Do you plan to leave money, assets, or other belongings to loved ones after you pass away? If you become seriously ill or incapacitated, who do you want to make financial decisions on your behalf? What about healthcare decisions? A well-constructed estate plan addresses all of these questions and more. Unfortunately, many people mistakenly believe that estate plans are only for the super-wealthy when in fact, estate plans are for everybody. With the right team of professionals, you can design a custom estate plan that fits your unique wants and needs. Use these five steps to build a complete estate plan.
1. Write a Will
In most estate plans, the will is the first and most important component. Ideally, your will should cover how you want your estate (money, assets, property, belongings, etc.) to be divided after your death. The will should name an executor who will be responsible for making sure your wishes are carried out. The executor will also be responsible for filing the necessary legal documents, inventorying your estate, and handling your financial affairs, so make sure to choose a person or institution you trust. If you have dependents, make sure your will appoints an appropriate guardian to take care of them.
2. Create a Living Will
Although similar in name, a living will is different than a last will and testament. Living wills outline end-of-life medical treatments that you do and do not want.
Common procedures addressed in living wills include resuscitation, mechanical ventilation, tube feeding, and organ donation. Some people feel very strongly about these subjects, while others may want to consult first with a primary doctor and close family members before putting anything in writing.
3. Name a Health Care Power of Attorney
If you become incapacitated due to injury or illness, the person you appoint as your health care power of attorney will be granted the ability to review your medical records and make decisions about your course of treatment. It’s important to choose a person you can trust and discuss your wishes ahead of time. Health care POA’s are designated to address the many circumstances that may not be outlined in your living will.
4. Decide on a Financial Power of Attorney
Your financial power of attorney will have the ability to manage your real estate, bank account, tax return, and investments if you are unable to do so. This appointment can be tailored to fit your specific needs. For instance, there is no need to give a POA the ability to manage your investments if you do not have or want any. Because financial powers of attorney can be abused for personal gain, it’s important that you choose someone you can trust completely such as a spouse or adult child.
5. Set Up a Trust
Not everyone needs a trust, but if you plan on leaving an inheritance for children, grandchildren, or special needs dependents who may be unable to manage their full inheritance, a trust is worth considering. With a trust, your heirs will receive a small amount of money each year, while the total remaining balance is managed by a responsible third party. For greater control, you can even limit the use of trust funds to certain expenses, such as paying off an adult child’s mortgage, wedding expenses, or student loans. If you intend to donate a sizable portion of your estate to charity, a charitable trust can safeguard the funds until they are ready to be distributed. Because trusts have tax and legal implications, it’s important to coordinate with both an estate planning attorney and a CPA or financial advisor.
Sara McKinney
saractag@gmail.com
As Cowen Tax Advisory Group’s Digital Content Marketing Specialist, Sara provides in-house copywriting and manages the company’s electronic records system, email marketing, and blog.
