Many people who are unfamiliar with estate planning believe that all they really need to plan for their passing and the transfer of their assets is a last will and testament.
However, a truly solid and cohesive estate plan will have several components that will help minimize the stress experienced by your loved ones after you’re no longer here.
The following are some of the most common and important components of an effective estate plan:
Last will and testament
A will is the most well-known estate planning document. It allows people to outline, in a legally binding manner, who receives which property and assets upon their death. If you die without a will, the state determines how your property gets distributed, following the laws of intestate succession. In your will, you also appoint a representative of your estate (usually referred to as an executor or an estate administrator) to carry out your wishes.
Wills are especially important for people who have minor children, as they also allow you to name a guardian for your kids in the event of your untimely passing.
It is important to note that wills only cover probate property. Other types of property, such as jointly owned property, property in trusts, life insurance benefits and any other accounts or properties with named beneficiaries, would not be included.
Trusts hold property for another person (known as a beneficiary) until the death of the trustee. There are many kinds of trusts, each of which has its own unique benefits. An irrevocable trust, for example, allows trustees to pass on assets tax-free to their heirs, though they give up ownership of those assets when they pass them into the trust. A revocable trust allows trustees to maintain control over their trust assets until their death. In general, trusts allow people to avoid probate and save their loved ones some time and energy.
Power of attorney
Through a power of attorney arrangement, you would appoint someone to act in your place to make certain financial decisions if you become incapacitated. At that point, the person acting on your behalf (known as an agent) steps in and manages your finances for you. Without durable power of attorney, someone would have to petition the court to be named a guardian or conservator to handle your affairs—a process that can take many months or even years.
Advance healthcare directives
These directives include issues like healthcare proxies, living wills, medical power of attorney and other instructions. All these components help protect you in worst-case scenarios in which your doctors need instruction regarding the types of end-of-life care you wish and do not wish to receive.
You should set aside some time each year to review your retirement plan beneficiary designations and make sure they are all up to date. If you fail to name a beneficiary for any of your accounts, the distribution of those benefits could move forward per state or federal law, or according to the rules you established when you set up your account.
For further guidance and advice on how to best protect your loved ones, assets and property, speak with a skilled New York estate planning lawyer at Lissner & Lissner LLP.