Many people think of estate planning as just writing a will. Nevertheless, the preparation typically includes a broader range of considerations to guarantee that all of your possessions are seamlessly handed to your heirs in case of an untimely passing. Keep in mind that myriad estate planning documents must be considered during the planning process.
The task of preparing an estate plan should be at the top of your list even if you don’t see it as a priority. You can save your family members the burden and possible conflict later on by spending some time and effort on creating an estate plan, especially the legal and financial woes.
A comprehensive estate plan should also include measures that give family members the capability to manage your assets if you’re unable to do so yourself.
Why Should You Prioritize Estate Planning?
An estate plan has three main objectives:
- Caring for your loved ones
- Directing your finances or care if incapacitated
- Distribution of your assets after your death
Setting up several key components, such as a will, guardianship, and a power of attorney (POA), to name a few, that comprise your estate plan, is an efficient way to achieve these goals.
For many individuals at a young age, most don’t prioritize what’ll happen to their estate once they pass away. However, thinking about the future will be very beneficial, especially when distributing your assets to your children. Failure to plan can put your family in a stressful situation.
For example, if you fail to put an estate plan in place, your children may acquire your estate in a single payout once they reach the age of majority. Consider the difficulties your child will face as a result of having to manage a significant amount of money and other assets you’ll leave behind.
If you want to have peace of mind or prevent burdensome legal issues for your family if you pass away, you should prioritize your estate plan. When preparing one, it should cover various scenarios that might happen. The choices you make now can help your children navigate an uncertain future better.
Preparing An Estate Plan
It generally comprises several elements to ensure your loved ones are secure when drafting your estate plan. Although you’ll start with the fundamentals of estate planning, expect several changes over time.
It’d be best to consider revising your estate plan as your situation changes. If your initial estate plan is straightforward, it may only include life insurance and a will naming a guardian for your child. As your assets grow as a result of life changes, particularly career advancements, you’ll need to make measured decisions about how to oversee them. Additionally, as your children grow, you’ll see their distinct lifestyles. These developments will give you an idea of whether it might be necessary to establish a trust for protection from creditors or if it’s likely that they’ll have overspending tendencies.
Depending on your current situation, all these elements should work together to achieve your objectives. The following are the estate planning must-haves to ensure everything is in place for your loved ones in the future.
1. Wills
When it comes to estate planning, the first thing that comes to mind is the will, and most people think of it as something that only wealthy people have to deal with.
Even if you don’t have considerable assets, a will should be among the most crucial components during estate planning. Although most find the task complex or expensive, having an estate plan will be important later on in life.
A will operates by guaranteeing that all possessions are allocated following a person’s preferences. Remember that the precise outline or draft of the document is critical. Make sure your will or trust is consistent with how you’ve apportioned possessions that pass outside the will.
For example, if you name your brother as a recipient on an insurance policy, you shouldn’t designate a cousin at the same time because it could lead to issues. This can also create resentment among the people concerned, especially if the situation grows into a legal struggle.
If you have minor children, remember to name both a main and a backup guardian in your will. If you neglect this aspect, the courts may decide to set up your children with a close relative with whom you’ve had a falling out, or even in the custody of the state.
2. Trusts
Generally, trusts often work as a tool in the distribution of your assets. It’ll come in handy in accounting for contingencies you’re not likely to foresee. Trust can help you ensure your assets will be available to support your children even if they end up developing poor financial habits in the future.
You can designate the specific age or circumstances under which the assets will be distributed. Although trust has many uses, it doesn’t apply to everyone. Remember that there’s a cost to establishing and managing one, which may not be necessary for achieving your goals.
Typically, trust is used in conjunction with a will. The main distinguishing point between trust and will is that trust generally bypasses the probate process of assigning property to your beneficiaries.
The two most popular types are care for minor children trusts and special needs trusts. If a parent dies before the children reach the age of 18, they can establish trust as early as possible in preparation for unforeseen events.
Typically, a trustee will use the trust to pay for the children’s expenditures until they reach the age of 18. A special needs trust can help families with a disabled dependent provide for them.
3. Guardianship
Although most wills or trusts already include this clause, some don’t. Selecting a guardian is important when you have young children or are planning to have one, but it’s often overlooked.
Make certain that the individual or couple you’ll designate shares your beliefs, is financially stable, and genuinely wants to raise your children. You should name a backup or contingent guardian, just as you would in a will.
If you overlook this aspect, the court might decide that your children will live under the care of a family member you wouldn’t have selected. In severe cases, the court may order that your children become state wards.
4. Durable Power of Attorney (POA)
When you’re ready with a durable power of attorney (POA), it serves as a critical element in your estate plan so that the individual, usually a family member or close friend you’ll appoint will carry out your wishes if a time comes when you’re no longer capable.
Without one, the court will settle things on its terms. Sadly, the decision the court will pass regarding your assets might not be what you truly wanted.
A power of attorney provides the appointed individual the authority to work out various tasks such as managing real estate, finances, and executing other legal decisions. In most cases, the principal can revoke the document, usually when physically or mentally capable or if they pass away.
In most families, spouses usually establish a mutual form. Nevertheless, it’d be best to delegate the task to a close relative or long-time friend who’s financially savvy.
5. Beneficiary Designations
Certain possessions can pass to your appointed recipients without being stated in the will. With this in mind, it’s critical to keep a beneficiary plus a contingent recipient on file.
Since insurance policies may pass outside of a given will, they should specify the primary beneficiary and a backup.
If you’re unable to indicate a beneficiary, the court will decide what happens to your possessions. Unfortunately, a judge who is oblivious of your circumstances may make a conclusion that’s completely contrary to your true goals.
6. Healthcare Power Of Attorney (HCPA)
If you’ve heard about a healthcare power of attorney (HCPA), it’s different from a durable power of attorney. It generally designates another person, usually the partner or a close relative to execute health-related choices in case unable to do so.
Once you’ve decided to establish one, choose someone you trust completely and will make a decision similar to yours. Remember that this individual will be in charge of everything in case something happens, especially if you end up briefly or permanently incapacitated. Additionally, make sure to appoint a backup person in case your initial choice is unavailable when the need arises.
Final Thoughts
While an estate plan should be a necessity for everyone, it’s crucial for families with young children. It’s best to start by getting yourself a will since it plays an important role in estate planning. However, regardless of your financial situation, it’s best to prioritize it because it covers critical information such as appointing guardians if you have minor children and having peace of mind that all of your assets will go directly to the beneficiaries you appointed. In general, having an estate plan ensures that your family and other recipients are taken care of and have access to your assets if you become incapable.
