You spend decades building the life you want. Perhaps you have established a large and loving family. Maybe you have amassed some wealth from well-tended savings and shrewd investments. You may have collected many prized possessions throughout the years. But what happens to all of that once you’re gone?
As difficult as it can be to contemplate your own death, taking steps to solidify your financial goals now will save your family and friends the added emotional stress of having to imagine what you wanted. Instead of avoiding an uncomfortable topic, take charge of your assets and ensure your loved ones are prepared for the future through estate planning.
Who: You don’t have to be wealthy or have a large family to establish your estate plan. Anyone with goals beyond their own lives should consider planning for the future.
When: You can begin planning at any time; however, most people commonly think about it when undergoing major milestones in life such as getting married or divorced, having a child, retiring, or losing a loved one.
What: There are four main elements to consider when estate planning: Healthcare Power of Attorney and Living Will, Financial Power of Attorney, Last Will and Testament, and Establishing a Trust. Learn more about each of those below.
Healthcare Power of Attorney and Living Will
Appointing a trusted family member or friend to make healthcare-related decisions on your behalf is a critical part of estate planning. In the event you are unable to communicate, a legal document known as a healthcare power of attorney (HPOA) empowers one person to oversee any care and treatment decisions related to your medical condition(s).
Along with the HPOA, you should develop a living will. This statement, which is often referred to as an advance directive, provides guidance about your medical care preferences. Your HPOA can refer to your living will when making decisions on your behalf, particularly when questions arise surrounding life support and other medical interventions. With a living will, your wishes will be known even if you are unable to express them.
SEE ALSO: Ways to Build Wealth in Your Fifties
Financial Power of Attorney
A financial power of attorney (FPOA) is a document that establishes who will have the authority to make financial decisions for you should you be unable to do so. These decisions and responsibilities could include overseeing your investments, paying bills, and handling other matters related to your finances.
Though it may seem natural that a spouse or partner should automatically become the financial decision-maker for their significant other, this is not the case. Without a legally established FPOA in place, the matter may go to court, which could add even more complications to an already difficult situation.
Last Will and Testament
A last will and testament, often simply referred to as a will, is perhaps the most commonly known element of estate planning. This document is like a roadmap, guiding others on how to handle your assets as they enter unfamiliar territory and learn how to navigate the future without you present. Not only does a will specifically outline what you own, but it also provides a legal way to name who should receive which assets upon your death.
If you are comfortable doing so, it may be wise to discuss your will with your most trusted family members and friends. The distribution of your assets can be an emotionally distressing event, but by making your wishes known and clear before the reading of your will, you may provide an additional level of reassurance to your heirs while circumventing conflicts and negative feelings.
Despite the obvious benefits of establishing a will, only 40 percent of American adults can claim they have taken this critical step in estate planning. When a person dies without a will, also known as dying intestate, the probate court steps in to distribute the assets of the deceased individual.
Depending on the particulars of your estate and the state in which you live, some interaction with the probate court – the judicial system section responsible for settling wills, trusts, conservatorships, and guardianships – may be inevitable. However, having a valid, authenticated will may help your family avoid an arduous, complicated probate process.
A will can be revised over the course of your lifetime, and it is important to update it when certain events occur. For instance, if you are a parent, a will is essential when planning for your child’s future. Should you and your child’s other parent both die or become incapacitated, a will establishes your wishes regarding the legal guardianship of your child.
A trust is similar to a will in that it allows you to specify your wishes for your estate after death. It establishes a fiduciary relationship among three parties: the trustor, the trustee, and the beneficiary. The trustor, or owner of the assets, gives a neutral party known as the trustee the power to manage those assets and property on behalf of the beneficiary. It provides specific instructions regarding inheritance and a level of protection for the trustor, governing how and when their assets should be distributed and how they can be used by the beneficiaries after the trustor’s death.
While there are some similarities, a trust differs from a will in that a trust is not required to go through probate. It (usually) cannot be contested, and it is not part of the public record. A trust does not provide for the guardianship of minor children, however.
While everyone should have a last will and testament, a trust is not necessary for most individuals. If you have a sizable estate or concerns about the proper management of your assets after death, a trust can be a beneficial tool in your estate planning.
SEE ALSO: Charitable Gifting Strategies
How to Begin Estate Planning
It’s never too soon to start planning, and it is best to have your wishes outlined through clear, legal documentation. While no one knows what the future may bring, having an established estate plan provides a certain peace of mind that your loved ones will be secure after your death.
At Resolute, we pride ourselves on being trusted partners for our clients, providing professional, friendly guidance even when addressing difficult topics. If you are ready to discuss your plans for the future, please reach out to us today.