Creating an estate plan may not seem urgent when everything is going on well until life happens. Tragedy or death can happen unexpectedly. While you can’t prevent such occurrences from happening, you at least have a chance to plan ahead and protect the future of your loved ones despite your absence.
You may be
asking yourself why estate planning is necessary. An estate plan will allow for
the distribution and management of your assets in case of death or mental and
physical incapacity. Picture a scenario wherein during your absence, your
assets are distributed to people you would never choose as beneficiaries, and
your loved ones end up destitute because your properties were wasted by the
wrong people. You wouldn’t want that, right?
The idea of creating an estate plan may sound intimidating, but it doesn’t have to be so, especially when the plan is broken down into easy-to-understand pieces. Below are the key elements of estate planning that you must prepare for:
1. Will
This is the
first and most recognized component of estate planning. A will is a legal
document that would contain instructions as to how you want your estate to be
distributed when you die. It names the executors of the will, beneficiaries,
and may also list all your assets. It can also contain instructions on how and
where you wish to be interred upon your death. A will also names appointed guardians if there are young or minor
beneficiaries.
The catch
is, you must know how to execute a valid will by following the laws of your
state. Failing to follow the requirements would make your will void or
inapplicable upon death. To be sure, you can check out online services like Willed that will help you create a valid
will online.
On the other hand, if you die intestate, the laws of your state will also have default provisions that would guide the division of your estate upon death. However, a lot of issues could arise from this scenario—especially if a family member is not satisfied with their share.
2. Trust
A trust is a
legal arrangement where a person gives another person their right over the
management and administration of a property. A trust can also be used to hold
and distribute properties in the name of your beneficiaries. When you put up a
trust, you will give instructions on when and how the beneficiaries will
receive the assets put in the trust.
There are two types of trusts:
- Revocable: You still have the power to control and revoke the terms of the trust.
- Irrevocable: In this type of trust, you’ll relinquish all your rights over the property held in trust and no longer have control.
3. Power of Attorney
This is a
legal document that authorizes another person (an agent) to act on your behalf.
It’s usually prepared with the help of a lawyer. The person you appoint is called
an agent, who’ll take over the running of your affairs in case you become
incapacitated. The appointed person should be someone that you trust because
they’ll have the power to make financial decisions on your behalf.
A power of
attorney can either be general or specific. A general power of attorney allows
the appointed person to take charge of your general affairs, while a specific
power of attorney is limited and only gives the appointed person power to
transact specific aspects of your property or business.
While a power of attorney is not generally controlling upon your death, it is still useful in the event that you’re hospitalized or when you’re physically or mentally incapacitated to manage your affairs.
4. Healthcare Directive
Also known
as a medical directive, this is a document similar to a power of attorney. The
only difference is that the appointed person will make healthcare decisions on
your behalf if you become incapacitated or terminally ill.
There’re two documents to be executed at this stage:
- A Living Will: This is a written statement that would give directives for your healthcare when you’re incapacitated or too ill to make medical decisions.
- Healthcare Proxy: This appoints the person who will make healthcare decisions on your behalf in case you’re incapacitated or terminally ill.
5. Beneficiary Designations
Your estate planning strategy should include an updated retirement plan with
beneficiary designations. The beneficiary designation outlines who will receive
your work benefits in your absence. You should however note that the
beneficiary designations usually override the instructions in your will. It’s
therefore important to revise it regularly as needed.
You can
create an estate plan by yourself or with the help of a lawyer, but either way,
it has to be implemented when the time comes. A qualified lawyer will help you
draw up the required documents, and advise you on the legal implications of
your plans or wishes. The lawyer will also help you transfer property to the
intended beneficiaries.
Working with
a lawyer will ensure that your estate plans and documents have all complied
with the requirements of the law, and their validity will not be
questioned—even when you’re gone.
Conclusion
Once you have an estate plan in place, it’s important to review it regularly to make sure it still reflects your current wishes. The way you relate with your beneficiaries can change, your health can get better or worse, or your financial situation may also change. Major events in your life may also change your perception of things. Therefore, reviewing the plan regularly will therefore ensure that the plan still reflects your true wishes and intentions.