What are the 5 Components of an Estate Plan?

A lot of people assume that when they have a will, their estate planning is finished, but there is much more to a solid estate plan. An ideal estate plan needs to be designed to avoid probate, for estate tax savings, safeguard assets should you need to move into a nursing home, and designate an individual to act on your behalf should you become disabled.

All estate plans need to include, at least, two important estate planning devices: a will and a durable power of attorney. A trust can also be helpful to circumvent probate and to oversee your estate both throughout your life and after you pass away. Additionally, medical directives allow you to designate an individual to make medical decisions for you should you be unable to.

Will

A will is a legally binding declaration directing who is going to receive your property after your passing. When you don’t have a will, the state is going to establish how your property is allocated. A will also designates a legal representative – referred to as an executor – to fulfill your wishes. It is especially important when you have minor children since it allows you to designate a guardian for them. Nevertheless, a will only covers probate property. A lot of types of property or kinds of ownership passes outside of probate. Jointly owned properties, properties in a trust, life insurance benefits and properties with an appointed beneficiary, like IRAs or 401(k) plans, all passes outside of probate and are not covered under a will.

Trust

A trust is a legal provision through in which one individual (or an institution, like a finance company or legal firm), referred to as a “trustee,” retains legal title to property for another individual, referred to as a “beneficiary.” Trusts have one set of beneficiaries throughout those beneficiaries’ lives and another set — usually their child(ren) – that starts to benefit only following the first set passing away. There are a multitude of different reasons for creating a trust. The most frequent reason is to bypass probate. When you create a revocable living trust that concludes when you pass away, any property in the trust goes without delay to the beneficiaries. This can save the beneficiaries time and money.

Particular trusts can also result in tax benefits for both the donor and the beneficiary. These might be – credit shelter or life insurance – trusts. Other trusts could be used to safeguard property from creditors or to aid the donor to be eligible for Medicaid. Dissimilar to wills, trusts are privatized documents and only those people with a straightforward interest in the trust needs to know of trust assets and allocation. As long as they are well-created, another benefit of trusts is their continual effectiveness even when the donor passes away or becomes debilitated.

Power of Attorney

A POA enables an individual you appoint — your agent — to act on your behalf for financial intentions when and should you ever become debilitated. In that case, the individual you choose is going to be able to get involved and take care of your financial matters. Lacking a durable power of attorney, no one is able to represent you, otherwise a court names a conservator or guardian. That process takes time, is expensive, and the judge might not decide on the individual you would wish for. Additionally, under a guardianship or a conservatorship, your representative might have to request court consent to take planning steps that they could carry out immediately under a straightforward durable power of attorney.

Medical Directives

Medical directives may include a number of various documents, comprising of a healthcare agent, a durable power of attorney for healthcare, a living will, and medical directions. The precise document and/or documents is going to depend on the laws your state and the decisions you make.

Both a healthcare agent and a durable power of attorney for healthcare names an individual you decide on to make healthcare decisions for your when you are can’t to do so on your own. A living will stipulates that your healthcare provider withdraw life-support if you are terminally ill or in a coma. A comprehensive medical directive might include the conditions of a living will, but is going to also provide instructions when you are in a less grave state of health, but still can’t direct your healthcare on your own.

Beneficiary Namings

Even though not exactly a part of estate plans, when you are creating an estate plan, you need to be sure your retirement plan beneficiary namings are current. When you do not name a beneficiary, the allocation of benefits might be managed by state or federal law or in accordance with your specific retirement plan. Many plans automatically allocate money to a spouse and/or children. Even though others might leave it to the retirement plan holder’s estate, this might have negative tax repercussions. The only way of controlling where the money goes is to designate a beneficiary.

Contact your lawyer to be sure your estate plan is complete.

Source:

1. The five components of a good estate plan. ElderLawAnswers. (2011, November 16). Retrieved February 24, 2022, from https://www.elderlawanswers.com/the-five-components-of-a-good-estate-plan-9561

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