Estate Planning is not a tool for the wealthy; it can involve more than just a will. An effective plan can help reduce taxes, avoid confusion, and save your family time and money.
A comprehensive plan includes documents, nominations, and appointments. It also helps minimize taxes, protect privacy, and avoid conflict.
The will is a document that outlines your wishes for how you’d like to leave behind certain assets and possessions. It also allows you to choose a guardian for your children if you should die and specify funeral arrangements and your favorite charities. While many consider the will the pinnacle of estate planning, it is only one part of a comprehensive plan.
A will requires your estate to go through probate I, which can take months or even years to complete. This process can add to the cost of distributing your belongings and may prevent your intended beneficiaries from receiving their inheritance as quickly as possible. A well-drafted will can eliminate this potential problem and prevent disputes among family members.
In addition to a will, you’ll want to create a living trust and power of attorney. Power of attorney is a document that grants authority to another person or entity to make legal and financial decisions on your behalf if you are unable to do so for yourself. It is important to update your documents as your life changes, and consult with a trusted legal and/or tax professional to ensure that you’re taking advantage of all of the available options for reducing taxes, fees and court costs.
There are a number of different events that may trigger the need for estate planning, including marriage, divorce, birth or death of children or grandchildren and new investments. Depending on your unique situation, you may also want to consider creating a 529 college savings plan or setting up special needs trusts. These types of trusts are designed to provide for disabled beneficiaries without affecting their eligibility for government benefits.
Trust
A trust is a legal contract that ensures your assets are privately managed and distributed according to your wishes both during your lifetime and after your death. It is often used to minimize taxes and help avoid the lengthy probate process that can come with a Will.
The most common type of trust is a revocable living trust. This kind of trust allows you to keep control of your assets during your life and can be amended or revoked at any time. It also gives you the ability to set stipulations on inheritance, such as awarding a dollar amount for certain life events or requiring that assets be given back to you if a beneficiary fails to follow through with a specified goal.
It is also important to know that a Trust can’t do everything a Will can. For example, the trustee of a Trust must be a qualified person under state law, and it cannot be used to transfer property that is subject to a mortgage or lien unless the lender consents. It is also generally more expensive to create a Trust, but it may be worth the additional cost for some people.
With new laws and a changing landscape, it is important to review and possibly update your estate plan periodically. This is particularly true for those with young children or family members with special needs. It is also a good idea to revisit beneficiary designations on retirement accounts, investment accounts, and life insurance policies at least once every 20 years.
Power of Attorney
A power of attorney is a legal document that allows one person, known as the agent, to act on behalf of another person, known as the principal. It is a common element of estate planning as it allows people who are concerned about losing their ability to manage their own affairs in the future to choose someone to do so on their behalf. There are six types of POA, and a proper set up can reduce the chance that a court-appointed guardian or conservator will be needed.
A good estate planning lawyer can help people create an effective power of attorney that aligns with their unique circumstances. This includes helping people establish clear guidelines and instructions that their agent will be obligated to follow. It is also important to make sure that the scope of authority granted is limited and that any possible self-dealing is addressed. A lawyer can also help with selecting an agent and ensure that the person chosen is capable of managing financial and investment matters as well as more complicated issues such as settling a property sale or filing tax returns.
When it comes to medical decisions, there are separate documents such as living wills and advance directives that allow people to name a healthcare agent to make health care decisions on their behalf when they are unable to do so themselves. Having these in place can also help to reduce the chance that family members may argue over what is best for the patient or that a loved one might be abused by a nursing home or other caregiver.
An estate planning lawyer can help with setting up these forms and ensuring that they comply with state law. They can also help with selecting the best type of power of attorney based on individual needs, drafting clear language to ensure that an agent’s duties are understood and reducing the possibility that a power of attorney will be misused.
Health Care Directive
The health care directive is an important component of a comprehensive estate plan. It allows you to state your medical preferences in case you become incapacitated and can’t communicate with your doctor. It includes a do-not-resuscitate (DNR) order, comfort care wishes and organ donation instructions. It is also important to name a healthcare agent to act on your behalf. The agent can be your attorney, a family member or friend. Your healthcare agent can be granted general or limited decision-making powers.
While it may be difficult to discuss, the health care directive is an essential document for everyone. Your estate planning attorney can help you decide what type of documents you need. He or she can provide you with state-specific forms and help ensure they meet your legal requirements.
It is a good idea to keep a copy of your health care directive in a safe place and share it with your primary care physician, healthcare agent, and any close friends or relatives. You should also have a conversation about your plans with your loved ones to give them a better understanding of your preferences.
As your needs and preferences change, you must update your health care directives. Your attorney can help you with this process or direct you to a website that offers downloadable forms. Once you make changes, remember to update your documents and distribute the new copies to your physician, healthcare agent, and family members. You should also destroy any old documents and notify your healthcare agent, physician, and hospital of the changes. In most states, physicians must honor your advance directives unless they can demonstrate that they were obtained under false pretense or coercion.
Life Insurance
Life insurance is a key component of estate planning, providing immediate cash that can be used for paying taxes, final expenses and leaving heirs an inheritance. The death benefit from life insurance typically bypasses probate and courts, meaning beneficiaries receive the funds quickly.
Term life insurance is the most basic and affordable type of policy, covering you for a specific period (typically between 10 and 30 years). It is often used in estate planning to ensure that a finite amount of money will be available to pay funeral costs, debts or a monetary legacy. It is also sometimes used to provide for children until they reach a certain age.
Permanent policies like whole or universal life insurance can provide a substantial amount of coverage that is useful in estate planning. They can be designed to accumulate a cash value, and they may also convert to long-term care insurance in the future. These types of policies are often more flexible and useful in estate planning, as they can be tailored to meet changing financial needs.
Another use for life insurance in estate planning is to provide funds to cover federal and New York state estate taxes, ensuring that heirs will not need to liquidate other assets to meet these obligations. This can be especially important for larger estates.
Whether you are considering life insurance in your estate plan or have questions about other aspects of the process, it is always wise to discuss your unique situation with an experienced legal advisor. You can get expert advice from a provider law firm through LegalShield, which offers members the opportunity to talk with a lawyer, make a phone call, write a letter or review paperwork for just $20 per month.