We often associate “estate” with sprawling mansions and wealthy individuals. However, nearly everyone has an estate. Your estate consists of everything you own, including your home, car, and checking and savings accounts. Estate planning helps you decide what happens to your assets and belongings when you can no longer manage them yourself. Join us as we unravel the basics of estate planning and help you secure a future for your loved ones!
Common Misconceptions about Estate Planning
People often assume that estate planning is exclusively for the 1%. However, almost everyone can benefit from estate planning. This kind of plan is about more than distributing wealth. Instead, it protects your loved ones and ensures your wishes are followed. These documents protect your assets and loved ones from unnecessary taxation and legal challenges. In unforeseen circumstances, documents like wills and trusts ensure your loved ones are provided for.
Many individuals also assume that estate planning only involves creating a will. Several other critical legal documents go into comprehensive estate planning, like trusts, powers of attorney, and more. Estate planning also allows you to plan for unpredictable life events like illness or accidents. This is why it is essential to start planning early rather than waiting until retirement age, like most Americans. Dispelling these misconceptions about estate planning paves the way for more individuals and families to make plans for their assets.
Critical Components of Estate Planning
Recent surveys show that only 33% of Americans have a plan for their estate once they pass. Estate planning allows you to provide instructions for where your belongings and money should go after your death. Clear instructions minimize stress on your loved ones, taxes, and legal fees.
When you think about estate planning, you may think it is synonymous with a will. However, the will is only one part of estate planning. An effective plan includes the will, trusts, power of attorney, healthcare directives, and designation of beneficiaries.
A will is a foundational document that legally declares your wishes after death or disability. A will establishes two things: the individual who will take over paying your bills and distributing your assets (called a personal representative) and how they should do it. Creating a will prevents potential disputes among family members and loved ones about where your assets should go, ensuring your wishes are honored.
Without a will, your estate will likely be dispersed in an expensive, court-supervised manner, often requiring your representative to post a bond determined by the cost of your estate and their credit score. Having this document in place beforehand allows you to waive this bond requirement and keep your affairs out of probate.
A trust is a legal entity that holds your assets for the benefit of someone else. Though several types of trusts are available, most people use a living trust. This kind of trust allows you to name a trustee who will financially care for your assets in case of your incapacitation, whether temporary or permanent. Living trusts immediately transfer your assets to your trustee upon your incapacitation.
A will and a trust, though seemingly similar, are very different. While the will goes into effect post-mortem, a living trust goes into effect immediately upon creation. You can serve as the trustee of the trust immediately, overseeing your assets and funds. Upon your death or incapacitation, your named successor trustee can step in.
Power of Attorney
Power of attorney is a legal document granting someone authority to make decisions and take actions on your behalf after your death or when you cannot make decisions due to illness or injury. Without this document, the court will choose an attorney-in-fact for you after your death. This attorney-in-fact may be someone other than the person you would prefer, so it is essential to finalize this document beforehand.
Advance Healthcare Directives
In a medical emergency, it may become necessary for someone other than yourself to make medical decisions for you. While most hospitals will have you fill out a healthcare proxy form ahead of medical care, having your healthcare proxy in your estate plan is a good idea. This document names the individual, usually a spouse or adult child, who will make medical decisions when you can no longer speak for yourself.
Another important healthcare document to include in your estate plan is a document stating your wishes regarding the extent to which measures should be used to keep you alive in the instance of a grave illness or injury. In this kind of document, you can decide what actions you would like to take if your heart or brain were to stop working. This includes decisions about life support.
Designation of Beneficiaries
Your beneficiaries are the individuals or entities that gain control over your assets or receive payouts from your life insurance policy. These are typically family members but can be other entities like your living trust. If you designate your trust as your beneficiary for your life insurance policy, retirement accounts, or other bank accounts, your assets will be distributed in terms of your trust.
Understanding the various parts of estate planning helps you make knowledgeable decisions about your assets and loved ones.
Working with Professionals
Creating an estate plan requires working with legal and financial professionals knowledgeable about the process. Masters Insurance can help you make an estate plan that aligns with your unique circumstances, goals, and wishes, ensuring that your loved ones are cared for in the event of your death or incapacitation. Contact Masters Insurance today to learn more about our financial and life insurance services.