An estate plan will safeguard your wealth and set your legal documents in order. A properly drafted estate plan will save your family members from unnecessary probate processes, taxes, and family feuds when you are incapacitated or die.
To create a comprehensive plan, here are some estate planning basics to guide you:
Create a Will
It is crucial to create a will to guarantee your property is distributed to your loved ones during your lifetime. It is essential to have a will after you die to guide decisions regarding:
Who will execute your wish
Who will get your assets
Who will take care of your minor children
How to pay your estate tax and debts
Although a will becomes effective after your death, it ensures that the court does not make wrong decisions on your behalf and helps avoid beneficiary mistakes. In the will, you will name an executor to oversee the probate process and ensure that your property is distributed regarding your terms.
If your children are minors, you should name a guardian who will take care of them when you and your partner are absent. Ensure you include a date and sign the will in the presence of a witness in order to name a custodian who will make financial decisions, health care, and other obligations on their behalf until they are of legal age.
Also, you can establish a living will, also known as an advance directive. The purpose of a living will is to specify what kind of medical care you would like to receive if you were unable to communicate or make decisions for yourself. Therefore, you will need to appoint a healthcare proxy to make these decisions.
Select a Power of Attorney
A Power Of Attorney (POA) is an essential legal document that permits another person to represent you in specific legal and medical matters. In a POA, you appoint an individual/agent who will act and make major decisions on matters in your place.
Although There are various types of power of attorney, each will govern when such power takes effect and expires. It is naturally revoked if you have a non-durable power of attorney when you become mentally or physically incapacitated.
Without a power of attorney, the court will appoint one to act in your place. In contrast, a durable power of attorney will still be effective in your incapacitated state.
Set Up Guardianship for Children
In estate planning, selecting a guardian for your minor children is essential to avoid a situation where a court will have to choose one for you if necessary. A legal guardian is someone you nominate to act on your behalf or take care of your children or dependents after your death or incapacitation.
The legal guardians have custody of the children and the authority to make decisions concerning their protection, education, care, discipline, etc.
Legal guardianship is assigned by a court, such as the family court, according to state laws. If you nominate a guardian, include it in your will so that their role will be effective after your death.
Before you appoint a guardian, make sure you consult them ahead of time. You should also include a backup guardian in case your first choice becomes unavailable or is not ready to take care of your dependents.
Create a Living Trust
As part of your legal estate planning, a living trust ensures that your assets/property are properly managed and distributed during your lifetime and after you pass away. Living trusts are trusts that “own” the property you place into them but still allow you to have control over the assets in the trust.
Even though living trusts come in a variety of forms, each ensures that your assets are correctly transferred to your beneficiaries and that federal estate taxes are avoided. Some trusts are specifically set to benefit married couples, others selected beneficiaries and pets, while others benefit charities and nonprofits.
The two major types of living trusts are revocable and irrevocable trusts:
- Revocable trusts have provisions that can be modified or canceled according to the wishes of the trust’s creator or grantor. Income earned by the trust is distributed to the grantor during the grantor’s lifetime, and property passes to the beneficiaries after death.
- An irrevocable living trust is a trust that cannot be modified without the consent of its beneficiaries or a court order. By transferring ownership of assets into the trust, the grantor legally removes all ownership rights to the trust and the assets.
Advantages of Trusts
Estate planning trusts have certain advantages over wills, including:
Asset protection during your lifetime. Your trust documents can tell how you want your estate handled if you become incapacitated. You can include instructions for distributing assets to loved ones, paying bills, and filing taxes. Trust funds can be used to pay medical expenses if you fall ill.
Avoiding probate. While a will has to undergo a probate court process to prove its validity, a living trust does not. A trust avoids the lengthy, costly, and public probate process that comes with assets in a will.
Privacy protection for you and your loved ones. Because trust assets aren’t subject to probate, your beneficiaries’ information remains private during probate.
Providing you with flexibility and control. Having a trust gives you more control over your beneficiaries.