Estate Planning Essentials: Documents You Shouldn’t Overlook
As we reach the halfway point of National Estate Planning Awareness Month, it’s a great time to revisit the key documents that should be included in any comprehensive estate plan. While trusts are essential (as Nathan discusses in detail here), wills, powers of attorney, and health care directives are equally important. Let’s dive into these essential estate planning documents.
Wills: The Foundation of Your Estate Plan
A will, formally known as a “last will and testament,” is a legal document outlining how you want your executor to distribute your assets after you pass away. Without a will, your wishes may not be honored, leaving your loved ones to navigate a complex and emotionally taxing legal process.
Even with a will, your estate will go through probate, which is the legal process of distributing your estate. If you want to understand more about probate, check out our guide on handling an inheritance. Having a will simplifies probate, ensuring your assets are distributed according to your wishes. If you die without a will, known as dying intestate, the state will distribute your assets based on a predetermined formula, which could lead to unfavorable tax implications and affect your heirs.
Creating a will has become easier with online services, offering state-specific, legally binding wills at a fraction of the cost of hiring an attorney. However, if you prefer working with an attorney, expect to pay anywhere from $300 to $1,000, depending on the complexity of your estate.
Power of Attorney: Protecting Your Financial and Medical Decisions
A power of attorney (POA) is another critical component of estate planning. A POA allows you to appoint someone to act on your behalf if you’re unable to make decisions about your property, finances, or medical care. The person you appoint is known as your agent or attorney-in-fact. Each state has its own laws regarding POAs, but some common types include:
- Durable Power of Attorney: Grants your agent authority to act on your behalf even if you become incapacitated. This can be broad or limited to specific tasks.
- General Power of Attorney: Gives your agent authority over all legal and financial matters permitted by state law.
- Limited Power of Attorney: Grants authority for a specific task or time period.
- Financial Power of Attorney: Allows your agent to manage your finances, including paying bills, managing investments, and filing taxes if you’re unable to do so.
Health Care Directives: Ensuring Your Medical Wishes Are Respected
When planning for the future, health care decisions are crucial. Living wills, health care proxies, and advance directives help ensure your medical preferences are honored if you’re unable to advocate for yourself.
- A living will outlines your preferences regarding medical treatments, such as whether you want life-extending procedures or how you want long-term care managed.
- A health care proxy allows you to appoint someone to make medical decisions on your behalf if you’re incapacitated.
- Advance directives encompass both living wills and health care proxies, detailing future medical decision-making.
While not legally binding, end-of-life planners can help your heirs by providing important information such as passwords, banking details, and minor directives not covered in formal documents.
Don’t Delay Your Estate Planning
Estate planning is easy to procrastinate, but the consequences of poor or incomplete planning can be significant. It could lead to family disputes, lengthy court proceedings, and excessive estate taxes. Take the time to get your estate in order now, so your loved ones aren’t left in a difficult position later.
In addition to being Estate Planning Awareness Month, October also marks the beginning of one of my favorite times of the year—spooky season! I recently had a blast carving pumpkins with friends during our annual tradition.
