Estate planning is more than drafting a will or a trust. It also includes provisions that allow your family members and loved ones to access and manage your assets should you become incapacitated and unable to do it yourself.
For this reason, you need to ensure that you develop a well-rounded estate plan that covers all the bases. Read on for eight crucial things you should consider when estate planning.
1. An enduring power of attorney
An enduring or durable power of attorney is a legal document that gives someone else the mandate to handle your finances and legal affairs if you become incapacitated and cannot make decisions by yourself.
The person with a durable power of attorney represents your best interests since they owe you a fiduciary duty.
A durable power of attorney expires upon death, when you are deemed physically and mentally able or when you revoke the duties from your designated agent.
When estate planning, ensure that you appoint a designated power of attorney to ensure that all your financial affairs are appropriately managed if you are found mentally incompetent.
Without a power of attorney, the court decides on what should happen to your assets.
The court’s ruling can be what you would not have wanted, which is why you should appoint a spouse, a reputable attorney, or someone you trust to act on your behalf.
2. A will
One of the critical considerations when estate planning is the will. You should ensure that your will is up-to-date to avoid wrangles that may arise upon your death.
A will dictates what happens to your property once you die. It also helps to distribute your assets.
When preparing a will, ensure that you appoint an executor, state who gets which assets and why, and choose who gets custody of your children if you are no longer married or your partner is already dead.
While you can prepare your will by yourself through available forms online or mobile apps, consider hiring this Alabama wills and estates lawyer to ensure that the document is acceptable to the federal law.
A will drafted by a lawyer is also not subject to successful legal challenges.
3. Life insurance
If you have a spouse, children, dependents, or plan to start a family, life insurance is an invaluable part of your estate plan.
This is because it guarantees your beneficiaries a specific sum of money when you die, even when you owe significant estate tax or debt.
If you already have a life insurance plan, consider checking with your insurance company to ascertain that your beneficiaries are listed correctly and up-to-date.
If you do not have one, consider securing an insurance plan for your dependent. Life insurance is an effective way to secure your dependent’s future as it is pretty affordable and non-taxable.
4. Designated beneficiaries
When estate planning, ensure that you designate beneficiaries to your insurance policies, retirement accounts, super accounts, and other investment accounts.
This allows your heirs to access these accounts even without a will.
When deciding how to divide your assets to the beneficiaries, ensure that you consider their needs, spending habits, age, and their financial status, to mention a few.
Ensure that all the beneficiaries are 21 years and above and are mentally competent to prevent court interventions.
If you fail to designate beneficiaries or if a beneficiary is deceased or incapacitated, the court will have to decide on the fate of your funds.
Judges are unaware of your situation, beliefs, or intent; therefore, they are unlikely to make a similar decision as you would have.
5. Guardianship designation
Guardianship designation may be the most crucial part of your estate planning.
This is because it entails who looks after your children or dependents in case of your demise.
While most wills and trusts include a guardianship designation clause, some do not. This does not mean you should overlook this essential step.
If you fail to designate a guardian for your dependents, they may end up growing in foster homes.
When choosing a guardian for your children, ensure that you pick someone or a couple who shares the same beliefs and views as you do, is financially and mentally stable, and most importantly, an individual who genuinely wants to raise kids.
You could consider adding a backup or contingent guardian to be safe.
It is worth noting that picking a guardian for your children is not enough. You further need to raise funds for their education and upbringing.
6. A living will
A living will also known as a medical directive, is a document that spells out your desired medical care if you cannot make the decisions yourself.
A living will protect your family and loved ones from making critical emotional decisions about your life, for instance, deciding whether or not you should continue receiving life support even when there is no chance of recovery.
You could further designate healthcare power of attorney to a trusted individual to execute your medical decisions for you.
Ensure you go for an individual you trust who shares and agrees with your views to ascertain that your wishes will be granted.
Consider picking a contingent healthcare power of attorney if your initial pick is unavailable at the time needed.
7. Effect of taxes on your estate
Various taxes, including gift, estate, and property tax, could affect your estate’s current and future worth.
For this reason, you need to work with your lawyers to understand how certain taxes impact your estate.
You could also learn ways to minimize or avoid the effects of taxes when designating funds for your beneficiaries.
For instance, superfund benefits are tax-free when the beneficiary is a death benefit dependent.
8. Letter of intent
A letter of intent is a document left to your executor to define what you want to be done with particular assets.
Some letters of intent also cover funeral arrangements, wishes, and special requests.
While a letter of intent is an unofficial document, it can help enlighten a probate judge of your intentions about the distribution of your assets if your Will is deemed invalid.
Estate planning ensures that your family, dependents, and loved ones access your assets if you are temporarily or permanently incapacitated.
It is also an effective way to ensure that your family is provided for in your absence.
Keep these considerations in mind to develop an estate plan that meets your family’s needs.