A large part of estate planning involves how you want your assets to be distributed upon your death. This is only one aspect of the estate planning process though.
With the appropriate legal documentation, you can give money to charity, nominate guardians for your minor children and even make key healthcare decisions while you are still alive. Outlined below are three key estate planning instruments that warrant further consideration.
1. Your will
A will is one of the most important documents in any estate plan. By drafting a clear and watertight will, you can ensure that the people you care about most receive the benefits of your savings, property, and other income. If you wish, you can also instruct the executor to designate your chosen assets to your favorite charitable cause.
A will doesn’t only concern financial decisions. You can use a will to nominate legal guardians for your minor children. This will usually be family members, and in some cases close friends. What matters most is that you know your child will have a comfortable upbringing in the event that something were to happen to you.
Trusts are very useful and they serve a number of purposes. Broadly speaking, there are two types of trusts, testamentary and revocable. A testamentary trust arises on the death of the person who creates the trust. One of the main reasons individuals create a testamentary trust is to provide loved ones with a steady income until they mature or for the rest of their lives. You can create a trust that gives your children a monthly income, for example, or you can set up a trust that covers their college fees, medical and extraordinary educational needs or one that incentives them to pursue philanthropy.
A revocable trust is one you set up for yourself or together with your spouse. It is your alter-ego during your lifetime. It is the best disability planning tool you can create for yourself, setting out in great detail who will manage your affairs if you cannot and how they should be managed. On your death, it is a will substitute.
3. Powers of attorney
Powers of attorney come in two forms. A financial power of attorney is an estate planning tool that nominates someone to handle your legal and financial affairs should you become incapacitated. A healthcare power of attorney gives the person of your choice the ability to make key decisions regarding your healthcare and treatment should you be unable to make them on your own.
Estate planning can be confusing if you go it alone. Having legal guidance behind you will help ensure that you don’t become overwhelmed, or worse, leave your family to make those decisions for you. If you don’t have these basic estate planning documents, your plan is set out by the laws in the state where you reside. Based on those laws, your family may find it impossible to satisfy your wishes on your death or disability.