Although it is often difficult to consider the end of your life, it is essential to have an estate plan in place. Since it is impossible to know exactly when the end of your life is coming, you should put it together well before you reach old age. Since this is not a task that you engage in often, you might not know exactly what to include in your estate plan. The following guide will help you know what documents to gather as you are putting your estate plan together.
A will is likely the most well-known estate planning document. Many people operate under the assumption that only wealthy people need to have wills. However, that assumption is wrong. Everyone should have one. A will makes any asset transfer less confusing and difficult. The purpose of a will is to tell the deceased person’s executor exactly how to divide the assets. It often specifies in what order heirs can receive the assets that are left to them. This information is particularly helpful when funds run out before all of the bequests are made. A will can also specify how physical belongings should be doled out after your death. There are three main reasons to create a will:
- You never know the time or place when your life will end. When you had children you took on the responsibility to care for them. Providing for them in your will helps to assure they are cared for should you die before they become legal adults. If you do not specify legal guardianship of your children in a will, the court will make the decision in the event of your death. Making the designation in a will will let the decision be yours.
- If you do not have a will, any assets you accrue will be divided without your input. But, writing everything down in a will guarantees that you have a say about where your assets go after your death.
- It costs money to die. A large portion of your estate will be taken up by estate taxes, as both state and federal governments will take their share. If you do not leave a will, your estate will go into probate and then more money will be taken out in legal fees. So, simply writing a will will save money which will allow you to have more assets to leave to your loved ones.
A living trust is a document that handles property management information for one’s life and after death. This document will also name a successor upon your death or incapacity. Not only will a living trust manage the trust property, but it can also help to avoid costly and public court-supervised distribution of the estate, which can be inconvenient. Before you create a living trust, you must keep in mind that only the assets that are placed in it can be covered by the living trust. So, you must make sure you have everything that you want to be protected in it. A well-written living trust can accomplish the following issues:
Avoiding probate on your assets
- If you only have a will, your estate may still end up in probate. However, a living will can prevent that. The result is a faster distribution of your assets. Often a living will can be settled within a few weeks of your death, rather than the months or years it can take with a will alone.
- Having a living trust might save you money. Although it will initially cost more to create a living trust than it does to write a will, it will save the money that will be spent in probate.
- A living trust prevents your personal financial information from becoming public record.
Protection from court challenges
- Living trusts seldom get challenged. So, having one will save you costly and long court battles. Also, if there is a challenge, it is more difficult to attack a living trust than it is a will.
- Life can sometimes throw you a curveball. If you end up incapacitated, a living trust can be useful in determining important information regarding your financial affairs. This can be helpful for families who become overwhelmed by caring for an incapacitated individual.
Medical power of attorney is a document that allows you to designate another individual to be your representative in the event that you become unable to communicate decisions about the aspects of your health care. The person who is designated as the representative should be someone you trust to make the decisions you would make if you were able, taking all considerations into account. Often decisions that need to be made include the designation of a physician, donation of organs, and the appointing of a legal guardian should one be needed. There is also a possibility that your representative will have to make life-altering decisions regarding life support measures, so it should also be someone who can mentally and emotionally handle that type of responsibility.
Medical power of attorney goes further than a living will, as that document is confined to individuals who are terminally ill or permanently unconscious. Medical power of attorney extends to those who are temporarily unconscious, or in any way unable to communicate, but are not terminally ill or in an end-stage of life. The benefits of having a medical power of attorney include:
- Having the ability to choose your own advocate rather than having the court appoint someone
- Provides the family with the opportunity to have an open and honest discussion about one’s wishes
- Prevents any questions about what your wishes are
- Prevents delays in the decision-making process
- Provides peace of mind for everyone involved
A durable power of attorney is a document that allows elderly people to designate a representative to make decisions regarding health, legal, and financial matters on their behalf. In terms of the durable power of attorney, the elderly person is referred to as the “principal” and the designated representative is referred to as the “agent”. Although a durable power of attorney is designed for the elderly, families should start planning for it when they are young, as it is ideal to have the document in place before an issue arises and the principal is still capable of making important decisions. Since this is the best time to create a durable power of attorney, the document should state that it does not go into effect until the principal becomes incapacitated and unable to make logical decisions. A durable power of attorney is essential to have because without it loved ones are not legally allowed to make financial or medical decisions that affect someone who has become incapacitated or incompetent. If Medicaid is needed for your elderly loved one, even that decision would not be able to be made without a durable power of attorney.
A durable power of attorney can be written in a way that only allows the agent to have certain responsibilities. If the principal desires, the agent can also be given full responsibility for all financial and medical responsibilities. Some specific financial duties that may be assigned to an agent include paying bills, selling assets (including the family home), and dealing with the IRS. Specific medical duties that may be assigned include making critical decisions about health care and choosing a doctor.
Including a document regarding guardianship in your estate plan is essential, particularly if you have minor children. Although many people do not think about dying until they reach old age, the reality is that it can happen at any time to anyone. Dying when you have young children is tragic, but the event can become even more so if you do not have a document in place that dictates who will raise your children if you and your spouse are no longer living. Many people assume that they can name a guardian in their will. However, a will has limitations and it only goes into effect after your death.
So, if you need someone to care for your children on a temporary or permanent basis while you are still living, it will not stand up. A guardianship document allows you to name the exact person or people who you want to be personally responsible for raising your children in your stead. Although guardianship is most often associated with minor children, they are not the only ones who may need guardians. You can also determine guardianship for elderly parents or any other people who cannot care for themselves. Having guardianship for people in your care arranged in the event of your demise or incapacitation has many benefits including:
- It allows parents to plan for the future without terminating parental rights
- The designation in the document can be revoked at any time if parents change their mind as to whom the guardianship should go
- Knowledge that your children (or elderly parent) will always be cared for by someone who loves them
- If you do not name a guardian, custody will be decided by the court and not you
Although the above documents are the most important to have in your estate plan, you can supplement them with any or all of the following documents:
- If you have any beneficiary forms for life insurance, retirement accounts, IRAs, or other similar accounts you should include them with your estate plan. Always make sure they are up to date, as they will be taken into account over anything that is specified in your will. Also, be sure to keep copies of these papers for your records.
- A living will or advanced medical directive is essential so your family is clear about your wishes for the end of your life. If you have a chronic illness, you can tailor it to your condition.
- You should also include an assets inventory with your other important papers. This list should include all of your bank account information, brokerage accounts, life insurance plans, and retirement plans. Do not forget to include valuable items such as artwork, jewelry, and collectibles. Always make sure it is updated.
- A contact list is helpful in case you cannot remember the numbers or if someone needs to contact people for you. People to have on the list include doctors, lawyers, bankers, tax advisors, and utility and service providers.
- If you have assets that need to be accessed digitally, write down the access information in a place that is safe and secure.
- If you have specific funeral arrangements you want to have followed, be sure they are written down and placed with your other documents.
- Sign a HIPPA release form and keep it with your other estate planning papers. This form will allow your loved ones access to your medical records if you are incapacitated. If you do not have this form, there is no way for them to get access to this information.
The better prepared you are for the end of your life, the easier it will be for the loved ones you leave behind to act according to your wishes. Not only should you have a solid estate plan in place well before you reach old age, but you should also update it whenever you have a major life change. Remember above everything, that the documents you include in your estate plan will provide pertinent information about your final wishes. The best way to make sure your affairs are taken care of in the way you intended is to have these documents and to always make sure they are in order and up-to-date.