Many individuals mistakenly assume that all they need to do to prepare their property for distribution after death is to draft a will. Others believe that estate plans are only necessary for the wealthy. However, everyone can benefit from an estate plan that clearly outlines their financial obligations and assets. An estate plan can also include provisions that allow your family members to access your assets and carry out instructions for your care if you become incapacitated while still alive. Review our list of the essential elements of an estate plan, then contact Huber Fox, P.C. to develop a legally sound estate plan that protects your interests and provides for your loved ones.
What Are the Five Components of Estate Planning?
A comprehensive estate plan features five main components:
- Last Will and TestamentA last will and testament is the most basic estate planning document for retaining control over how your assets and property are managed after your death. Regardless of your age, health, or the size of your estate, you need a will to specify your wishes for your home, personal belongings, and other property. A will also names an executor to carry out your instructions and names a guardian for your minor children and dependents.
Failing to create a will means the final decisions about your estate will be made by the state, and basic inheritance laws will be implemented to divide your assets among your loved ones. If your child’s other parent is no longer living or is incapable of caring for your child, the state will appoint a family member as a guardian and give them custody of your child.
Anyone can create a will if they are at least 18 years of age. To be considered valid and legally enforceable, your will must be drafted according to state laws and written to be consistent with any other estate planning documents. Then, you must date and sign your will and include the signatures of two witnesses who are not named in the document. You must also be of sound mind, meaning you are willfully creating the document and understand the effects of the will. Your will remains valid unless you physically destroy it, revoke it, or create a new will.
- Revocable or Irrevocable TrustsA trust is a legal arrangement through which you transfer ownership rights of your property to the trust itself. You must name a trustee with the authority to make decisions on your behalf regarding your assets and property following your death. This trustee will hold the legal titles to your property, handle the administration of your trust, and distribute the assets to your designated beneficiaries according to the terms of the trust. The most important benefit of a trust is that the assets owned by this trust avoid the probate process, so your beneficiaries receive immediate access to their inheritance without having to undergo expensive and time-consuming court proceedings.
A revocable trust allows you to retain control over the assets in the trust and gives you the freedom and flexibility to revoke it or change its terms while you are still alive. An irrevocable trust immediately transfers ownership of the assets to the trust itself; you cannot modify, amend, or terminate it except in rare circumstances. You must also obtain the consent of your beneficiaries. However, because the assets are no longer in your name, they are not considered part of your taxable estate. These assets are not subject to estate taxes, and you are relieved of any tax responsibility for income generated by these assets.
- Durable Power of AttorneyA durable power of attorney refers to a person or agent who has the authority to make legal decisions about your estate. This document empowers your agent with the ability to make real estate transactions, enter financial arrangements, or make any other legal decisions on your behalf. If you are determined mentally incompetent, failure to appoint a power of attorney will give the court the ultimate decision-making power over your assets and how they will be managed and distributed.
- Advance Health Care DirectivesAn advance health care directive consists of a health care proxy designation and a living will. It empowers a person or agent (a health care proxy) to make medical decisions on your behalf if you become incapacitated. A health care proxy is crucial for protecting your wishes if you sustain a severe injury or develop a critical medical condition that leaves you unresponsive, too ill to communicate your desire for treatment, or otherwise incapable of making or executing decisions about your medical care.
This document also includes a living will, a written statement that outlines instructions for your medical care if you become terminally ill. If your health deteriorates to the point that you require life support or palliative care, this person may have your life in their hands. Make sure you select someone you trust who shares your values and would recommend a course of action you would approve.
- Beneficiary DesignationsIf you wish to pass specific assets or property to a certain person, you need to clearly name them as beneficiaries in your estate plan and create a full accounting of the portion of your estate you want them to receive. You may already have insurance plans or investment accounts with beneficiary designations. It is key to ensure the beneficiary designations in your estate do not conflict with insurance and investment documents to prevent any potential disputes over inheritances.
Protect Your Estate and the Future of Your Family
Although legal representation is not necessary for establishing an estate plan, hiring an estate planning attorney is vital for protecting your interests. An attorney can help you understand state laws, gather the information you need to build your estate plan, select the right wording to make your instructions as clear as possible, include contingencies for certain situations, and offer valuable input on your choice of personal representative to administer your estate. The attorneys at Huber Fox, P.C. have decades of combined experience helping clients prepare for the future, and we handle every case with the utmost respect, compassion, and attention to detail.
Contact us today for assistance with drafting and maintaining an estate plan that safeguards your estate and confirms that you have left nothing to chance.