Estate planning basics do address the eventual and economical distribution of your possessions and authority but more importantly, how you take care of your loved ones. Many of you may think you don't have an estate plan - but you do! Federal and state rules will determine who gets what and how much and how you get treated if you become very ill. If not prepared with basic estate planning knowledge, it cost cost money and heartache.
Putting your estate in order can be complex. It depends on how many assets you have, where they are, your family structure – children, divorced and previous children, state laws – and more. But, no matter how small or large your estate is, here are the four tools of basic estate planning. These are your
1. will or trust
2. durable power of attorney
3. living will
4. health care proxy (medical durable power of attorney)
Your will shows your wishes for disposition of your assets and names a guardian for minors. In it state how property in your name should be distributed, name an executor to be in charge of carrying out your wishes, provide for payments of costs incurred in settling your estate. And for your minor children, designate a guardian and name a trustee to protect their inheritances. One estate planning basic is to use a trust in place of a will because it maintains privacy and avoids court involvement in the settlement of your estate. Additionally, trusts typically contain conservatorship provisions. If you should lose your mental capacity in your old age, do you want your family to be in court about your care or would you rather have a written plan in advance? Estate planning basics call for planning ahead.
Also note that in the case of a larger estate proper planning will also include estate tax planning, covered in a future post.
Your Durable Power of Attorney gives someone else permission to manage your affairs if you become disabled or incapacitated. With it, as soon as you become incapacitated, your designated person, i.e. your spouse, adult child or anyone you trust, can manage (pay bills, make decisions) your affairs or you can retsrict that power to only particular assets or accounts. Don't wait! You can't create a durable power of attorney once you've become incompetent.
Your Living Will – expresses your wishes to your doctors when they must consider use of life-sustaining measures. This is your declaration on what life-sustaining medical treatments you will (or will not) allow if you become incapacitated. For example, you may request that artificial nourishment be (or not be) withheld if you become terminally ill. You may recall the Mary Schiavo case on this issue which became a national news story only because these estate planning basics were ignored.
A Medical Durable Power of Attorney (or health care proxy) is a crucial and basic estate planning tool - designates someone to make health care decisions on your behalf in the event you no longer can. It's a document that gives a person you designate permission to make health care decisions on your behalf if you are unable to do so in the future, and perhaps, consistent with your living will. Talk to the person before appointing him, and be sure he or she understands and is comfortable with your wishes, and is strong enough to carry them out despite some family members' objections.
Seek professional help in planning your estate consistent with your state laws and your particular circumstances. No one will tell you about the estate planning basics. Be proactive and ASK your retirement advisors or your CPA what you need to do to get your estate in order.