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Estate planning arranges for the transfer of an individual's estate at the time of death. An estate consists of all property owned at death before it is distributed by will, trust, or intestacy laws. An estate may contain both real property (real estate, including houses and investment properties) and personal property (all other property, including bank accounts, securities, jewelry and automobiles). Typically, the process of estate planning involves extensive consultation with a number of professional advisors, including lawyers, financial counselors, accountants and life insurance representatives.
Purpose of Estate Planning
An estate plan is necessary when you want to direct what happens to your estate when you pass, instead of relying upon the government to take care of your assets and children. A Will or a Family Trust is a way for you to tell the Court or the government how you want your assets to be distributed. You get to decide who will benefit from your estate. Do you have to disinherit someone? Do you have a child with special needs that might need extra care or benefits? An estate plan allows you to control how everything is distributed.
An estate plan also helps to prepare you for important situations that might arise in your own life, such as a power of attorney for financial emergencies, health care planning for incapacities, etc.
Estate Planning Tools
An estate plan is created to reach your specific goals for your estate. The most common tools used for this ensure the best distribution of assets. However, individual estate plans will differ depending on the size of the estate, the needs of the beneficiaries, and the complexities of the arrangements.
PROBATE- Probate is the process that arranges for your final debts to be paid (outstanding bills, last medical costs, etc.), and then distributes the remainder of your estate to your heirs. If you do not have an estate plan, the Court will use the statutes of the state to distribute to your heirs. This usually means to your immediate family, such as a spouse and children. This is a lengthy process involving the Court and appointing someone to be in charge of making sure everything gets completed.
THE WILL- This is the most common and basic estate planning tool. It is a directive by you to explain to the Court what you want done with your estate after you pass. The Court is obligated to follow your instructions in the will to the best of the ability of the estate to allow. This means you can disinherit someone such as a child who has gone astray, etc. A will can also name a person to be the guardian of any of you minor children. A will does require your estate to pass through the probate court system.
THE FAMILY TRUST- A trust is an agreement made by the Trustor (the creator of the Trust) and the Trustee (the person in charge of the Trust, usually the same person or married couple). A Trust can be created to handle the special needs of your beneficiaries, including your pets. The Trust Agreement handles the entire estate, and will do so without going into the Probate Court. It saves costs and expenses if handled correctly, and will also save time that is wasted by the delays of probate.
HEALTH CARE DIRECTIVES- A “Living Will” or a “Health care Power of Attorney” will allow you to establish now what will happen if you were to ever become incapacitated, such as from an auto accident or disease, such as Alzheimers. The directive will allow you to appoint someone to make medical decisions for you if you are unable to make those decisions yourself. Do you want to be kept alive by machines for any length of time? Do you want to live in a vegitative state, unable to move? Do you want to avoid being a burden to family members if you were in such a state? These things can be planned for using the health care directive. You can appoint a child, a partner, a spouse, to be able to make decisions and follow your instructions.
DURABLE POWER OF ATTORNEY- This document lets you appoint someone to handle your financial affairs if you are incapacitated for a time. If you hare hospitalized, will your mortgage or car payment still get made? Do you trust someone to go to the bank for you? You can control this in advance with a Durable Power of Attorney.
Financial Power of Attorney. Finally, a financial power of attorney appoints a third party to handle an individual's finances when they can no longer take care of their own financial affairs. A financial power of attorney may designate a friend, family member, or a trusted professional to fulfill this position.