avoiding probate court, called a revocable living trust.
Living trusts and wills are both legal documents written to deal with property, and both are important estate planning tools that can sometimes even be used together.
Nearly everyone should have a will, but not everyone likely needs a living or irrevocable trust. If you have property and assets to place in a trust and have minor children, having both estate-planning vehicles might make sense.
Most people can, in fact, create most important estate planning documents on their own, if they have reliable, clear instructions.
Later, if, you have questions or think you might need more estate planning, get personalized advice from an expert. For example, if someday you acquire so much money that you are concerned about federal estate tax, have questions about passing on your small business, or want to leave a lot of money to charity, you’ll want to talk to a lawyer.
Having said that, it is prudent to hire a lawyer from the very beginning.
You’re not just paying someone to write up some documents for you when you hire a professional. You’re paying for advice, so you know that your estate plan has been done correctly. You can part with the money now, or your estate can spend hundreds or even thousands of dollars setting things later if you make a mistake.
A will can be a good foundation for your estate plan because it outlines your wishes. It directs the disposition of personal belongings after you die and lets you designate a guardian for your younger children. But, a will does little – if anything – to address how taxes affect your estate. In fact, relying on a will as your sole estate-planning tool can cost you much more than peace of mind and money. For example, if you pass away with only a will in place:
Everyone has an estate, which consists of everything they own, and thus having an estate plan is essential. An estate plan can minimize taxes and expenses and help a family avoid legal hassles. For those with more assets, estate planning can emphasize strategies to minimize estate taxes.
Additionally, anyone who wants their assets to be transferred to one or more surviving loved ones after they pass away should consider establishing a formal estate plan. This important set of legal documents can make it easier for your family to ensure that your wishes and needs are met if you’re unable to speak for yourself.
Compile a comprehensive list of your assets and debts, including account numbers and contact information, as well as names and contact information for your important advisers. Keep the summary in a secure, central location – along with original copies of important documents – and provide a copy of the summary for the executor of your will. This list could be a piece of paper or also a digital file kept in a secure location.
An estate plan allows you to control what would happen to your property and assets if you or your spouse passed away today. It also puts a documented plan in place so that if you became incapacitated, your family could carry on your affairs without having to go through court. This includes a strategy for providing income if you were to become disabled and covering potential expenses for care giving that may be needed at some point.
A primary goal for many estate plans is to protect and provide for loved ones and their future needs. Your estate plan should include provisions for any children, including naming a guardian for children under age 18 and providing for those from a previous marriage — if you remarry, your assets may not automatically pass to them. It also would specifically address the care and income of children or relatives with special needs that must be planned carefully to avoid jeopardizing eligibility for government benefits.
A key component of estate planning involves protecting your assets for heirs and your charitable legacy by minimizing expenses, and covering estate taxes while still meeting your goals. If necessary, your estate plan would include specific strategies for transferring or disposing of unique assets like a family-owned business, real estate or investment property, or stock in a closely held business. Many people use permanent life insurance and trusts to protect assets while ensuring future goals can be met.
If you want your assets distributed in a certain way to meet financial or personal goals, you need to have legal documentation to ensure those wishes are followed if you die or become incapacitated. This includes designating beneficiaries for your life insurance policies, retirement accounts and other assets that are in line with your goals. It also means ensuring that titles of material assets, such as automobiles and property, are named properly. Work with an attorney to be sure you have an updated will disposing of your assets, a living will reflecting your end-of-life wishes, as well as powers of attorney for health-care and financial matters.
To execute your estate plan, you must designate someone to act on your behalf if you are unable to do so — as executor of your will, trustee for your assets, legal guardian for your dependents and/or personal representative or power of attorney if you became incapacitated. You need to be sure your fiduciaries are aware of and agree to their appointments, and that they know where to find your original estate planning documents. Fiduciaries can be family members, personal friends or hired professionals such as bankers, attorneys or corporate trustees.
Here is a list of items every estate plan should include:
1. A will, which identifies who you want to:
2. A power of attorney, who:
3. A medical power of attorney, who:
4. A living will, which:
5. A trust, which:
6. Beneficiary designations
7. Letter of intent
8. Guardianship designations
Wills are a subset of estate planning. The following is a checklist for estate planning:
1. WILLS
Your will lets you dictate how your assets are distributed and who handles your affairs.
Your assets
Your beneficiaries
Guardians (if you have minor children)
Your executor
An executor administers your estate and carries out your wishes after you die. You will need to name an executor or co-executors. Be sure to name one or more alternates as well.
2. POWER OF ATTORNEY
An attorney acting under a power of attorney document is a person who can make decisions on your behalf, usually when you’re incapable of doing so. More specifically, a continuing (or enduring) power of attorney for property document names the person who will manage your financial matters, while an attorney acting under a power of attorney for personal care document (or the equivalent in your province) makes decisions about your healthcare needs.
3. LIFE INSURANCE
Life insurance protects the financial security of your family and helps them maintain their lifestyle after you die. It can also help pay the taxes and other liabilities that will arise on your death.
4. FUNERAL WISHES
5. ORGAN DONATION
6. FINANCIAL PLANNING
7. DIGITAL ASSETS
From bank accounts to your Facebook page, your so-called “digital assets” will need to be dealt with when you die or if you become incapacitated.
A financial power of attorney (POA) is a legal document that grants a trusted agent the authority to act on behalf of the principal-agent in financial matters.
This POA gives the agent the power to manage the financial life of the principal when that person is unable to do so.
The agent can legally manage the principal’s finances and property, make all financial decisions, and conduct all financial transactions that are within the scope of the agreement.
A power of attorney (POA) is an essential estate planning document. But you (and especially your agents) need to know its limits and how to maximize its benefits.
In a POA, the principal (you) names one or more agents (often an adult child) to act on your behalf. The POA can be general, empowering the agent to take any action on your behalf, or limited, restricting the areas in which the agent can act.
You need a POA, because someone needs to manage your assets, pay bills, and make decisions if you become incapacitated.
In today’s world, privacy is more important than ever to protect ourselves from the seemingly ever-increasing number and types of predators.
Privacy may be enhanced with something as simple as the primary estate planning tool used. Some people choose a trust and others choose a will as their primary estate planning tool. A trust may have many advantages over a will, such as the ability to provide incapacity planning during life. But, perhaps one of the greatest benefits of a trust is that it can help protect privacy, both at death and during life.
A trust is a private document. By contrast, the other primary estate planning tool, a will, is a public document. If a will is used, it’s like publishing your wishes in the newspaper…or online. In fact, the wills of many public figures can be found online, and the wills of countless others are available with a simple visit to your local courthouse.
A will is subject to probate, which is a public proceeding. Thus, whatever is in the will, including the identity of the beneficiaries, whether the assets were left in further trust, the amounts bequeathed to each beneficiary, etc., are all public knowledge. The public would also have access to the value of the assets left to each beneficiary. It is exceedingly rare for a court to seal a will from public scrutiny. By contrast, a trust is a private document. While it might be released to beneficiaries, it is not released to the general public.
If privacy is important, consider utilizing a trust as a way of enhancing privacy and achieving other estate planning goals, as well.
Incapacity planning is a key component of estate planning because it protects your assets in the event of incapacity
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