Estate planning is important for everyone, no matter age, wealth or health. An estate plan acts as a safety net that helps preserve the value of a person’s assets, minimizes wait times for disbursement and helps ensure a desired legacy is carried out. A formal estate plan, enforced by proper, legally valid documents, can prevent tax penalties and legal tie-ups.
Before walking through the basics of an estate plan, we’ve made a more detailed Legacy Planning Checklist available for free download, which lays out all of the necessary items to complete for incapacity and death. In the document, you’ll find a legacy planning assessment, legacy planning checklist and family legacy worksheet.
Download the Legacy Planning Checklist
Generally speaking, every estate plan should include six elements:
- Will
- Trust
- Power of Attorney
- Beneficiary Designations
- Advanced Healthcare Directive
- Guardianship Designations
In addition, a well-curated estate plan should consider the purchase of insurance products, such as a long-term care insurance to cover old age, a lifetime annuity to generate some level of income until death and life insurance to pass money to beneficiaries without the need for probate.
Will
A will is a legal document that spells out a person’s wishes regarding the care of their minor children, as well as the distribution of property and assets, after their death.
Wills can vary in their effectiveness, depending on the type. The most common type of will is a testamentary will, which is a prepared document that’s signed in a witnesses’ presence. While it’s possible to write a will yourself, it’s better to prepare one with a trusts and estates attorney* for greater insurance.
*In search of a trusts and estate attorney? Contact us for our vetted, professional recommendation.
Trust
Working in tandem with a will, trusts act as a legal mechanism that lets a person put conditions on how their assets are distributed after they die, often to minimize gift and estate taxes.
Power of Attorney
Power of Attorney (POA) is a legal authorization that gives a designated person, the agent or attorney-in-fact, the power to act for another person, the principal. The agent can have broad legal authority or limited authority to make decisions about the principal’s property, finances or medical care.
Power of Attorney is most frequently used in the event of a principal’s temporary or permanent illness or disability, or when the principal is unable to be present to sign necessary documents.
There are many types of POA, but the most commonly used are Durable Power of Attorney and Springing Power of Attorney.
- A Durable Power of Attorney (DPOA) takes effect when the document is signed, effective when the principal is both cognizant and incapacitated. The DPOA remains in control of certain legal, property or financial matters specifically spelled out in the agreement, even after the principal becomes mentally incapacitated. However, the DPOA cannot make decisions related to the principal’s health. For example, taking the principal off life support is not up to the DPOA.
- A Springing Power of Attorney comes into effect only if and when the principal becomes incapacitated or upon the happening of a contingency.
Beneficiary Designations
A designated beneficiary is a person who inherits an asset after the death of the asset’s owners. Be sure that beneficiary are listed for the following:
- Life insurance.
- The balance of retirement accounts (IRAs, 401ks, etc.).
- Mutual funds.
- Annuities.
Related: Do I Need Life Insurance? 3 Variables to Consider
Advanced Healthcare Directive
An Advanced Healthcare Directive (AHCD) is a document that directly states what, if any, medical actions should be taken if a person becomes incapacitated and unable to make their own decisions.
Guardianship Designations
A designation of guardianship is a legal document used to name the individual(s) who will be the guardian of your person and estate in the event of your incapacity or disability. This document also allows you to name the individual you do not want serving in that capacity.
Guardians are most often named for minor children.
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