When hearing the term “estate planning,” many people only think of drafting a will to distribute their possessions to loved ones after they die.
While a will can be an essential part of an estate plan, estate planning encompasses many other documents outlining your wishes for managing money, assets, health care and dependents.
What does an estate plan include?
Estate planning isn’t only for the wealthy, and everyone’s estate plan will be different depending upon their circumstances. Working with an experienced estate planning attorney is crucial to cover all the bases. Five key considerations include:
- Living trust: This legal document places assets into a trust to be managed during your lifetime, meaning you can still access them. After someone dies, a trustee transfers them to their heirs according to their wishes. Trusts are private and can bypass probate, resulting in significant tax savings.
- Updated beneficiaries: Trusts and wills dispense your money and assets according to your wishes. It’s also vital to make sure beneficiaries are up-to-date for other assets outside your estate plan, such as insurance policies and retirement accounts.
- Will and pour-over will: A will states your wishes for what and who will inherit your property and names a guardian for minor children. A pour-over will is used in conjunction with a living trust as a safety net to distribute any assets not included in the trust.
- Power of attorney: These vital legal documents authorize the person of your choice to make critical financial or medical decisions for you in case you are unable to make them for yourself due to illness or injury. These powers can be broad or limited.
- Advance directive: Also known as a living will, this document details your wishes for life-saving medical care if you become incapacitated. While not connected to managing or distributing assets, these directives are essential for your loved ones to know your wishes during a devastating time.
Review and revise your estate plan
Putting these documents in place can provide a great deal of relief, but estate plans must be updated to reflect your current circumstances, such as changing beneficiary designations in the event of births, deaths, marriages and divorces.
A knowledgeable lawyer can help keep your estate plan current. It’s also essential to communicate at least some details of your plan and the location of your documents with your executor, trustee or a trusted family member.