Foundations of Estate Planning

Estate planning is the process of outlining a plan for your assets to be managed and given out after your death or if you can’t make decisions for yourself.
It helps protect your family and makes sure your wishes are followed.
Without estate planning, your assets might not go to the people you want them to.

For more detailed information, you can visit this Investopedia’s Estate Planning Guide.

If you don’t have an estate plan:
- Your assets are given out by the law, not by your choice.
- Your family might face extra legal costs and stress.
- Your loved ones might fight over your assets.

Read more about the consequences of not having an estate plan here.

Essential Legal Documents in Estate Planning

A will is a document that tells everyone how to share your things after you die.
- Purpose: It names the person who will make sure your wishes are followed.
- Guardians: It also names guardians for your minor children to take care of them.
- Importance: Without a will, the law will decide who gets your things, which may not be what you want.

A power of attorney is a paper that lets someone else make important decisions for you.
- Financial Decisions: It can be used to handle your money matters like paying bills.
- Medical Decisions: It can allow someone to make medical choices for you if you are too sick to decide.
- Types: An ordinary power of attorney is for specific times, while an enduring one works even if you become very ill.

These papers say what kind of medical treatments you want if you can’t speak for yourself.
- Healthcare Proxy: Appoints someone to make healthcare decisions for you.
- Medical Instructions: Gives specific instructions about treatments, like whether you want to be kept alive with machines.
- Importance: Helps doctors and family know your wishes to avoid any confusion during emergencies.

For a detailed guide on each of these documents, you can explore Nolo’s Estate Planning Overview.

A trust is a legal document where you transfer your assets to a trustee to manage them for your benefit or the benefit of others.
Revocable Living Trusts: You can change or cancel these trusts anytime while you are alive. They help you avoid probate, which is the court process of distributing your property after you die.
Irrevocable Trusts: You cannot change these trusts once you create them. They can help minimize taxes and protect your assets from creditors.
Testamentary Trusts: These trusts are set up in your will and only take effect after you die, helping to manage and distribute your assets according to your wishes.

Beneficiary designations specify who will receive the proceeds from financial accounts and insurance policies without going through your will.
Examples: Life insurance policies and retirement accounts often have beneficiary designations.
Limitations: They usually do not have backup beneficiaries, making it important to keep them updated.
Not having a backup can lead to your assets being distributed according to state laws, which might not be what you want.

For more information on how beneficiary designations work, visit this guide on beneficiary designations.

Guardianship designations name a person to care for your minor children or dependent adults if you are unable to.
This ensures your children or dependents are taken care of by someone you trust.
Healthcare Directives: These documents include living wills and healthcare proxies. They state your medical treatment preferences if you can’t speak for yourself.
Living Will: Outlines the medical treatments you do or do not want at the end of life.
Healthcare Proxy: Names someone to make medical decisions for you if you can’t.

You can learn more about healthcare directives by visiting AARP’s guide on healthcare directives.