There is a common misconception that estate planning is all about who gets your "stuff" when you pass away. In reality, estate planning is much more then that. Having a comprehensive and carefully crafted estate plan is like an insurance policy. Proper planning allows you to be prepared for any eventuality, and to make sure your wishes are carried out and that your family is guided and protected.
Unfortunately, people seem to think that only the elderly or those with serious medical issues need these documents. This simply isn't true. Proper estate planning is all about preparation and protection. With proper planning, we can minimize costs and risks.
Further, if you happen to have a family member with special needs, any property that they could receive as an inheritance could place their benefits at risk. If you have a child with financial, medical, criminal, or legal difficulties, without proper planning, that child's inheritance could be lost as well. Proper planning can minimize, reduce, or eliminate many of these risks.
Estate Planning Tools
Power of Attorney. If for any reason you become incapacitated (medical issue, car accident, etc.), and you are unable to manage your own affairs, a Power of Attorney allows you to name someone (your "Agent") to step in and act on your behalf until you recover and can make your own decisions again. Reliance on a child or spouse to make these decisions is not sufficient. Being related to you does not give an individual the legal authority to make healthcare or financial decisions on your behalf if you cannot make these decisions for yourself. The only document that can give these rights is a Power of Attorney. Not having these documents in place can create a very difficult and stressful situation for your family and loved ones.
Will. A Will is the easiest way to determine what happens to your property when you pass away. A Will allows you to communicate your wishes and make things easier for your family and others you care about. A Will can:
Distribute your real property, such as your house;
Distribute your personal property, such as jewelry and vehicles;
Make charitable contributions;
Name the person (Personal Representative/Executor) who is to carry out your wishes;
Name the person to care for your minor children after your passing;
A Will is the most basic document that is needed to ensure that your property is passed on as you wish. It is the first, and most important step in a comprehensive estate plan.
Trust. A Trust is an estate planning vehicle where property is held by a trustee for the benefit of another person. The "Trustee," the person in charge of the Trust, protects and invests the assets of the Trust for the benefit of an organization or individual. Trusts are highly customizable and can be easily personalized to fit whatever your goals are. Trusts are also a document that allow you to keep an asset out of someone's control, but still allow them to enjoy the benefits of that property.
There are several different types of Trusts:
Revocable Living Trust. These Trusts are documents that can be changed once created. When you create a Living Trust, you maintain control of the property until you pass. After you pass, the property is controlled by someone you name to execute the Trust according to your wishes.
Farm Trust. These documents are specifically for individuals who have land that is generating income. By placing this land in the Farm Trust, then you allow the property to continue functioning, and not be sold or divided in a way that you don't want.
Irrevocable Life Insurance Trust. This document is a special type of Trust that is set up to handle life insurance proceeds for you. After your passing, the proceeds of the insurance policy are deposited into the Trust to be administered according to the terms of the Trust document.
Supplemental/Special Needs Trust. This document is specially designed to protect your loved ones with special needs that may be receiving government benefits. This Trust will hold any inheritance that these individuals could receive without risking their government benefits.
Business Legacy Trust. These documents allow a business owner to transfer their business from one generation to the next.
Living Will/Advanced Directives. Living Wills and Advanced Directives allow you to make certain medical decisions in advance, relieving your family from the stress of making decisions about medical care in the heat of the moment. Living Wills only apply when you have a "terminal" illness. This means an illness that you cannot medically recover from. Living Wills allow you to elect whether you want to receive artificial nutrition, or be an organ donor. Advanced Directives allow you to make quality of life decisions in advance, such as receiving CPR, shocks to the heart, life support, or a breathing machine.