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Making a plan for what happens to your assets after you die may not seem too thrilling, but it’s worth spending some time doing.
Our estate planning lawyer is here to teach you about why estate planning is important, and what every strong estate plan should include.
What is Estate Planning?
In the simplest form, estate planning is when you formally designate beneficiaries to receive your assets when you pass or become incapacitated and are unable to make your own decisions. Besides distributing assets, your estate plan will also name a guardian to your children if they are under 18.
It's also important to protect yourself if you become incapacitated. – estate planning also lays out who has power of attorney for your medical and financial decisions if the worst-case scenario happens.
What is an Estate?
Almost everyone has an estate (including you). Your estate is simply a culmination of all the things you own. For example, the following assets would all be considered part of your estate:
Home
Cars
Jewelry
Cash
Stocks
Life Insurance
Clothes
An estate isn't limited to any specific dollar amount. Regardless of the size of the house you own or the type of car you drive, everyone should have a proper estate plan.
What is the Purpose of Estate Planning?
The purpose of an estate plan is to make things easier for your loved ones when you pass. It helps them financially and makes distributing your assets much simpler. Not to mention, it helps limit arguments over your belongings.
Also, a well-put-together estate plan could prevent your assets from entering probate, which could turn into a long, complicated process.
When someone passes away without an estate plan in place, their state's laws determine what happens to their assets. If both parents pass away with children under 18, the lack of an estate plan also means the court decides who takes guardianship over the children.
What Does an Estate Plan Include?
Having your ducks in a row will make allocating your assets a seamless process – the more detail the better. When beneficiaries aren’t listed, the distribution process will take longer.
To avoid delays, we recommend including the following documents in your estate plan.
Trust
A trust generally gets used when you want to assign some part of your estate to a young person. Depending on your state, this is usually someone who is under 18 or under 21. With a trust, you assign someone (a trustee) to hold an asset for the benefit of a third party.
Example: You want to leave your home to your only grandchild, but they are 12 years old. You first designate someone as a trustee. The trustee holds the house until your grandchild is old enough to have it signed over to them. Again, depending on your state, the age is either 18 or 21.
Last Will and Testament
A last will and testament – or just known as a will – is a document outlining who gets each part of your estate. Besides asset distribution, you will also assign someone to settle any remaining debts.
Most people choose to fill out an existing will template for the sake of simplicity, but you can handwrite or type your own will. We recommend using a template because it’s almost guaranteed to include every necessary detail. It's easy to make mistakes when writing your own will, and a court may deem it invalid.
Besides including the correct information, you must satisfy the following conditions for your will to be valid.
You must be at least 18 years of age and be competent.
Your will must be a hard copy and legible if handwritten.
Two witnesses must watch you fill out and sign your will as well as sign it themselves. You can choose the witnesses as long as neither one is your spouse or beneficiary.
Explanatory Letter
An explanatory letter is a letter to loved ones or an executor. It is not required but is often a welcomed addition to your estate plan.
Explanatory letters explain why certain people are receiving particular assets. This makes the allocation process more personal and can help people understand your reasoning.
Power of Attorney
A power of attorney is an authorization that grants someone (an agent) permission to take control of all your affairs (the principal). It is used in the event you are unable to make decisions for yourself.
There are a few different types of power of attorney – each grants the representing agent different authorizations depending on the written agreement.
General power of attorney - A general power of attorney has a lot of authority. They can manage bank accounts, investments, property, assets, and file taxes.
Limited Power of Attorney - Limited power of attorney only gives authority to do things specifically stated in the documented agreement. For example, managing an investment portfolio or paying bills.
Durable Power of Attorney (DPOA) - A durable power of attorney can give the agent the ability to make decisions on legal matters, financial decisions, and decisions on assets. The agent cannot make medical decisions for the principal, but they can pay the bills on their behalf.
Healthcare Power of Attorney (HCPA) As a subcategory of DPOA, a healthcare power of attorney does give authority over medical decisions. These decisions must be in the best interest of the person they are representing.
Financial Power of Attorney - A financial power of attorney also falls under the durable power of attorney category. This title allows the agent to make decisions concerning business, taxes, and investment accounts.
Guardianship Designation
Guardianship designation is only necessary if you have one or more children under 18. In simple terms, this document states who you want to gain guardianship of your child or children in the event of your passing.
To be valid, two people need to witness the signing. Neither of the witnesses can be the person being designated guardianship. However, they must sign it with you.
How to Start the Estate Planning Process
The first step is to take inventory. Log your assets and debts so there are no surprises when allocation happens.
You should also start thinking about what items you want going to certain people. Estate planning is important regardless of the stage of life you're in or the monetary value of your assets.
It's beneficial to hire an estate planning attorney for help with necessary documents. They will be able to give you tips on appointing executors to ensure your last wishes are carried out.
An estate planning attorney can help ensure your family doesn't end up in a tough spot when the time comes.
Do You Need Help With Estate Planning?
AtCAUSE Law has an experienced estate planning attorney to help you every step of the way. We will make sure everything is in perfect order so your family doesn’t have to worry. Don’t wait until it’s too late -- contact us today.