Estate planning is necessary for everyone. It helps to accomplish goals around preserving assets and direct distribution; protecting spouse and minor children; fulfilling obligations to elderly or special needs children; protecting yourself and family in case of sickness or incapacity; and perhaps leaving a social legacy.
Here are some important legal documents to have in your estate planning:
- Last Will and Testament
- This document is the foundation of an estate plan and takes care of most of the basic functions, such as how, when and to whom assets and property are to be distributed at his or her death. It also names trusted individuals or institutions to handle the client’s affairs, and names a guardian for minor children.
- Dying intestate (without a Will) would allow the state to dictate distribution of an individual’s assets.
- Trust: Revocable Living Trust
- A Trust is a fiduciary arrangement created by the Grantor during your lifetime to help minimize probate by removing assets from the estate. It also helps minimize estate administrative costs and helps manage property and assets during disability, incapacity, or absence. A Revocable Living Trust (RLT) can be revoked, amended, or terminated and the property recovered by the Grantor. The Grantor is usually the Trustee of his or her Living Trust.
- It is useful in those states where probate costs are excessive and probate may be time consuming, leading to delays in settling the estate and distributing estate assets. Also, useful when an individual seeks privacy at death (e.g., celebrities, professional athletes, wealthy individuals). Must be coordinated with a Durable POA and a Pour Over Will (which provides that all other assets “pour over” into the Trust at death).
- Living Will
- A Living Will can help ease emotional stress for loved ones by providing end-of-life decisions to be made on the individual’s behalf.
- Health Care Proxy or Directive designates another person to make medical decisions for the patient if that individual can’t make decisions by him or herself. Without them, the individual’s wishes for medical treatment may not be considered and will be made by doctors and family members, who may not know of the individual’s wishes and intent. In many states, this is incorporated into the same document as the Living Will.
- Financial Power of Attorney
- Allows a designated individual to manage a person’s financial affairs in the event of disability, incapacity, or absence, with power being limited or broad.
- Life Insurance
- Provides insurance proceeds to the insured’s named beneficiaries at his or her death. Life insurance can be an integral part of a strategy, whether it be financial, business, retirement or estate planning, during all stages of an individual’s life.
Using Beneficiary designations is often overlooked as an estate planning tool, but it allows clients to direct what happens to the proceeds of life insurance, or Qualified Retirement Plans, Pension Plans, IRAs, or annuities. Then there are transfers by law, such as Joint Tenancy with Rights of Survivorship. This is a feasible strategy for small estates with no federal estate tax issues, as it helps to minimize probate.