Estate planning addresses how a court of law will share or dispose of your property according to your wishes. But it doesn’t only take effect after your passing. You can also use an estate plan in decision-making when you’re incapacitated, either after an accident or a severe illness. Apart from protecting beneficiaries, it also reduces estate taxes for the heirs, eliminates unnecessary disagreements among your family members, and ensures a good life for the children.
Drafting an estate plan can be demanding, especially if you’re unsure what and whom to include. It’s worth noting that a good plan should consist of all the critical documents, from wills to guardianship designations. In this article, you’ll learn some of the essential elements of estate planning. Read on for more information.
One of the main components that every estate plan should include is a will. Unfortunately, many people consider this only for the rich. However, this is something that every property owner must have, even if they don’t own substantial assets. This document details everything you’ll wish to be done during the distribution of your property. For instance, you can state who will get which part of your assets, and that’s what the legal practitioners will follow.
However, simply having this document isn’t enough. You’ll need to relay your information as clearly as possible, which is why the wording is crucial. The consistency of your distribution also matters to avoid any family conflicts.
As such, it’s always a good idea to hire a law firm like Two Spruce Law P.C. that specializes in estate planning to help you create your will. Given these professionals’ understanding of state laws and experience in the field, you can rest assured that their advice will make things better and more manageable. In addition, their expertise can help someone draft a will that meets their specifications.
What you include in your will are called probate assets and go through the court’s property distribution process. However, you can transfer some of your properties directly to the beneficiary—non-probate assets. For instance, your pension, insurance policies, and 401(k) accounts don’t necessarily need to go through the probate process.
You can write a beneficiary designation to each institution holding your non-probate asset. This document should mention the name of the person who will inherit them. If you mistakenly include these assets in your will, the beneficiary designations will override that wish.
That’s not to say a will can avoid probate, contrary to popular beliefs. A will can’t implement itself and requires probate for that to happen. Watch this video to learn more on this and other estate planning myths: https://youtu.be/smnVnD5iybI
A power of attorney is a document that allows someone else to make decisions regarding your finances and property. This legal authority may entail making bank deposits, managing your assets, and paying bills when you no longer have the capacity to do so. Apart from finances, POA may also cover your health care decisions.
It’s essential to draft a durable POA because a lack of that document will leave the court with a decision to make, and the outcome might not be what you want. In this case, ‘durable’ means the assigned party will have the authority to decide on your behalf if a severe long-term illness or fatal accident renders you incapacitated.
It’s worth noting that there are also other types of POA—non-durable and springing durable. A non-durable POA has an expiration date, and your agent will only have control over the decisions during a stipulated timeline. On the other hand, an event occurring can trigger a springing durable POA. For instance, a third party can take effect after a medical professional declares your incapacitation. So, before you draft your power of attorney, ensure you understand what you’re signing up for.
- Title and property deeds
Another must-have in estate planning is a set of documents showing that you’re the legal owner of the property. You must, therefore, have the proper deeds and titles for your assets, including the vehicles and houses. Remember, though, that the names in these documents will override whatever you include in your will.
For instance, if the deed documents show that another joint owner is still alive, the courts won’t transfer the property to another person after your death. Instead, the joint owner—often your spouse—will become the legal owner of the property.
- Guardianship designations
Guardianship designation is an often-overlooked matter in estate planning. This part of your documents states whom you’d like to be the guardian of your minor children in the event of your death. Most importantly, a guardianship designation states the person(s) you don’t wish to serve in that capacity. This information should also name a backup guardian.
Remember, the lack of guardianship designation gives the court every right to decide what happens to your children. For example, after medical professionals declare you incapacitated, the court could rule that a given family member becomes the guardian. The judge can also mandate that the kids become wards of the state. Of course, these decisions may not necessarily serve your wants, so it’s crucial to write down your wishes in advance.
A letter of intent (LOI) is a document detailing what you want the courts to do with particular assets after your death. It’s always left for the beneficiary or the executor, who must follow your instructions. In essence, it’s a blueprint for the rest of your estate planning documents. In addition, some LOIs contain details about your funeral plans and other preparations you need to make for the future.
Keep in mind, though, that this is not a legal document. A court of law will regard an LOI as a message from the deceased to their beneficiaries. However, it clarifies your intentions and can come in handy during legal decisions, especially when the will is declared invalid for some reason.
Whether you’re wealthy or don’t own substantial assets, it’s still essential to plan the distribution of your wealth. A court of law will prioritize the wishes you state in your estate plan during the probate process.
The things that you must include in your estate planning checklist include your will, power of attorney, title and property deeds, guardianship, and beneficiary designations. You can also have a letter of intent to pass a message to your beneficiaries, but remember that this isn’t a legally binding document.
FindLaw. “What Is A Letter Of Intent?” April 25, 2017. https://www.findlaw.com/smallbusiness/closing-a-business/what-is-a-letter-of-intent.html.
Fuscaldo, Donna. “Four Reasons Estate Planning Is So Important,” reviewed by Marguerita Cheng. Investopedia, May 30, 2021. https://www.investopedia.com/articles/wealth-management/122915/4-reasons-estate-planning-so-important.asp.
Lin, Jennie “What Is A Power Of Attorney?” Nolo, 2022. Source: https://www.nolo.com/legal-encyclopedia/what-is-a-power-of-attorney.html.