Some people think estate planning is only necessary for the very rich. Truth is, everyone should have a basic estate plan. Regardless of the value of your assets, you need to prepare now to ensure your money and belongings are distributed in keeping with your wishes following your death. Understanding the basic concepts and vocabulary of estate planning can help you produce an estate plan that ensures your wishes are known and followed.
Laying the Foundation
A last will and testament is the most basic estate planning document. It states how you want your property distributed after you die. Your will also names an executor, commonly referred to as a personal representative, to manage the distribution of your assets, pay your final bills, oversee outstanding finances and file necessary tax paperwork as part of the estate settlement.
Another important aspect of your will is naming a guardian for your minor children. Failure to do so could allow a court to award custody of your children to someone you would not otherwise choose.
Your Medical Wishes in Writing
You may have strong feelings about the extent of the medical treatment you wish to receive when and if you are unable to make health care decisions on your own. Legal documents known as advance directives make your family and health care providers aware of your wishes. A living will spells out the conditions for receiving or not receiving life-sustaining treatment.
Alternatively, a durable power of attorney for health care (sometimes called a health care proxy) authorizes a trusted person to make medical decisions on your behalf if you are unable to make them for yourself.
You may also want to assign a durable power of attorney for finances. This document names the person to act on your behalf in financial matters in the event you are incapacitated.
Beyond Your Will
In addition to your will you may consider the establishment of a trust. For example, a revocable trust may allow your estate to avoid probate entirely. Additionally, if you have minor children, a trust may be utilized to establish rules for the distribution of money and/or property over a set period of time. A trust can also be used to enact large charitable donations, among other things. You should consult your attorney to discuss the best options for your individual needs.