Make Estate Planning Part of Your New Year's Resolutions
- Financial Education
- Frontwave Credit Union
We never want to think about it, but we should all be prepared for the inevitable. Whether you have a lot of assets or are just starting out, creating an estate plan can help you and your family be prepared for life’s toughest transition, and ensure your assets are protected even after you’re gone.
At its most basic level, estate planning includes preparing a will, a health care directive and a power of attorney. Depending on your situation, you may also want to consider establishing a trust. Let’s take a look at what each of these components are and how they can help you.
Establishing a Will
A will allows you to state how you want your assets to be distributed after your death. If you have a child or children, it also allows you to name who you would like to have legal guardianship of your child or children if something were to happen to both parents. According to experts, wills aren’t just for people with a lot of assets. Using a will to state your wishes for your possessions, no matter how large or small, can help save your loved ones a lot of grief and tension after you pass.
Health-care directives focus on medical decision-making at the end of life. There are two main types: a living will and health-care power of attorney. A living will allows you to state your wishes regarding medical care in the event that you are incapacitated, terminally ill, or unable to communicate. You can outline your preferences regarding decisions about life support and any kind of life-sustaining medical intervention (such as CPR) that you do or don't want.
A health-care power of attorney (also known as a health-care proxy) allows you to name a specific person to make health-care decisions for you in the event you become unable to make those decisions yourself. Even if you have a living will, most experts recommend also naming a health-care power of attorney so it’s clear who you want to make health-care decisions for you in case you end up in a situation not covered by your living will.
Power of Attorney
In addition to a health-care power of attorney, experts recommend naming a financial power of attorney, sometimes call a durable power of attorney, as part of your estate plan. This allows someone else to handle your financial and legal affairs if you become unable to do so yourself. For example, if you fell into a coma, it would allow them to pay your bills and taxes on your behalf.
A trust is a legal document that allows you to put conditions on how specific assets you own are distributed after you die. It involves naming a trustee to manage your wishes, and beneficiaries who will receive your assets. Though on the surface it sounds very similar to a will, a trust may offer extra legal and tax protections as compared to a will. For example:
- Upon death, assets in a trust transfer to the designated beneficiaries. This can help the estate bypass probate, which is the legal process used to administer a persons’ assets after they die. In some states, including California, if a person dies with only a will, the will must go through probate before assets can be distributed — but in most cases, trusts are exempt from this process.
- Depending on the type of trust and what’s included, there may also be tax benefits for your beneficiaries.
An estate attorney can help you decide whether a trust is right for you. They can also help answer any questions you may have about wills, health-care directives or establishing a power of attorney.