Resolving to review or create an estate plan is a good way to start off the new year and protect loved ones. Doing so can help ensure that assets are properly controlled and distributed in the event of mental disability or death.
Why Make an Estate Plan?
One does not need to be a millionaire to benefit from estate planning. An estate plan is a legally-binding way to provide instructions to be followed in the event a person becomes mentally or physically unable to handle his or her property or financial affairs. Even when an estate plan exists, it should be reviewed each year and updated to reflect changes in financial, tax, and personal or family situations.
What Should Be Included in an Estate Plan?
An estate plan should include several key documents:
- Durable financial power of attorney. This document names one or more financial agents that can take over the individual’s financial affairs and make decisions in the event of a mental disability whether by illness or injury. When this document does not exist, it may be necessary for the court to step in and appoint a conservator who would then follow the orders of the court.
- Health care power of attorney. This document names a health care agent who can act on behalf of the individual in the event of mental disability. It should include information as to whether it is the individual wishes to donate his or her organs, provide permission for medical information to be given to the named agent, and a living will/advanced medical directive to provide instructions regarding end-of-life care or when to withhold life-sustaining treatment.
- Last will and testament. This document helps avoid assets being tied up in probate after death. It names an executor and instructions on how property and assets should be distributed after death.
- Creating a trust. This document can be useful during life and after death to handle the distribution of assets without the need for probate or court supervision. It can provide more benefits and protections than a will, especially when making provisions for minors, young adults, certain family circumstances, and even surviving pets.
- How the trust will be funded. When creating a trust, designations need to be made to fund the trust. Therefore, the trust can be named as the beneficiary of its designated funding sources, such as life insurance policies, investment accounts, real estate holdings, bonds, stocks or other financial vehicles.