Estate planning can be daunting. However, understanding a few fundamentals can push you in the right direction. The following are the basics of an estate plan:
Will. A will creates a blueprint to transfer your probate assets in a manner consistent with your wishes. In addition, if you have young children (in age or in heart), a will is strongly advised, if for no other reason than to appoint a guardian for minor children and set something up to handle the finances for them if you meet an early demise.
I often get asked for the definition of “probate.” In short, the probate process is a court proceeding for transferring assets held solely in your name at death. A will is not a specific method to avoid probate. If you have a will as your sole estate plan, your estate will likely go through probate. There are different methods of avoiding probate, but such vehicles differ based on your needs and asset makeup.
Durable Power of Attorney. This document appoints an agent(s) to handle your real estate, banking, and other financial matters during your lifetime, including if/when you become incapacitated. An effective durable power of attorney permits an individual to act on your behalf without going through a court proceeding.
Health Care Directive. The health care directive describes how you wish to be treated in the event of your incapacitation and typically appoints an agent(s) to make medical decisions for you. The directive also allows you to describe your wishes with regard to funeral arrangements and organ donation.
Financial assets. To make an estate plan, you need to know what you own, with whom you own it, and where it is located. Exact values are not necessary, but take an inventory of assets you own and a rough estimate as to each asset’s value.
Beneficiary designations. A great method for avoiding the probate process is to establish your assets with pay-on-death or transfer-on-death designations. Properly designating such assets makes them “non-probate” and not subject to a court proceeding at your death. If you can make all of your assets “non-probate,” your estate can often avoid the probate process altogether.
Life situations and assets change, so revising your estate plan periodically is just as important as creating an initial plan. For most people, I suggest reviewing your estate plan every three to five years to be good practice. If you create and review these items on a regular basis, you can take control of your assets and ensure proper distribution in the future.
Disclaimer: The information in this article is for general information purposes only and is not to be interpreted or used as legal advice.