What is estate planning?
Estate planning refers to arranging and preparing the transfer of a person’s asset base after his or her death. This includes writing a will, granting powers of attorney, dealing with estate taxes and eliminating other possible uncertainties.
You can think of estate planning as simply putting someone’s personal affairs in order.
The goals of estate planning are determined by the specific needs of the client.
Some of the most common tasks in estate planning include:
- Appointing a guardian for living dependents
- Creating trust accounts in the name of the beneficiaries of the estate
- Managing or creating life insurance and retirement plans
- Appointing an executor of the estate to administer the deceased person’s assets and manage them until they are distributed to inheritors.
- Making the necessary funeral arrangements
Creating a will
A will is a document that includes the names of people, organizations, and other entities that will receive a person’s estate after they die.
This is an important part of estate planning as it decides who the beneficiaries of the estate will be.
If there is a minor inheriting an estate, a custodian is typically assigned to manage the assets inherited by the minor until he or she comes of age.
It is crucial to take great care when creating a will as many jurisdictions require that the testator (author of the will) follows specific steps to properly execute their will and testament. Final arrangements such as whether to be cremated or buried are commonly part of a living will.
It is common to have a trust created as part of the estate planning process. A trust (in the context of estate planning) serves to distribute the assets of a person when they pass away. A trust is an arrangement in which a trustor gives control of their assets to a trustee for the benefit of a beneficiary.
People create a trust in estate planning:
- To protect and control the assets of one’s family.
- When the beneficiary is too young to handle his or her affairs.
- When the beneficiary cannot handle his or her affairs because he/she is incapacitated.
A trust can either go into effect while the estate owner is alive (Living Trust) or established through a will (Testamentary Trust).
Advance directives can be important for making the estate owner’s voice heard when they can no longer properly communicate. Someone can be appointed to make health care decisions for the person when they longer can. Decisions are based on the previously stated wishes of the person.
Medical power of attorney (or designation of a health care surrogate) allows a person to assign someone to make medical decisions for them in the event that they become temporarily or permanently unable to make decisions themselves.
According to emedicinehealth.com, situations in which a person may be temporarily or permanently unable or incapable to make complex decisions may include:
- persistent vegetative state;
- severe illness;
- severe medical conditions;
- traumatic brain