It’s always good to have a plan when it comes to your estate, especially in the unfortunate case of incapacitation or inevitable death. Estate planning helps you organize and outline what happens with your estate, so your family members or heirs know what to do and what to expect without question.
What Is Estate Planning
First, let’s define what an estate is: everything that makes up a person’s net worth. This includes belongings, real estate, land, finances, and anything that the person has controlling interest in.
Estate planning is the arrangement for managing and disposing of a person’s estate outlined during their life in the case of their death or incapacitation. In essence, it says what happens with your property if you’re seriously injured or die.
There are a number of methods for effective estate planning, each having their own benefits and uses that don’t apply to every person. It’s a good idea to consider all possibilities, as unfortunate as they may be, to keep your estate secure and your wishes for it fulfilled. Types of estate planning include wills, trusts, healthcare directives, and power of attorney.
Wills, the Most Common Estate Planning Device
Wills are the most common and simplest form of estate planning. They outline the distribution of your estate, specifying to whom pieces of your estate go in as much or as little detail as you want.
A will is also used to ensure the care of minors. The more detail you go into about where and to whom your assets and children go, the easier it is to follow. Leave no question unanswered.
Trusts are a little more complicated than wills. They offer control over the distribution of certain assets after a person’s death, placing conditions on how it’s distributed. It’s often used to minimize gift and estate taxes, and usually deals with specific assets (like a piece of property) as opposed to your entire estate.
A good example is a spendthrift trust. It prevents wasteful spending by providing a portion of the full amount at given intervals. The trustee cannot spend the entire amount at one time, protecting your wealth and legacy.
Healthcare Directives for Estate Planning
There are two main types of healthcare directives: living will and healthcare proxy. The purpose of a healthcare directive is to direct what happens to a person’s care in the event of incapacitation.
Living wills provide directives about the course of a person’s medical treatment. It’s only used if that person is unable to give consent due to incapacitation. It’s a failsafe in case you cannot consciously state that you or don’t want treatment like surgery or chemotherapy.
A healthcare proxy is a document that appoints a person, usually an agent or healthcare official, to make decisions on behalf of the patient. In contrast to living wills, these don’t involve predetermining outcomes due to incapacitation. They carry out the patient’s wishes regarding care and are usually appointed due to their expertise on executing the best plan of action.
Estate Planning with the Power of Attorney
Power of attorney (or PoA) is the authorization to assign someone as a representative on your behalf with the ability to act in private affairs and legal matters. Though the name may be misleading, it does not necessarily appoint an attorney as your representative. Rather, it appoints anyone you specify, usually a family member. There are many types of PoA, but two in particular to note are the springing power of attorney and the durable power of attorney.
A springing power of attorney is a form of estate planning that goes into effect as specified by the grantor, allowing their assignee to manage their affairs in case of illness or injury. Usually, PoA becomes ineffective if the grantor dies or becomes incapacitated. A durable power of attorney alleviates this, allowing the PoA to remain effective whether the grantor is living, conscious, or deceased.