Saturday, January 28, 2023

Estate Planning 101: An Overview of Common Tools Such as Wills, Trusts, and Durable Powers of Attorney

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Many people think that making a will or a trust is all it takes to have an estate plan. But there is much more you need to include in your estate plan to make sure that all of your assets go to your heirs without a hitch after you die.

There are certain documents, like a healthcare power of attorney and a will or trust, that are used for estate planning.

 A good estate plan also includes ways for your family to access or manage your assets if you become too sick or injured to do so yourself.. Estate planning lawyers can help in providing guidance.

Trusts and Wills

You might think that a will or a trust are hard to understand or expensive, and that only rich people have them. That is the wrong way to look at it. Even if you don’t have a lot of money, you should still have a will or trust as part of your estate plan. Wills ensure that a person’s property is shared according to their wishes (if drafted according to state laws). Some trusts help keep estate taxes or legal problems from getting too big. But having a will or trust alone isn’t enough. How the document is written is very important.

Wills and trusts should be written while considering how you’ve given away the things that don’t go through the will. For example, let’s say you’ve already named your sister as the beneficiary of a retirement account or insurance policy (assets that typically pass outside of a will to a named beneficiary). In that case, you don’t want to leave the same asset to a second cousin in your will, because it could lead to a will contest. Not to mention that during a legal battle, both people could become angry with each other (and you).

Power of Attorney That Will Last

It is important to write a durable power of attorney (POA) so that an agent or a person of your choice can act on your behalf when you can’t. If you don’t have a power of attorney and are found to be mentally incompetent, a court may decide what happens to your assets, which may not be what you wanted.

With this document, you can give your agent the authority to buy and sell real estate, deal with money, and make other legal decisions as if they were you. This kind of POA can be revoked by the principal at any time they want, usually when they are able to do so physically or mentally, or when they die.

In many situations, it makes sense for spouses to set up powers of attorney for each other. But in some situations, it might make more sense to have a more financially savvy family member, friend, or trusted advisor act as the agent.

Designation of Recipients

As we’ve already mentioned, some of your possessions, like 401(k) plan assets, can go to your heirs even without a will. This is why it’s important to have a beneficiary and a backup beneficiary. Plans for insurance should have both a beneficiary and a contingent beneficiary, since some things can be passed on without a will.

If you don’t name a beneficiary or if the beneficiary is dead or can’t appear, a court might decide what to do with your money. And to be honest, a judge who doesn’t know your situation, beliefs, or plans isn’t likely to make the same choices as you.

Intention Letter

A letter of intent is just a piece of paper that you give to your executor or a beneficiary. The goal is to say what you want to happen with a certain asset after you die or become unable to care for yourself. Some letters of intent also include information about funeral plans or other requests.

Even though such a document may not be legal, it helps a probate judge understand your wishes and may help with the distribution of your assets if the will is found to be invalid.

Power of Attorney for Health Care

A healthcare power of attorney (HCPA) lets you choose someone else (usually a spouse or family member) to make important healthcare decisions for you if you are unable to do so.

If you want to sign such a document, you should choose someone you trust, who has similar beliefs to yours, and who is likely to suggest a course of action that you would support. After all, this person could literally hold your life in their hands.

Lastly, you should choose a backup agent in case your first choice isn’t available or can’t act at the right time.

Appointment of Guardians

Some wills or trusts don’t have this clause, but most do. If you have young children or are thinking about having them, choosing a guardian is a very important but often overlooked step. Make sure the person or couple you choose has the same values as you, is financially stable, and really wants to raise kids.

As with any other choice, there should also be a back-up or contingent guardian named. If you don’t make these choices, a court could decide that your kids should live with a relative you wouldn’t have chosen. In the worst case scenario, the court could order that your kids become state wards.

Conclusion

In addition to helping you create legally binding documents like wills and durable powers of attorney, estate planning attorneys frequently charge flat fees for their services. However, they can also be hired on an hourly basis to assist you in managing your estate, acting on your behalf to resolve disputes when necessary, and ensuring that your will is carried out as intended when necessary.

Not everyone needs an estate plan, but everyone should have a will, which is a key part of an estate plan. Furthermore, you can do estate planning regardless of how much money you have because it includes important things like naming guardians for your minor children and making sure your assets go to the people you name as beneficiaries.

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