Estate planning can be difficult with complicated legal documents, tax ramifications, and discouraging questions. Nevertheless, it is an important part of a versatile financial plan.
Everything you own—your home, your investments, and your assets —is a part of your estate. Even though it may be awkward to consider, you should have a plan in place for what happens to your estate when you die. A carefully constructed estate plan can assist your heirs in managing better.
What Are the 5 Most Important Estate Planning Documents?
To help clarify the complicated maze of estate planning, the following highlights five key documents you require and answers typical questions about each.
-
Will
A last will and testament—usually referred to as simply a “will”—is most likely the first thing that crosses your mind when you think of estate planning. A will guarantee your wishes are fulfilled following your passing away. Opposed to popular images of seniors drawing up wills on their deathbeds, wills can be devised at any point. Estate planning advisors regularly suggest devising a will once you have any considerable assets, children, or even pets.
Why do you require a will? They –
- clearly details how your assets should be distributed after you pass away
- enable you to designate an executor responsible for overseeing your estate plan
- allow you to designate who should take care of your children and/or pets
- expedite a smooth and effective method for transferring your estate
Not having a will is risky to your estate plan. However, it is not the only document you require.
-
Power of Attorney
Usually shortened to POA, this enables you to name someone to manage various aspects of your life if you cannot. There are a few various types of POA’s: general, durable, and limited.
General power of attorney designates an individual to take legal actions for you, including contractual obligations and financial decisions (such as selling stocks or closing a financial institution account).
Durable power of attorney is a converter that could be an addition to a general POA or to a limited POA, meaning the POA stays valid, even should you become incapacitated. Therefore, the durable general POA is the most commonly used version for estate planning since it provides extensive and thorough authority to the designated agent in any situation.
Limited power of attorney names a person to act on your behalf in particular matters or events. It usually authorizes particular limited powers and expires at a prearranged time. Consequently, limited POA is not usually used for the purpose of estate planning.
Note: POA is particularly important for single individuals because there is no spouse to instantly jump in for serving this role. When you are single and do not have the POA named, a court is going to decide for you. In this situation, it’s possible that they might choose someone you may not think is the idealistic candidate.
-
Health Care Directive
Your health care directive is a vast array of documents associated with medical care. With these, you designate an individual to make medical decisions on your behalf should you be unable to.
There are 2 primary documents in your health care directive: living will and medical power of attorney.
Your living will is a legal document enabling you to convey your medical treatment preferences ahead of time, usually relating to life-sustaining procedures in case you are unable to communicate or make decisions concerning your health care.
Also referred to as a health care proxy, the medical POA in particular names an individual to make medical decisions on your behalf should you be unable to.
Whether your family knows your true wishes or disagrees concerning your care, it’s wise to have these documents in place to be sure you are cared for as you wish.
-
Beneficiary Designations
Beneficiary designations are formal selections made by a policyholder or account holder for dictating who should acquire the benefits or assets of that account or policy upon the holder’s passing. You are going to find beneficiary designations on a lot of typical retirement accounts, such as 403(b)s, 401(k)s, and individual retirement accounts (IRAs), in addition to life insurance policies.
One important thing to not forget about beneficiary designations is that they outweigh what is in your will. Say you are married and appoint your spouse as the beneficiary of your retirement accounts, but after a while you get divorced. You remarry and modify your will to leave your new spouse everything. Nevertheless, if your ex-spouse’s name is still appointed as the beneficiary of your retirement accounts, your ex-spouse is going to receive the benefits, in spite of what it says in your will.
Why Beneficiary Designations Assist in Avoiding Probate
One other benefit of appointing your beneficiaries is that it could help you by avoiding probate. Probate is the prolonged, state-overseen process for distributing non-designated assets after their owner’s passing. To help avoid the process, think about naming your beneficiaries and comprising all your assets in your trust or will.
It is a good idea to review your designations at least once a year as well, particularly after considerable life events.
-
Trusts
Whereas trusts may not be required in every case, they’re excellent devices for both the distribution of assets and decreasing estate taxes. A trust is a legal entity (not a tangible document) devised for holding assets for an individual or association.
The way it works: The grantor literally “trusts” their trustee with their assets. Following the conditions of the trust being met, which can include the passing away of the grantor, the grantee (the trust’s beneficiary) acquires the trust assets in some way.
There are three fundamental kinds of trusts—revocable trusts, irrevocable trusts, and testamentary trusts —and the grantor can set up their trust for dictating exactly how and when the beneficiaries acquire the trust assets. Whereas the details between trusts vary, the overall premise is the same: protect and oversee your assets, decrease taxes, and avoid probate.
Revocable vs. Irrevocable Trust in Estate Planning
Revocable trusts, also referred to as living trusts, can assist your estate in avoiding probate by naming beneficiaries for the assets in each of the trusts. These trusts are particularly useful for those with assets in several states—since probate is governed at the state level, having revocable trusts for the assets in each state can prevent several concurrent instances of probate.
Irrevocable trusts are additionally beneficial for estate planning since they can limit your estate tax vulnerability. After assets are placed into an irrevocable trust, they cannot be removed. Similarly, following establishment, the conditions of the trust can’t be modified. Basically, trust assets are taken out of your estate, meaning they don’t contribute to your estate’s value.
It’s also feasible to devise a trust within your will, referred to as testamentary trusts. These trusts are revocable and become effective upon your passing. Nevertheless, the assets within this type of trust are not released from probate.
Trusts can get complex and aren’t suitable for every situation, so speak with your financial advisor about your particular circumstances prior to setting one up.
Source:
- Wealth Enhancement Group. (n.d.). https://www.wealthenhancement.com/s/blog/5-essential-documents-for-crafting-a-good-MCTSLSG775BFE6NOB4W7VN6SIV4M
Choose the Right Estate Planning Attorney in Arizona
Regardless of the choice you make, it’s important you make the best choice for you when hiring an estate planning attorney. Remember: The decisions you make now can affect your future. Ultimately, choosing the best attorney will depend on which attorney feels best for you and your situation.
If you want to learn about Michelle N. Ogborne and see if she is the right attorney to represent you in your collaborative divorce in Arizona, contact us today!
