Estate planning, put simply, is the process of preparing a plan for your assets and family in the event that something should happen to you in the future. It helps creates clear and enforceable instructions to ensure that your wishes are properly carried out as you intend them to be.
Creating an estate plan is a highly important undertaking for the welfare of you and your dependents if you become incapacitated or after you die. This comprises many different kinds of legal documents.
In this short explainer guide, we’ll run through some of the most important forms of estate planning that you’ll encounter when creating your own plan. This can help you prepare the right solution to deal with your own unique situation and circumstances.
Do I Need an Estate Plan?
A good estate plan is a sure way to protect yourself and your family if you become gravely ill or die suddenly. Therefore creating an outline for how you would like to have your estate handled is a good idea at almost any age.
When thinking about creating your future estate plan you need to be mindful of a number of different needs depending on your circumstances. These include preparing for your:
- Health and care needs
- Managing your property and finances if you become incapacitated
- Looking after family and dependent loved ones in your absence
Having a good estate plan can help provide peace of mind that your wishes for your property and family will be properly carried out. It will also ensure that your loved ones have a clear idea of how to manage your estate when you no longer can yourself.
Examples of Estate Planning
There are many different types of legal forms you can use to manage your needs. Some of the most common documents used in estate planning include the following.
Last Will and Testament
A Last Will and Testament is perhaps the best-known form of estate planning around. You can use a will to name successors and distribute your assets and finances after you die and also to appoint guardians over children in your care.
To ensure your will is successful in its vision, you should make sure that your document conforms to the precise estate laws of your state. It is also sensible to make your plans for your estate known to those who it might affect to avoid any expectations or disappointment when you pass on.
Power of Attorney
Drawing up a Power of Attorney can help you plan for your old age and possible incapacity in the future. With a Durable Power of Attorney, you can appoint one or more Agents (or Attorneys-in-Fact) who will be empowered to make decisions for you and sign contracts on your behalf even if you are unable to do so yourself.
Advanced directives allow you to create a plan for your future medical needs. These can take many different forms, such as:
- Living wills
- Healthcare proxies
- Medical Power of Attorneys
These all have one thing in common, they all allow an individual to clearly specify their treatment preferences if they should become injured, disabled, or unconscious. In the case of Medical Power of Attorney and healthcare proxies, a person is named who can make medical decisions for the patient when they cannot themselves.
Living wills on the other hand are a series of instructions and wishes for how the patient would and would not like to be treated medically if unconscious. Doctors must respect these desires when treating the individual.
Estate Planning with Trusts
Trusts are a popular way of distributing an estate as they are usually exempt from probate law and estate taxes. They function in a similar way to a will as they set out a plan for how an estate will be distributed to your chosen successors and beneficiaries.
The big difference between wills and trusts, however, is that a trust allows the distribution of these assets to happen whilst you are still alive. Trusts also set more limits on how a beneficiary can use the funds and assets provided by the estate.
There are many types of trusts that can be created, including:
- Living trusts
- Charitable trusts
- Asset protection trusts
- Spendthrift trusts