WHAT IS ESTATE PLANNING?
Estate planning also covers the transfer of property at death as well as a variety of other personal matters and may or may not involve tax planning. The core document most often associated with this process is your will.
WHO NEEDS AN ESTATE PLAN?
Short answer: Everyone. It’s easy to try and convince ourselves that we don’t need an Estate Plan. But the reality is, we would all be better off if we were planning a little more for our future. You don’t need to be wealthy, or elderly or even have a specific amount in your bank account to justify the need for an Estate Plan. If you are over the age of 18, you should start thinking about creating a plan.
Even if you don’t have a lot of assets, your Estate Plan is a guarantee that everyone will know what your wishes are. Health directives and long-term healthcare wishes are perfect examples of this – if you were ever to become incapacitated and couldn’t make your wishes known, your Estate Plan will speak for you, so your loved ones don’t have to make unthinkable decisions or wonder what you would want.
It used to be that properly preparing the types of documents that go in an Estate Plan could cost you thousands. But now you have options. You can get an affordable, legal, effective, valid Estate Plan that ensures your wishes will be known should the time ever come it’s needed. Even if you don’t have a lot of assets, an Estate Plan is still a wise idea.
WHY IS ESTATE PLANNING IMPORTANT?
Estate Planning is important for many reasons. Perhaps the biggest benefit is if you don’t properly prepare for what should happen in the future while you’re sound and capable, you’ll have no say in how your estate is handled or what your loved ones receive when that time comes. Planning today ensures your tomorrow is exactly as you envision it.
A properly prepared Estate Plan will lay out your wishes exactly, in the most tax-advantage manner, so you can trust there won’t be any questions, misunderstandings or misconceptions about what you want.
GETTING STARTED
There are many parts of Estate Planning, but the first thing you must do is conduct a comprehensive review of your estate assets. Your estate is made up of all the property you own, including:
- Cash
- Cars
- Clothes
- Jewelry
- Houses
- Investments
- Savings
- Retirement accounts
- Land
- And more
After you have a clear idea of what your estate is made up of, you can then begin planning.
Most Common Estate Planning Documents
Several documents will make up your Estate Plan. Each is important in its own way, and together they form a powerful representation of your final wishes.
Guardianship
States what you want to have happen and who you want to care for your children or any other dependent you’re responsible for after your death or in the event you’re no longer able to care for them. Most often, instructions for guardianship will be included in a section of your Will.
Will
A legal document that expresses your last wishes for distribution of your property or other assets.
Trust
A legal three-party fiduciary agreement that allows the first party (the Settlor, also may be referenced as Trustor or Grantor) to give the second party (the Trustee) rights to hold assets and property on behalf of and for the benefit of the third party (the Beneficiary).
Financial Power of Attorney (FPOA)
A legal document that gives someone the power to handle your financial affairs.
Durable Power of Attorney (POA)
A variation of a Financial Power of Attorney, which is a document that gives legal rights to another person so they can handle any of your non-health or non-medical affairs. “Durable” simply means that even if you become incapacitated, the POA remains in effect.
Advance Healthcare Directive
ls sometimes referred to as a Living Will or a Medical Power of Attorney. An Advance Healthcare Directive directly states what, if any, medical actions should be taken if you become incapacitated and unable to make your own decisions.
Note: it’s important to understand that while the terms “Living Will,” “Medical Power of Attorney” and “AHCD” are commonly used interchangeably, there are legal distinctions between them.
- A Living Will lets you specify your medical preferences (typically for end of life decisions, like life support).
- A Medical Power of Attorney lets you designate someone else to make healthcare decisions for you if you are unable to do so.
- An AHCD combines the Living Will and Medical Power of Attorney to let you give instructions but also designate someone else to make decisions for you if needed.
HIPAA Authorization
Consent you give that allows your medical records or information to be shared with a third party.
Estate Planning & Taxes
Much of your Estate Planning is done with taxes in mind. The ultimate goal is to leave the absolute most you can to your heirs. Strategizing by taking action to minimize assets lost to taxes is an effective way to achieve your goal. There are some tools you can use within your Estate Plan, including ways to avoid probate and pass assets while avoiding hefty taxes. Understanding potential types of taxes is important.
- Estate tax: A tax imposed on estates worth more than a set value. The tax is only assessed on the amount that exceeds the maximum, not the entire value of the estate.
- Inheritance tax: A tax paid by someone who inherits either property or money from someone who has died.
- Gift tax: A tax that’s applied on gifts exceeding a certain dollar amount. Note the giver, not the receiver, is responsible for any tax.