When people discuss their future and retirement, the term “estate planning” often comes up in conversation. Estate planning allows you to ensure your wishes are honored if you’re able incapable of making decisions or upon passing away.
What’s Estate Planning?
Estate planning is the act of preparing your estate for your family and loved ones after your death. Estate refers to all property, including real estate, bank accounts, stocks, life insurance, and personal property a person owns. Estate planning helps you identify the family members and loved ones that will receive your estate after death.
Estate planning guarantees everything will be transferred to those you’ve previously identified, avoid the time and cost associated with the process of estate planning after you’ve passed, and set the plans for other things, such as funeral and burial arrangements.
Understanding The Basics
Having an estate plan is the most thoughtful plan you can have in place for your loved ones. Estate planning involves many aspects of a person’s assets. It manages someone’s personal properties and financial obligations, in case of disability. At the same time, it provides a path for family members, including spouses and children, to use their loved one’s assets once they passed.
These are the essential functions estate planning helps with:
- Limits estate taxes through trust accounts in the name of beneficiaries to cut down on taxes when the time comes to start the transfer.
- Establishes a guardian for living dependents in case of death.
- Names an executor to oversee the will.
- Sets funeral arrangements
- Establishes donations to charitable and non-profits organizations
- Sets a power of attorney to manage assets and investments in case of disability.
Estate Planning vs. Will
Some people confuse estate planning with having a will when in fact, estate planning involves having a will. A will is a legal document that includes your wishes as to where your assets will go after death. Meanwhile, a comprehensive estate plan consists of a will, a power of attorney, and trusts for your children or a favorite charity, if you choose.
Estate Planning Checklist
Estate planning involves much more than drafting a will. A successful estate plan includes everything your family and loved ones will need to access control to your assets after your death. The simplest estate plan should include:
- Wills and Trusts – the main components of an estate plan to ensure assets are distributed according to your wishes. A trust also helps limit estate taxes and other legal challenges that may occur.
- Power of Attorney – choosing a person or an agent that will act on your behalf when you’re unable to do so yourself. Without a power of attorney, the court system may be left to decide what happens to your estate if you’re found to be mentally incompetent or die.
- Beneficiary Designations – if a beneficiary is not appointed the court will be left to decide where your funds will go.
- Letter of Intent – this will be the document that states your beneficiary.
- Healthcare Power of Attorney – you should also look for a person that will be responsible for making important healthcare decisions on your behalf if you ever become incapable of doing so.
- Guardianship Designations – although some wills include this clause, it is best also to add it on your estate planning. This will help you choose a guardian for your minor children in the case of death.
The Bottom Line
Estate planning involves much more than just splitting your assets when you die. Focusing on having an estate plan will help your family members and loved ones feel secure and protected in the event of incapacity or death.