Estate planning is an important process for anyone who wants to ensure that their assets are managed according to their wishes in the event of death or disability. There are six essential elements to an estate plan, each of which plays a vital role in protecting your assets and providing for your loved ones. The first and most well-known component of an estate plan is a will. A will is a legal document that provides instructions for managing your estate assets after death.
It can also be used to designate guardians for minor children and to name beneficiaries who will receive your assets. A trust is another important element of an estate plan. A trust is a legal agreement in which a trustee holds the assets of a grantor for the benefit of a beneficiary. Trusts are useful for estate planning because they can help keep your assets out of probate, which can be a time-consuming and costly process.
A trust can also set detailed rules for when and how beneficiaries receive their inheritance. Unlike a will, a trust is not a public document, so it can help keep your assets private. A comprehensive estate plan should also include documents that provide instructions for getting the treatment you would want when you can't make or communicate decisions, no matter how old you are. These documents include a living will, health care representative, and advance health care directives.
Designations of beneficiaries in things such as retirement accounts supersede any instruction in your will or trust. This is because assets that go to a designated beneficiary generally do not become part of your estate or trust; they go directly to the beneficiary. Insurance policies could also have a place in your estate plan. Some people may need one or more trusts, depending on their circumstances.
It's always best to add a power of attorney to your estate plan so that you name who you want to take care of your affairs if you become incapacitated. An estate plan can also dictate what happens to online accounts, such as social media accounts, websites you own, email accounts, or other digital assets. Finally, it's important to consider purchasing insurance products, such as long-term care insurance to cover old age, a lifetime annuity to generate some level of income until death, and life insurance to transfer money to beneficiaries without the need for legalization. Estate planning is an important process that can help protect your assets and ensure that the people in your life are provided with the resources they need in the event of death or disability. It's always best to consult with a probate lawyer and possibly a tax advisor if you have doubts about the process.