Estate planning can be confusing for many. It can be daunting to contemplate your own demise, but there are many reasons it is important to have an estate plan. An estate plan can prevent placing a larger burden on your family and friends. Estate plans also ensure that your belongings end up in the proper hands after you pass away.
It can seem overwhelming to plan for the distributions of your assets after your death or in case of incapacity. It is often difficult to determine how to begin the process. Here are five common questions —and answers— to help shed some light.
- What is an Estate Plan and Why Do I Need One?
An estate plan is a comprehensive plan you put in place to prepare for the distribution of your assets upon your death. People assume that you need to be near the end of your life to need an estate plan, but estate plans can do so much more than plan for your death. Estate plans can also be designed to protect you and safeguard your assets if you become incapacitated and your family and friends are required to make critical decisions for you.
Everyone’s estate plan goals are different, but they are an important part of planning for incapacity, avoiding estate taxes, and streamlining asset distribution upon your death. Estate plans help prevent conflict about your belongings after you pass. If you die without an estate plan, your family members will be tasked with allocating your property, paying estate taxes, and navigating the process of probate.
- What Happens if I Die Without an Estate Plan?
If you were to pass away without an estate plan, a court would decide how to distribute your property. Every state has laws to determine who receives an individual’s property if that individual dies without an estate plan. However, these default rules may not be in your best interest. An estate plan is an easy way to ensure that your property is distributed according to your wishes.
An estate plan can also be designed to avoid going through a probate court to administer your estate. Probate is the processing of filing your death certificate and various petitions to ask the court to assist in distributing your belongings to your loved ones. It can take months, or even years, depending on the size of your estate. If you pass away without an estate plan, your family would have no choice but to follow the guidelines and procedures of the probate court. However, if you have an estate plan in place, your estate can avoid probate and your property distributed quickly without the assistance of a court.
Many estate planning documents also plan for incapacity during your life. Without these critical documents, your family members could also be burdened with making critical end-of-life decisions on your behalf without knowing your end-of-life care preferences.
- Why Do I Need Anything More Than a Will?
Wills are an essential part of estate planning, but there are many other documents at your disposal for designing your estate plan to meet your specific financial needs and planning goals. For example, trusts minimize estate taxes and protect assets from creditors during your lifetime. Trusts also allow your family members to avoid going through a probate court to handle your affairs after your death.
Every individual has different needs and goals for end-of-life planning. Documents such as Durable Powers of Attorney and Health Care Proxies can be quintessential tools in planning for your incapacity. These documents ensure that you designate a person to make financial and medical decisions on your behalf if you are ever unable to make them for yourself. A Durable Power of Attorney allows the person you designate access to your assets so they can handle your financial affairs if you are incapacitated. A Health Care Proxy allows your designated person to make medical decisions for you and ensure that your doctors follow your wishes.
- Who Are Fiduciaries and How Do I Choose Mine?
Fiduciaries are the individuals you name in your estate plan to handle your estate after death. Under your Will this would be your Personal Representative (or Executor), and under your Trust this would be your Trustee.
When choosing your Personal Representative or Trustee, it is important to consider your relationship with that person and how they would handle your assets after your death. Acting as a fiduciary can often be a big responsibility, so you should choose individuals who have the time and ability to handle your affairs.
You can also designate an attorney-in-fact under your Durable Power of Attorney and a health care agent under your Health Care Proxy to make decisions for you if you are incapacitated. These individuals should be someone you trust to honor your wishes regarding your financial assets and medical decisions.
- What Happens if I Change My Mind About My Estate Plan?
Aside from a few specific estate planning documents, estate plans are usually revocable and amendable during your lifetime as long as you are competent. Changes can often be made without having to rewrite the entire estate plan. Therefore, estate planning should not be something you wait to consider but an ongoing part of your financial planning.
Your needs, goals, and relationships will change throughout your lifetime, so it is important to remember that estate plans are not set in stone and can be changed by working with your estate planning attorney.
Estate planning is an important process for end-of-life and financial planning. The process can be complicated, but it does not need to be. Consulting an estate planning attorney is a great way to ensure your estate plan meets your goals.
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