For most of us, the phrase 'estate plan' conjures up visions of wealthy widows, former hedge fund managers and retired CEO’s. In reality, everyone needs an estate plan, as they can benefit anyone who wants to have a say about their property and family if they die. Nearly everyone has an estate; your estate includes everything they own, from money in the bank to furniture in your home to your flat screen TV and computer. More importantly, your estate plan dictates how your loved ones will be cared for when you are gone.
Fundamentally, the goal of an estate plan is to make sure that individuals have control over what happens to them and their belongings in the event of their death. A good estate plan will safely and securely ensure that your wishes are followed.
Several elements come together to create an estate plan, of which the most well known is a will. Your will allows you to dictate exactly what you give and to whom. By having a well-written and thoroughly plotted will, your legacy will not be left to the state, the courts, debtors and other entities wishing to get their hands on your property. For parents with children, a will is supremely important, allowing you to appoint an appropriate guardian, as well as someone to manage their inheritance, should both parents be lost in an accident.
All wills, however, must go through the probate process, which can take years to complete. The process involves a probate court validating your will before allowing anything to be transferred to your designated heirs. Thus, many estate plans will include a living trust, which not only avoids the probate process and any legal and court costs, but controls exactly how and when heirs receive their respective inheritance. Though trusts cost an initial fee, the potential benefits far outweigh the costs.
Furthermore, estate plans can designate adurable power of attorney to any person of your choosing. There are two different powers of attorney: one for financial and one for medical. If you are terminally ill and unable to manage your finances, a power of attorney allows someone else to manage them for you. Similarly, if you ever become incapable of making medical decisions for yourself — coma, vegetative state — having someone else whom you trust to make those decisions for you can make all the difference.
There is no better time to put together your estate plan. Many individuals feel they need to wait until their estate is larger or until they’re retired before creating a plan. However, estate planning is an on-going process, and you can adjust your plan to fit any new changes. The most important thing is to have one in place just in case of an unforeseen situation.
Failing to create a plan in the event of your death will leave your entire estate in the hands of the courts. If you leave behind any minors, the court will appoint a guardian for them and could place them in different homes. The court will also divide your estate equally among your heirs, regardless of their age or relationship to you. For example, if you have a spouse and children, each child and your spouse would receive an equal share. Creating an estate plan now removes the risk of you not controlling how your family and property are cared for when you die.
If you're worried that you can't afford an estate plan, there's no harm in creating a simple one that you can afford. Even if it's not as complex as you would like it to be, having an estate plan is essential in caring for yourself and for loved ones.