Estate Planning-What is it and why is it important?
Estate planning is important because it preserves intergenerational wealth and assists families in making difficult decisions on their loved one’s behalf. An estate plan is a collection of legal documents that sets forth how you want your assets distributed when you pass away, and how you want people to handle your health and finances if you are unable to do so during your lifetime.
It is never too early to start planning, but it can be too late.
It is difficult to prepare for your passing or an unexpected health emergency as thinking about a moment in time where you are no longer alive, or no longer able to make independent decisions on your own behalf is, generally, unpleasant. Now imagine your loved ones being in a situation where they have to handle your passing or unexpected health emergency without knowing your wishes. To whom do you want to leave your house? Your money? Your most prized possession? Do you want lifesaving medical interventions? Who do you want to handle your finances? Who do you want to make healthcare decisions on your behalf? These questions will be answered for you based on applicable laws if you do not have estate planning in place. However, estate planning provides you an opportunity to have a say.
Depending on your circumstances, an estate plan can include a will, a trust, a living will, a healthcare power of attorney, and/or a financial power of attorney.
A will answers the most basic question, “who will get my stuff?” A will allows you to name who will get your assets and the people who you name are known as beneficiaries. A will additionally allows you to name guardianship of minor children. A will is effective after death and will be probated and be public record.
A trust is a legal arrangement in which one party (the trustee) holds and manages assets on behalf of another party (the beneficiary). A trust avoids probate, saving time and money, offers greater control over asset distribution, and can protect assets from creditors or lawsuits. A trust can become effective during your life or at death, and maintains privacy as it avoids probate. A trust does not allow you to name guardianship of minor children.
While similar, a trust only covers the assets you put into the trust and a will covers your assets that are not in a trust. Additionally, as noted, you can only name guardianship of minor children in a will.
A living will can be defined as “healthcare treatment instructions in the event of an end-stage medical condition or permanent unconsciousness.” A living will allows you to specify what healthcare treatment you would like in the event that you are unable to communicate.
A healthcare power of attorney allows you to name someone to make healthcare decisions on your behalf in the event that you are unable to make your own healthcare decisions.
While similar, a living will and healthcare power of attorney are different legal instruments with the essential difference being a living will is your “voice” and a healthcare power of attorney is the voice of someone that you trust.
A financial power of attorney allows you to name someone to take care of your finances in the event that you are unable to make your own financial decisions. A trust is a legal arrangement to ensure a person’s assets go to a specific beneficiary.
