Creating a comprehensive estate plan is one of the most important things you can do for your loved ones. Failure to do so can cause significant consequences when it is time for distributing your assets after you have passed away. Your heirs may face serious legal challenges, hefty tax liabilities and unnecessary hassle if you do not have your estate plan in place. Therefore, you should know what essential legal documents every effective estate plan needs to include.
A will is a legal document which states what exactly you wish to happen with your property and assets after you have passed away. Without a will or a trust state laws will decide how your assets will be distributed. The will establishes what property and assets will be distributed to which beneficiaries. You can also name who you wish to be the executor of your estate in your will.
Durable power of attorney
Another important part of a comprehensive estate plan is the durable power of attorney document which authorizes the individual or entity that you choose to manage the financial aspects of your estate if you are not able to do so. This can be important for elderly individuals who may be susceptible to health and mental issues which may leave them incapacitated. The durable power of attorney document does not grant authority to make medical decisions on your behalf. Also, the document is no longer in effect after you have passed away.
A living trust is a legal instrument which establishes a fiduciary duty that requires one party, the trustee, to manage and hold title to your assets while you are alive. The trustee will manage your assets and property that you have put into the trust for the benefit of your heirs, referred to as beneficiaries. After you have passed away the trustee will be responsible for distributing your assets to the beneficiaries in the manner you had instructed in the trust documents.
Healthcare power of attorney
The healthcare power of attorney document is similar to a durable power of attorney except that this legal document authorizes an individual to make only medical decisions in the case you are incapacitated. This does not authorize this person to make financial decisions like the durable power of attorney does.
Most wills and trusts already include guardianship designations, but some do not. In this case, if you have minor children, you will need to add this clause into your will or trust. You can also use a separate legal document to designate who will be given guardianship over your minor children should you pass away. Without the guardianship designation the court will be forced to make a decision about what to do with your minor children. This could result in a family member you do not approve of being given guardianship.
Designing your estate plan
Although making sure you have all of these essential documents in your estate plan is important, it really is not that simple. You will need to pay close attention to the details and intricacies of the legal language contained in these documents. Also, your overall estate planning strategy should be tailored to your own specific intentions and circumstances. Creating an estate plan that is right for you will require researching all of the relevant laws and regulations. However, you can always consult a financial professional to help you.
While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.