Whether or not you realize it, you have an estate. While you may be thinking of estate in terms of the Queen of England, it’s actually much more practical than that. Yes, she has an estate, but you do as well. Your estate is comprised of everything you own – your car, home, real estate, checking and savings accounts, investments, life insurance, furniture, personal possessions, etc. While your estate may look different than the Queen’s, there’s a commonality that neither of you will take your estate with you when you die.
Estate planning is the act of leaving a detailed instructional plan about how you want your assets distributed after you pass. Women, in particular, tend to overlook this aspect of their financial affairs, according to financial guru Suze Orman. This mistake may lead to unanticipated financial burdens for their children.
Your estate plan should include:
• A Will. This is a legal document that explains who should receive which of your assets. It also allows you to name guardians for your dependent children, which is crucial because the courts will decide what happens with your assets and children if you don’t have a will in place. You can also name an executor, the person who will be in charge of your estate which includes distributing your property, filing tax returns, and processing claims for creditors.
• Power of Attorney. When you name someone as power of attorney, this person has authority to manage your financial affairs if you are unable to do so.
• A Living Will. This is a statement of your wishes for the kind of life-sustaining medical intervention you want, or don’t want, in the event that you become unable to communicate.
• Healthcare Proxy. This authorizes someone you trust to make medical decision on your behalf. The living will and the healthcare proxy make up what’s called an “advanced health care directive.”
• Trust. For those who are concerned about how the assets are going to be distributed, it might make sense to have a trust in place. A trust is a legal entity that not only creates conditions by which assets will be distributed upon your death, but while you are alive. Under certain conditions, a trust names an individual(s) who will step into your shoes and handle your personal, financial and/or business affairs in the event you are unable to do so. A trust can also help minimize gift and estate taxes as well and finally, provides a cloak of privacy around your estate and its assets. A will on the other hand, if contested becomes a document viewable by the courts and by proxy the general public.
• (Term) Life Insurance Proceeds. Money from your estate — whether it be from bank accounts, trust assets, or property — may not be immediately available to your family and children to pay for their needs. However, mortgage payments, estate taxes, and school tuition may be due right away or before your assets are distributed. Life insurance will provide money to your beneficiaries shortly after your death. Beware, however, that if you have minor children and simply name them as beneficiaries on the policy, the money will be frozen until they turn 18. To make the funds quickly accessible, you will need to set up a trust as the beneficiary with instructions for how the money must be used.
The best way to protect your assets and ensure that your family is properly cared for is to take the time to create an estate plan. While it’s not necessarily an easy thing to do, it is a necessity and will offer peace of mind for you and those you love.
Photosource: freedigitalphotos.net, archipoch