What Are Estate Planning components?
A will, guardianship designations, healthcare powers of attorney, beneficiary designations, durable powers of attorney, and a personal letter of intent outlining your wishes in the event of your passing or incapacity are all parts of an estate plan.
As part of their financial planning, many people do a great job of funding their retirements. But they frequently overlook thinking about what will happen to their assets when they pass away. An estate plan consists of these crucial parts. Below are the most critical estate planning components.
The Court Considers The Will the most critical component of Estate Planning.
A will is the first and most well-known component of estate planning. A choice can determine two things. First, it specifies who will act in your place as your “personal representative” and handle your finances and asset distribution. Second, it outlines the process for the personal representative. In the absence of a will, the state determines the personal representative and the distribution of the estate’s assets.
The court administers your estate will likely need in an expensive, drawn-out, and court-supervised manner unless the will specifies otherwise. Additionally, there is a requirement for your representative to post a bond, the price of which is determined by the size of the estate and the personal representative’s credit history. We remind our clients that a will’s relatively low cost is well worth it because it can avoid the formal probate process and pricey bond requirement.
Do you need the state to supervise your chosen personal representative, demand that they post a bond, and run a credit check to see if they are trustworthy? On the other hand, if you know a loved one will have to accept the position, shouldn’t you make it as simple and unobtrusive as you can?
Wills are crucial for everyone, not just the elderly and families with young children. In addition to making financial provisions for the kids, a choice can name a person or a couple to step in as the kids’ guardians. Without a will, it is unclear who would assume custody, and the state would ultimately decide after potentially contentious court proceedings during which the children would be in limbo. Most new parents wouldn’t want to leave this choice unresolved. It’s simply too crucial.
Assets for beneficiaries are held by trusts and legal entities separate from the person who established them. Various trust types can be considered, but revocable trusts are the most popular choice for middle-class families. These also go by the name “living trusts.”
Living trusts –
The main advantages of a living trust are that you can designate a trustee of your choice to look after your finances with your assets if you become permanently or temporarily incapacitated. A second-choice nominee is frequently included when naming spouses. Additionally, you can grant the trustee the freedom to decide how to use your assets to support your spouse and minor children while incapacitated.
The assets you put in the trust during your lifetime or in your will can be used by your trustee to support your family after your death. However, there is a requirement for the trustee to act by the directions you provided in your trust. For instance, you might instruct your trustee to distribute funds to the children for their education. In addition, the trustee can advise the beneficiary to receive the money when they reach certain ages or milestones in the trust document.
The relatively easy steps needed to transfer ownership of your assets into your trust can avoid probate altogether. Even if you choose not to do this, the confidence you set up will still help to make the probate process more accessible and less expensive. You might want to use a “pour-over will” to streamline the probate procedure and transfer your assets into the trust for management by your trust’s instructions.
However, irrevocable and living trusts protect specific assets you want to dedicate permanently to your chosen heirs. You can reduce estate taxes by using these assets legally and ethically, and your creditors and beneficiaries’ creditors also have protection. Of course, you must remember that these trusts are irrevocable.
Alternatively, you can create a testamentary trust within your will. You must go through the probate procedure to distribute the assets you place in a testamentary trust.
A special needs trust can help provide for a disabled child or adult without disqualifying them from benefits. They may be eligible under federal and state programs, which is beneficial for families with beneficiaries with special needs.
Power of Attorney
Power of attorney is a legal document that names a representative to handle your finances after you die. These are also crucial for single people who may not necessarily have strong candidates for the position.
You have great freedom in deciding how much authority and direction to give your designated representative, known as your attorney-in-fact, to handle your affairs in the event of your incapacity. Suppose the appointment of a guardian or conservator is necessary. You can even give the attorney-in-fact the authority to nominate a candidate if you don’t express your wishes in your power of attorney. Of course, the court will have to appoint someone who might not be who you would prefer.
Health Care Directive
Although most healthcare professionals offer a standard-form boilerplate healthcare directive, our practice is to integrate a personalized Health Care Addendum with the Power of Attorney in most cases. There are two main functions of the Health Care Addendum. First, it identifies the person you select to speak on your behalf when you are unable due to medical conditions. You might designate your spouse, parent, sibling, or adult child. For instance, to intervene on your behalf, communicate your wishes, and make sure that the court carries out.
Second, your Health Care Addendum expressly states your philosophy and wishes in the event of a severe illness or injury. Regarding whether and to what extent heroic measures should be taken to keep you alive. A Health Care Addendum can give anyone peace of mind. But it is especially popular with people who do not want to live more through machines in serious situations. Even if you have a Health Care Addendum in place, you can still express your wishes as long as you can do so.
Beneficiary Designations as estate planning components
Your written decisions regarding life insurance policies, retirement accounts, and bank accounts result in beneficiary designations. Most people are familiar with beneficiary designations in life insurance policies. They are also available in retirement accounts and bank accounts. Making these designations is simple. This requires filling out and sending the appropriate form to the account administrator. However, it is one of the most critical components in estate planning.
In making a trust, the beneficiary allows the assets to distribute by the provisions of your trust agreement. Therefore, it’s crucial to remember that beneficiary designations precede any distributions specified in your will.
Consistent Review and Revision
Simply writing up your estate plan and storing it in a file cabinet is insufficient. You must review your estate plan periodically (we advise an annual review) and document any necessary changes. A “codicil” is a legal term for a will’s modifications. However, the cost of a supplement is low, but a person should sign it with the same formalities as a will.
Additionally, you should maintain a thorough itemization of your financial assets. This will ensure that nothing will be outsight when your representative gathers your assets for distribution.