Estate planning is the process of arranging for the transfer of an individual’s estate upon death. An estate encompasses all property owned at the time of death, which includes real property such as real estate and investment properties, as well as personal property like bank accounts, securities, jewelry, and automobiles.
The purpose of estate planning is to benefit individuals with both large and modest estates. It ensures that property is distributed according to the deceased’s personal wishes, minimizing delays and maximizing the distribution to beneficiaries. Estate planning allows individuals to decide who will benefit from their estate and to what extent, while also protecting the estate from taxes imposed on asset transfers at death. Additionally, it prompts important decisions such as appointing guardians for minor children, choosing healthcare preferences, and securing funeral arrangements.
The process of estate planning typically involves consultation with professional advisors such as lawyers, financial counselors, accountants, and life insurance representatives.
Estate Planning Tools:
– The Will: The most common estate planning instrument, a will specifies who inherits what property and may appoint a guardian for minor children or detail funeral arrangements. However, all wills must go through probate, which can be a lengthy and expensive process, potentially reducing the share received by beneficiaries and causing delays.
– The Trust: A trust is an arrangement where a trustee distributes payments or property to beneficiaries as per the trust’s terms. Beneficiaries can include family members, friends, charities, or pets. Trusts can be created during an individual’s life or by will, allowing beneficiaries to avoid the probate process.
Individual estate plans depend on the size of the estate, the number of beneficiaries, and the purpose of distributions. The basic instruments used in estate planning are the will and the trust.
Health Care Directives ensure that an individual’s medical wishes are respected when they are unable to make their own health care decisions. This includes a health care declaration and a power of attorney for health care. These directives, also known as ‘living wills,’ outline an individual’s personal decisions regarding healthcare at the end of their lives.
A power of attorney for health care grants a family member or friend the authority to control all health care decisions leading up to the person’s death.
Financial Power of Attorney is a document that appoints a third party to manage an individual’s finances when they can no longer handle their own financial affairs. This may designate a friend, family member, or a trusted professional to take on this responsibility.
Last reviewed October 2024
