Having a solid estate plan is the key to securing a future for you and your family. Three cornerstones of solid estate planning are creating a will or trust to ensure your assets are distributed according to your wishes, having powers of attorney so that someone else has the authority to make decisions on your behalf if you are unable to do so, and making sure beneficiary designations are named on your financial accounts. These three things will ensure that your estate proceeds smoothly and minimize confusion or disputes.
Wills and/or Trusts
Wills and trusts are documents that outline an individual’s wishes after they pass. They are similar as they both allow an individual to specify who will receive their assets, but they differ in how they are executed. A will goes into effect after an individual’s death, at which point their assets are distributed according to the probate process and the instructions laid out in the will. A trust, however, is a legal entity that holds an individual’s assets during their lifetime and distributes them according to the instructions in the trust upon the individual’s death. Trusts remain private and do not have to go through probate. One can have a trust in addition to or instead of a will. However, the will and trust should not have conflicting terms.
Powers of Attorney
A power of attorney is a legally binding estate document that grants someone else authority to make critical decisions on your behalf if you lack the capacity to do so. There are two different types of powers of attorney: financial and medical. A financial power of attorney allows someone else to handle your finances if you cannot do so yourself, while a medical power of attorney gives someone else the authority to make medical decisions on your behalf when you cannot communicate your wishes. A medical power of attorney is critical if you are in a coma and a decision has to be made regarding life support. Everyone age 18 and over should have a medical power of attorney.
Beneficiary Designations
Beneficiary designations are often used in conjunction with a will or trust. They specify who will inherit any assets that do not pass by way of the will or trust. Life insurance policies and retirement accounts typically have beneficiary designations that overrule what is laid out in a will or trust.
One common mistake people make when setting up their estate plan is failing to properly fund their trust by titling assets into the name of their trust. Another common mistake is failing to keep an estate plan up to date. For example, one may forget to update their beneficiary designations after having children or getting divorced. Because relationships and family dynamics change over time, failing to update one’s estate plan can result in assets going to people that the individual no longer wants them to go to. It is important to consult with an experienced estate planning attorney who can guide you through the process and help you avoid mistakes.
Nathan Pastor is a certified specialist in trusts and estates. Get started on estate planning today. Visit Pastor Law Group, PC at www.nathanpastor.com