Estate planning is the process of using legal means to formally determine and document how your estate will be distributed upon your death. Regardless of how modest or extensive your estate is, you must decide how it will be eventually allocated.
Your estate extends beyond your bank accounts, investments and bonds. It includes everything you own, such as your home, automobile, property, financial accounts, investments, life insurance, furniture and even your pets.
When you participate in estate planning, you create legally binding documents with instructions that ensure your wishes are carried out after your death or if you become unable to manage your affairs. It may also help prevent intervention in your affairs by a probate court.
The most commonly known estate planning document, a will details how you want your property to be divided when you die. It may also include details related to guardianship of minor children and method of payment of debts and taxes you may owe. A will is probably the single most important document you create to prepare for the future.
When you create a trust, you legally set aside specific property for someone that will be held until a later date. This could be money that is banked until a child turns 18 or an investment that gets turned over to a friend when it matures on a specified date. You can leave money to someone in your will; but a trust is its own legal entity that will help avoid probate.
Revocable trust: A more flexible type of arrangement, a revocable trust allows you to change the terms of the eventual financial distribution while you are still alive. If the trust gains interest or is tied to an investment, you can collect income from the trust funds if you choose. The trust will then be distributed after your death on the timeline you decide.
Special needs trust: Every family is unique and their financial futures need to be planned specifically for them. A special needs trust is a distinct type of arrangement that allows you to set aside assets for a person to be used after your death, while still legally allowing them to collect needs-based government benefits. This may be important for minor children and children or adults with disabilities whose wellness could be put in peril without this special protection.
Pet trust: Most pet parents care for their animals just like family and many make plans for their pet’s future after their death. A pet trust allows you set aside funds that will be used for your pet’s care and maintenance. Pet trusts are becoming increasingly popular, both to safeguard an animal’s future wellness and also ease the financial burden on the person who takes custody of the pet.
Some estate planning doesn’t have to do with your death, but addresses what will happen if you become incapacitated. Powers of attorney specify who should care for your medical needs and financial matters if you become disabled in such a way that does not allow you to make decisions for yourself. It’s a difficult scenario to consider, but setting up a power of attorney lets you put someone you trust in charge of decisions related to your well-being.
Naming a guardian for your minor children might be one of the most important estate planning decisions you make. In the case of the death of both parents, a guardianship order names a person or people who now become the legal guardians. In the case of divorce and one person’s death, guardianship mostly defers to the living parent. However, some individuals choose to set up alternate guardianship if they feel their former spouse is an unsuitable parent. The court will ultimately take that into consideration. A guardianship may also be necessary for a disabled adult.