No one wants to think about dying. But an estate plan is more than just that. It is also a way for your wishes to be carried out if you are incapacitated in any way. Additionally, responsible financial planning for the future includes making sure that your assets are properly disposed of. This will make your passing easier for family and friends. At least from a financial standpoint. There are four essential elements in an estate plan: the will, power of attorney, healthcare proxy (also a living will or medical power of attorney), and a trust. Although complete estate planning should include all four, it doesn’t have to.
This is perhaps the most basic element of estate planning. Everyone should have one. It clearly distributes your assets, and you can name legal guardians for any dependents you might have. Having a will is an important part of financial planning for the future. You should update it regularly to reflect your current financial and life situation.
Power of Attorney
Power of attorney is important to plan for if you become incapacitated. Afterall, you still have bills to pay and assets to manage. Whomever you invest with your power of attorney is allowed to act in your name. However, you should be careful of this point. There are two main types:
- Springing power of attorney only goes into effect in cases where you have specifically determined it should. Additionally, your agent is required to obtain proof (in the form of doctors’ letters and/or court orders) that you are, in fact, incapacitated.
- The second form of power of attorney is known as durable power of attorney. This is effective immediately after appointment, and the agent does not need to wait until you cannot act for yourself to act in your name.
You can see why choosing power of attorney is an important decision that requires special thought.
The living will consists of your directions regarding medical care and life-support issues. A healthcare proxy is usually part of this directive. This means that if you are unable to make healthcare decisions, someone you trust is empowered to make decisions regarding your medical care. Making your wishes known through a living will and by communicating with your healthcare proxy are important parts of your eastate planning, as this decision could affect how soon the rest of your estate planning will be used.
Not everyone chooses to create trusts as part of their estate plannning. And anyone with a net worth of $100,000 or more can create trusts. These are specific financial arrangements in which you place your assets into an entity (everything must retitled in the name of the trust) to be managed. You can name a trustee or group of trustees to manage the trust if you are unable to do so, and you can stipulate that some of the money be used for your care as part of your financial planning for the future. Trusts also allow you to cut the amount of your estate that goes to taxes and probate court, and it allows you to set stipulations for heirs.
Financial planners or estate attorneys can help you work out your financial planning needs. Estate planning may not be the most pleasant thought, but it is a good part of financial planning for the future. It can ensure that you are cared for, as well as your heirs.
For more information on estate planning, visit the Web site of the National Association of Financial and Estate Planning.