The road to estate planning may feel like a bumpy one. To start, it can be hard to imagine a world without you in it. In the business of life, it’s easy to postpone long-term planning, especially for uncomfortable topics.
It’s also hard to make an estate plan without knowing the terminology of estate planning or what questions to ask.
In order to protect your legacy, it’s important to get into action. Let’s start with the first definition: an estate plan is a series of instructions and documents that direct the transfer of your assets in the event you become incapacitated or die. These assets include things like real estate, stock portfolios, personal belongings, business interests and more.
Financial professionals can bring a lot of clarity and support to the estate planning process, and they can help you develop the optimal plan for your specific circumstances. To jump-start the conversation, here’s a quick start guide to estate planning terms, along with a few questions to ask.
Beneficiary: A beneficiary is the person or people who will receive your assets. They “benefit” from acquiring assets from your estate. Your beneficiary can also be an institution, such as an organization you want to support or your alma mater.
Health care directive: If you should become incapacitated, a health care directive assigns the person of your choice the right to make health decisions on your behalf. These decisions can include things like whether machines should keep your body alive in the event of catastrophic cognitive failure. A health care directive is also sometimes called a living will.
Intestate: If you don’t have a will or an estate plan, you die intestate. This means you have not provided any guidance for the distribution of your assets. In this case, the court system will take over the process, and your loved ones will likely be denied any oversight.
Power of attorney: A power of attorney assigns the person of your choice the right to make legal and financial decisions on your behalf.
Probate: Probate is the legal process that begins after a person dies. If you’ve written a will, the probate process will formally distribute your assets in accordance to the will. But keep in mind that probate can be time consuming and tedious, especially for your loved ones during a time of grief. A thorough estate plan can bypass the probate process.
Trust: A trust is a key component to an estate plan. Unlike the more commonly known will (see below) a trust often comes into effect while you are still alive. To make a trust, you and a financial professional start by specifying which, if not all, of your assets will be held within it. You then assign a trustee to administer the trust (and the assets within) if you become incapacitated or after your death, including distribution of your assets to your beneficiaries. Many people set up a revocable living trust as a way to let your loved ones avoid the probate process, empowering the trustee to distribute your assets instead of the courts.
Will: A will is a legal document that provides instructions on how you want your assets to be distributed after you die. This document typically requires at least one witness at the time of signing to be valid. If you’re not able to set up a trust at this time, make sure you at least have a will. But bear in mind that your beneficiaries may be better served through a trust.
Now that you’re familiar with a few of the basic terms in estate planning, it’s time to talk with a financial professional. Here are a few questions to get the conversation started:
- What factors should I consider is naming an Executor of my will, Trustee of my trust and Attorney-in-Fact of my durable power of attorney?
- If I set up a revocable living trust, which assets titled in my trust will avoid probate??
- Am I a good candidate for a trust?
- If I set up a trust, how can we structure it so my beneficiaries will not have to go through probate?
As you begin discussing the answers, you’re on the way to defining your estate plan. Once your plan is in place, you’ll have confidence knowing that your legacy will be passed on to your loved ones in accordance with your wishes.
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2021-127032 Exp. 09/23