Estate Planning Requires Careful Consideration
Part of an overall financial plan includes estate planning and preparing legal documents to protect you and your family in the event of serious illness or death. If you do not take time to outline your financial and health care wishes when you are well, you will lose control over your finances and your medical treatment if your health fails.
It’s certainly not a pleasant experience to contemplate your death or serious illness, but you’ll gain greater peace of mind knowing that these details are in place to benefit you and your family. Estate planning generally includes documents such as a living will, last will and testament, and powers of attorney for your finances and your medical care.
A living will allows you to make decisions in advance about artificial life support so your loved ones don’t have to when you are incapacitated. Your living will takes effect when your doctors determine you are seriously ill, and that definition will vary state by state depending on applicable laws. This includes falling into an irreversible coma and suffering a terminal illness with no reasonable chance of recovery.
Typically, a doctor uses these criteria to decide when your will takes effect:
Whether you understand what your doctor is telling you and the impact of your decision
Whether you can make a decision
Whether you can express your decision to your doctor
Powers of Attorney
These legal documents allow you to choose a person to make decisions about your finances and medical treatment.
A health care power of attorney takes effect when your doctors determine you can’t make decisions for yourself, and the person you appoint is responsible for carrying out your wishes for treatment. If you do not have a living will, this person will decide whether life support is in your best interests. If you have a living will, this person will protect your wishes and ensure the hospital honors your will completely.
A financial power of attorney appoints an agent to handle your important financial and legal matters on your behalf, either immediately upon your death or once you are unable to make your own decisions. You can dictate how much or how little control this person has over your finances. In many cases, the power of attorney enables an agent to pay everyday expenses, collect benefits, pay taxes and more. A power of attorney cannot authorize your agent to change your last will, however.
Last Will and Testament
This document will dictate how you wish to distribute your assets after your death. Without a will, the state determines what to do with your property, accumulated wealth and guardianship of your minor children. Upon your death, your will enters the probate process where the court follows the document to distribute property; however, your heirs can contest your will.
Generally, all debts must be paid before any assets are distributed. Secured assets, such as a house or car, are exceptions and that property can be transferred with the receiver holding responsibility for paying the remaining debt.
Even if you don’t consider yourself wealthy, a trust is a valuable tool to distribute your property following death because you can dictate how and when assets are given to your heirs. If you have a net worth of at least $100,000, a trust could be a good option for you.
You can reduce your estate and gift tax obligations using a trust and avoid the probate court process with its costs, delays and openness to the public (all wills are public documents once entered into court). A trust also can help protect your estate from creditors and lawsuits.
Estate planning requires serious consideration and you’ll likely need assistance from an attorney to tailor your plan.