You’ve heard the term “estate planning” before, but you’re not quite sure what it entails. Estate planning is a broad area of law, but knowing the basics will make it easier to navigate the process. Remember, you should also have an attorney by your side to help you with all of the elements of estate planning.
Elements of an Estate Plan
- Will – Without one, the state will decide who gets your assets!
- Power of Attorney – The person who will make financial decisions for you.
- Living Will (Advance Medical Directive) – Your wishes regarding the type of life-sustaining intervention you want or don’t want if you become terminally ill and cannot communicate.
- Health-Care Proxy or Medical Power of Attorney – The agent who will advocate for you on your behalf if you’re unable to because of an illness or other incapacitation.
- Trust – Optional, but important. A trust lets you set conditions regarding the distribution of assets. It can also help you to minimize taxes.
Questions to Ask Yourself
Estate planning is full of big decisions. You’ll have to ask yourself the following questions:
- Who should inherit your assets?
- Who will handle your finances if you become incapacitated?
- Who will make your medical decisions if you’re unable to?
Choosing Your Medical Power of Attorney
Deciding who your healthcare agent is going to be is major. The person you choose should meet these three requirements:
- They should understand medical information, specifically that which relates to your treatment.
- They should be able to handle the stress of making significant medical decisions.
- They should be trusted to always keep your best interests in mind.
What Are My Assets?
During estate planning, you have to decide where you want your assets to go. That includes:
- Retirement Savings
- Insurance Policies
- Real Estate Interests
- Business Interests
Assigning Power of Attorney
Everyone ages, and with that comes the risk of losing mental clarity. Along with health problems, your ability to manage your finances responsibly can decrease. Paying bills, handling your investments and making sound financial decisions can become difficult, which is why it’s so important to assign Power of Attorney well ahead of time.
The two main types of Power of Attorney in estate planning are:
- Springing Power of Attorney: This will only go into effect under specific circumstances set forth by you. Medical documentation and court orders will have to prove that it’s time for the Power of Attorney agent to step in.
- Durable Power of Attorney: Effective immediately; your incapacity to make financial decisions does not have to be proven.
When you choose a family member or friend to act as your agent, you don’t have to pay them. However, if you choose a bank or outside party, you’ll have to discuss compensation. That may include an hourly fee or a percentage of your assets.
Talking To Your Heirs
Once you’ve solidified your estate plan, it’s a good idea to talk about it with your heirs. It’s important to clearly outline your strategy ahead of time so that everyone’s prepared when it’s time to put the plan into action. This will (hopefully) eliminate any disagreements and confusion in the future.
The larger the estate, the more important it is to hire a reliable estate planning attorney. Your lawyer will protect your assets, create legal documents, give knowledgeable advice, update your estate plan, stay on top of new laws regarding estate planning and administer the allocation of assets.