All adults should have an estate plan in place so their loved ones know what their wishes are about a variety of areas. While most people think of the estate plan as something that only goes into effect when the creator passes away, there are some components that help your loved ones prior to this.
Understanding the purpose of an estate plan and its components can help to ensure that you have your plan set properly.
Living will and powers of attorney
A living will is a set of instructions about your medical care that your care team can use to guide them as they plan testing and treatments for you. The person you name as your power of attorney for health care also works closely with the team to determine what type of care you’d want. These two facets of your estate plan only go into effect if you are incapacitated and can’t make decisions for yourself.
If this happens, you should also be able to count on the person you name as your power of attorney for finances to make sound decisions about your money and assets. The individual you name has the ability to do things like pay your bills, sell real estate and handle any other financial decisions so be sure you choose someone you trust to make decisions in your best interests. This is another component that requires you to be incapacitated before it will go into effect.
Will and trusts
You need to write out your will. This document outlines who is going to get what from your estate. The things that you cover in this document are ones that you haven’t placed in a trust and that aren’t covered under a payable on death designation. Remember, this document goes through the probate process and becomes public record.
Assets that you put in a trust are handled according to the instructions in the trust. There are specific protections associated with different types of trusts, so be sure to find out about these when you are ready to establish them. You can discuss your goals with your attorney to find out what types of trusts are available.
When you open checking, savings, investment and retirement accounts, you will usually sign a document that names someone as the payable on death designee. This person will receive the account when you pass away.
Ultimately, your wishes are what dictate how your estate plan is handled. Once you have it all set up, be sure to review it periodically to ensure it still reflects your wishes. Certain life changes, such as a marriage or divorce, or the birth of a child, should also trigger a review.