Creating an estate plan is not only for the wealthy or those who own a considerable amount of property. Most people think of estate planning only as having a will. While a vital document, a will is not an estate plan by itself.
Every plan is different and there are four or five estate planning documents that everyone should have regardless of their financial situation. First, let’s examine the two basic strategies for establishing an estate plan.
For individuals whose assets or financial situations do not warrant a revocable living trust, a will may suffice for naming an executor, passing assets to beneficiaries and designating a guardian for minor children. This strategy includes an advance medical directive, a living will and a financial power of attorney.
While mistakenly considered by some as an instrument only for the rich, revocable living trusts can be a more efficient way of passing along assets. This strategy includes the documents mentioned above and helps grantors avoid probate and reduce tax liabilities.
Defining these vital documents
An experienced estate planning attorney can help you find the strategy that best meets your needs. Your lawyer will help you put these instruments in place:
- Will: As described above, this document distributes your assets to beneficiaries, names an executor and protects young children. For trust-based systems, a so-called “pour-over will” is used as a safety net to include assets that are not included in the trust.
- Revocable living trust: This instrument not only helps you avoid probate and mitigates taxes but covers three important periods of your life – what happens to you and your assets while you are alive, if you become incapacitated and after your death.
- Advance directive: Also called a medical power of attorney, this document allows you to name a person who will make medical decisions for you if you cannot make them for yourself, for either physical or mental reasons.
- Living will: This document includes your instructions to health care providers whether you want life-saving measures taken if you are in an accident, contract a life-threatening disease or are in a vegetative state. It also gives your family members directions to follow.
- Power of attorney: Just like an advance directive names someone to make medical decisions for you, a power of attorney designates an individual to make financial decisions if you are incapacitated. These can be wide-ranging powers or limited to specific areas.
Keep your estate plan up-to-date
Creating an estate plan is the first step in preserving your legacy and making sure your assets are distributed according to your wishes. However, you should frequently review your plan with your attorney, especially when major life events happen, such as marriages, divorces, births, deaths or changes in employment.