An estate plan distributes assets according to your wishes and ensures loved ones are cared for after your death. It requires organization and strategy and begins with 5 Major Components of Estate Planning, these are the key legal documents that can address many areas of estate planning concerns.
Proper estate planning can provide tax savings and asset protection so that the bulk of your estate remains intact as it transfers to heirs. These major components of estate planning can be tailored to your individual needs and goals, regardless of the size of your estate. All estate documents must be part of a legally valid and enforceable plan to fulfill your wishes.
5 Major Components
A robust estate plan involves much more than simply creating a will. An estate planning attorney can help you craft a custom plan using these major components to meet your goals and needs while complying with state and federal laws.
1. Wills
A will is a legal document outlining how a person’s asset distributions will occur after death. An executor or personal representative named in the will oversees the asset distribution, proper court filings, and final tax returns for the decedent’s estate. When applicable, your will can appoint a guardian for minor children.
Without a will, known as dying intestate, the court implements asset distribution according to your state law which may not align with your intentions. It’s important to note a will only applies to assets owned solely in the name of the person who made the will. Jointly owned assets or those held in a trust pass directly to a designated beneficiary.
2. Trusts
A trust is a legal arrangement in which a trustee holds and manages assets to benefit one or more beneficiaries. Trusts can help avoid probate, minimize estate taxes, and care for minors or those with special needs. A trust is not subject to public probate proceedings as in the case of a will and provides greater privacy as assets don’t become part of public records.
There are many types of trusts, but the most common is a revocable living trust. It allows the person creating the trust, known as the grantor, to retain control of the assets during their lifetime. Upon the grantor’s death, the assets then transfer to the beneficiaries.
3. Powers of Attorney
A power of attorney is a legal document appointing someone to act on your behalf if you become incapacitated. This individual can manage your finances, make healthcare decisions, and handle other important matters when you can’t.
There are four types of powers of attorney:
- A general power of attorney is used when you are healthy and mentally capable.
- A durable power of attorney is effective upon signature and continues if you become incapacitated.
- A springing power of attorney only becomes effective if you become incapacitated.
- A health care power of attorney, surrogate, or proxy allows a person you trust to make health care decisions when you can’t communicate them.
Selecting someone you implicitly trust and know will represent your interests is crucial. They will have significant control over your affairs.
4. Healthcare Directives
Also known as living wills, advance directives, and other names depending on the state where you live, this combination of legal documents allows you to specify your wishes for medical treatment if you can’t communicate them yourself. The documents enable you to name an individual to follow your instructions and relay medical decisions to family and professionals.
A healthcare directive can include whether you wish to receive life-sustaining treatment, pain management, and other end-of-life care. They provide clarity and peace of mind for you and your loved ones during difficult times.
5. Beneficiary Designations
Beneficiary designations specify who will receive assets such as life insurance policies, retirement accounts, and other financial accounts after your death. Maintaining updated beneficiary designations is important when life circumstances change, such as divorce, marriage, or the birth of children. These accounts will pass directly to the listed beneficiary.
What if You Don’t Have a lot of Money or Assets?
Even if you don’t think you have enough money or assets, having an estate plan is still important for the following reasons:
· Guardianship of Minor Children
If you have minor children, it’s critical to designate a guardian if something happens to you, your spouse, or other parent. Without naming a guardian, the court will appoint someone to care for your children; this guardian may not be someone you would select.
· Healthcare Decision-Making
Even absent significant assets, you may still want to specify your healthcare wishes in the event of incapacity. An advance healthcare directive can help fulfill your wishes and provide clarity for your loved ones during a difficult time.
· Avoiding Probate
Going through probate can be time-consuming and expensive for those you leave behind. A well-crafted estate plan avoids probate and ensures your accounts and belongings are distributed according to your wishes and outside the public record.
· Protecting Your Digital Assets
Consider your online presence, including email accounts, social media profiles, digital photos, music, income-producing online storefronts, influencer ad revenue, and cryptocurrencies. More than ever, people have a tremendous presence or income in the digital world. An estate plan can address what will happen to your digital assets after your death.
Do I Need an Estate Planning Attorney?
Given the complexity of estate planning, working with an estate planning attorney is beneficial. An attorney can help you navigate the various components of estate planning and ensure your plan is tailored to your individual needs and goals in compliance with state and federal laws.
Each component of estate planning can affect another. For example, a trust can work with a will to provide for the distribution of assets not covered by the trust. A power of attorney can manage assets, not in a trust, and an advanced healthcare directive can work with a power of attorney to fulfill your healthcare wishes. Creating an estate plan where all facets complement each offers a smooth transition of your estate to loved ones.
An estate planning attorney can also review an existing estate plan routinely or when significant life changes occur. Regular estate planning reviews keep beneficiary designations current. Contact one of our attorneys to gain peace of mind for you and your loved ones. Give us a call at (207)848-5600 or check out our CONTACT page!
