Making an estate plan can by its very nature be stressful and uncomfortable, but it’s also important and necessary. Unexpected events happen all the time, and it’s better to have a plan in place than none at all should the worst-case scenario occur. When it comes to trusts, estates, and wealth management, there are a few components that you’ll need to address. Let’s take a look at what those are here.
Why You Need a Will
The best place to start with your estate plan is to get a will written. This is a legally binding document that details exactly who will receive your assets and property after your death. Just having a will is not enough, though. A will is only a piece of paper until you have an executor.
What’s an Executor?
The executor is the person in charge of carrying out the directions and directives you’ve put down in your will. If the will is just a piece of paper, the executor is the one who makes it real. Depending on your situation, you might also have a guardian or guardians named, ensuring that your minor children are taken care of in the event of your death or incapacitation.
Beyond being a document that decides where your money and belongings go when you die, a will is a guarantee of your legacy – deciding what that legacy will be is vitally important.
What is a Trust?
Most people have heard about a will, but trusts are where things can get a bit confusing for the average person. Let’s clear up some of that confusion. Put simply, a trust is a legal arrangement where someone (a trustee) holds the legal title of a property or properties on behalf of someone who will eventually receive that property. This person is referred to as a beneficiary.
Benefits of a Trust
One of the main benefits of a trust is that it allows the trustee to determine when the beneficiary will receive the property or asset that’s been set aside for them. This is especially useful in the case of minor beneficiaries and is commonly used as a way to hold onto assets or properties until the beneficiary comes of age or otherwise meets certain criteria that either the writer of the trust, the trustee or both, have determined ahead of time.
Different Types of Trusts
As you might expect, there are a couple of different types of trust depending on the needs of the estate. The two main types of trust are revocable trust and irrevocable trust.
- Revocable Trust: In a revocable trust, you retain control over all of the assets in the trust, and you have the right to change the terms or revoke the trust at any time.
- Irrevocable Trust: With an irrevocable trust, the assets or properties listed are essentially no longer yours. As you might expect from the name, nothing can be changed here except in cases where the beneficiary themselves gives consent.
Which Trust to Choose When Making an Estate Plan
While this is largely a personal choice and should be made under the guidance of an experienced trust, estate, and wealth management lawyer, one important consideration to make is that, while irrevocable trusts are by their nature very restrictive for the one setting up the trust, their appreciated assets are also not subject to estate taxes.
The Importance of a Power of Attorney
So far, we’ve covered documents and agents that will ensure your legacy is protected and executed in the instance of your death, but what happens if you become ill or incapacitated and are unable to make the necessary financial decisions you’d normally be able to make for yourself?
In this case, you’d want to set up what is known as a power of attorney. Simply put, this is someone you’ve designated to take care of your financial affairs in situations where you’re not able to do this yourself. For married individuals, this will commonly end up being their spouse, which makes it all the more important for those who are single to designate someone as their power of attorney should the worst come to pass. The helpful thing with designating a power of attorney is that you can choose whether this person’s power will be general or specific, allowing you to decide what transactions they can and cannot have a say in while you are either ill or incapacitated.
What is a Medical Directive?
A medical directive, also known as a healthcare directive, has some similarities to a power of attorney in that you’re designating someone to take care of your affairs should you become ill or incapacitated. However, where they differ is that while a power of attorney handles strictly financial issues, a medical directive will focus on making the medical decisions that need to be made for you while you’re ill or incapacitated.
The guiding documents that will come into play here are the living will, which we’ve covered, and also the healthcare proxy. A healthcare proxy is simply an official document that designates who will make your medical decisions for you in the event of your illness.
How About a Beneficiary Designation?
Your beneficiary designation will determine who receives what benefits when you pass. This taken with the contingencies we’ve outlined will set you up for a comprehensive estate plan.
Why Making An Estate Plan is Important
Having an estate plan isn’t just a matter of practicality – it’s a matter of protecting your legacy. Whether you need a will or are looking to set up a trust, you’ll need some help getting your estate in order. With the right estate attorney or firm, you’ll be able to rest easy knowing that your family will be taken care of long after you’re gone. With decades of combined experience handling all aspects of estate planning, the Norman Spencer Law Group is perfectly positioned to help. Get in touch with us today, and we’d be happy to get started.