An estate plan is a series of documents designed to ensure that your assets are distributed according to your wishes and that trusted individuals can act on your behalf. Without an effective estate plan in place, probate could become costly and time consuming.
An effective estate plan includes an inventory of your assets, professional contacts and six essential estate planning documents such as your last will and testament, revocable trust, power of attorney, advance health care directive and living will.
1. Last Will and Testament
Your last will and testament outlines how you would like your belongings distributed after death. Additionally, it appoints a personal representative to manage the estate according to your wishes, as well as guardians for any minor children and an executor – who will oversee its execution.
Before drafting a will, it’s essential to fully comprehend your financial picture. Begin by compiling an inventory of all your assets and debt, taking careful note of tangible and intangible items like property, vehicles, cash savings accounts, bank accounts and even pets.
Subtract your total debt from the value of all assets in order to calculate how much can be left behind for loved ones in your will. Don’t forget mortgages, credit card bills and any other outstanding debt when doing this calculation.
2. Revocable Trust
Revocable trusts provide tremendous flexibility. You can set them up during your life (living trust) or after death (testamentary trust) to minimize taxes and provide for family in accordance with your wishes.
Beneficiaries should be designated and updated regularly as per changes in circumstances and needs.
Include a Power of Attorney that gives someone legal authority to transact real estate and financial transactions on your behalf should you no longer wish to act, be that your spouse, child, friend or anyone with relevant expertise – this document could even serve as healthcare agent designation.
3. Power of Attorney
A power of attorney allows you to appoint someone as your representative should you become incapacitated due to illness or injury in the future. It may be temporary or permanent and cover all aspects of your decisions or only certain activities such as selling your home.
Your agent could be anyone from your spouse to adult children to friends to professionals. New York law also permits you to include a “gifting rider”, which authorizes your agent to give gifts during your lifetime if that is what is desired.
An estate plan helps ensure your wishes will be carried out when it’s time for you to pass, while at the same time reducing legal expenses and providing peace of mind to those left behind.
4. Advance Health Care Directive
An estate plan addresses more than just your wishes when you die; it must also cover what could happen if you become incapacitated in some way. By including an advance health care directive (commonly referred to as a living will), this enables your loved ones to know your wishes if you become incapable of speaking for yourself.
An advance healthcare directive (AHD) allows you to set out criteria for when medical treatments should or shouldn’t be utilized to extend life. State laws vary on terminology, content and revocation of healthcare directives so it is wise to consult an attorney familiar with your jurisdiction prior to creating or revoking one.
Illinois law recognizes four forms of advance directives, including living wills, mental health treatment preference declarations and Practitioner Orders for Life-Sustaining Treatment (POLSTs). Each must include an HIPAA release form to give your representative access to medical records.
5. Living Will
Prioritize beneficiaries based on the assets you own and debts owed. This prevents heirs from falling into severe financial trouble or seeing their inheritance destroyed due to unpaid bills and taxes.
As part of your estate, if you wish to leave something to charity, be sure to list any organizations in a beneficiary designation form. Your financial professional should help make this easy process happen.
Though some might assume estate plans are only necessary for the wealthy, anyone with assets should create one. A plan will protect these from probate costs and public scrutiny as well as potential family disputes; and ensure your wishes will be carried out should something happen to you which incapacitates you.
