It's important to have an estate plan in place, even if you are young, and even if you aren't rich. But it's also easy to fall into the trap of avoiding estate planning. We don't want to think about the end of life or failing health and disability. On top of that, it costs money. However, the short-term costs of putting a plan in place almost always outweigh - and sometimes vastly outweigh - the costs of reaching a major crisis without one.
In its most narrow terms, your estate is all the property that you own, either individually or jointly, including bank accounts, real estate, jewelry, etc. More broadly, however, when we are usually also talking about planning for our own disability as well. Without an estate plan, your family may end up in long, drawn-out court proceedings that can be very expensive. Worse yet, assets that could be saved for your family may be lost.
Regardless of how old you are, or how much money you have, you need these four things in your plan:
1. A Will. A will provides for an executor of the estate, who will take care of managing the estate, paying debts, and distributing property as specified. The distribution of assets can be outlined in the will. This can be as broad or detailed as a person wishes. In a will, beneficiaries and guardians for minor children should be assigned. With the rise of grandparents raising grandchildren, this may be an important part of the will, even with aging seniors.
2. Living Will. A living will outlines a person's wishes for end of life medical care. It can include, in as much detail as you wish, what medical treatments you would or would not like to have in specific situations. A living will takes the stress of making those decisions off of family members and helps to keep peace in families during times that can be difficult and emotional.
3. Healthcare Power of Attorney. A healthcare power of attorney is also a key part of an estate plan. This legal document provides for someone to legally make healthcare decisions for you. A durable power of attorney will remain in effect even if you become unable to make decisions.
4. Financial Power of Attorney. A financial power of attorney names an agent who has the power to act in your place for matters relating to finances. The durable financial power of attorney stays in effect even if you become unable to handle your own affairs. By having a financial power of attorney in place, the stress and expense of a guardianship can be avoided, and you have the final say in who will make decisions relating to finances.
On top of these four, a fifth component may sometimes be necessary, especially for those in their sixties and seventies, or those with special needs:
5. Trust. Setting up a trust can be beneficial for the distribution of specific assets or pieces of property. The benefit of a trust is that it does not go through probate, as compared to a will. Property is still distributed at the death of the trustmaker, but it is done without the need of a court. This also allows for privacy of the trustmaker, where with a will and a probate, all of the deceased person’s assets and the terms of their will is made public.
Forms for almost all of these instruments are on the internet, but these documents can be useless if they aren't put together properly. The error rates for self-executed forms, especially estate planning forms, are astronomically high. You best bet is to always sit down and discuss the issue of estate planning with an attorney that you trust, who can help you to make the best choices for you and your family.