A lot of people put estate planning on the back burner because it seems like an overwhelming task, and they don’t know where to begin. This is understandable to some extent, and in this post, we will look at five must-have documents to provide you with a starting point.
The first order of business will be to state your wishes with regard to the way you want your assets to be distributed after your passing. A will is a possibility, but this document is really not the right choice unless the situation is exceedingly simple and straightforward.
For many people, a living trust will be a far better choice. One benefit is the avoidance of probate, which is a legal process that takes place under the supervision of a court.
The inheritors have to play a waiting game when an estate goes though probate, because no inheritances are distributed until the court closes the estate. It will usually take between eight and eighteen months for an estate to pass through this process.
Probate expenses reduce the value of the estate before it is transferred to the inheritors, and since it is a public proceeding, anyone that is interested can access the records.
In addition to these negatives, you would be providing lump sum inheritances if you use a will, so there would be no safeguards or asset protection going forward.
If you use a living trust as the centerpiece of your estate plan, you would act as the trustee, so there would be no loss of control. The successor trustee that you name in the document would distribute the assets after your death, and probate would not be a factor.
A spendthrift clause would prevent the beneficiaries from directly accessing the principal, and their creditors would be in the same position. As for spending safeguards, you can allow for measured distributions on an incremental basis over an extended period of time.
There are other types of trusts that can be used to address specific concerns such as nursing home asset protection, government benefit preservation, and estate tax efficiency.
Living Will/Advance Health Care Directive
The other documents that you should have in your estate plan are related to eventualities that you may face while you are still living. One of them is a living will/advance health care directive, which is used to state your preferences regarding the use of life-support measures.
Organ and tissue donation designations can be included along with your comfort care medication choices.
The life support question is intense and personal, so this document is very important. When you have an advance health care directive, you take the decision out of the hands of your closest relative, and you circumvent potential disagreements among family members.
Durable Powers of Attorney
Medical situations can arise that are not related to the use of life-support, and decision-making may be required. To account for this potential scenario, you should name an agent to act on your behalf in a durable power of attorney for health care.
In addition to physical ailments that can make it impossible to communicate, many elders cannot make sound decisions due to cognitive impairment. This can apply to financial matters, so your plan should include a durable power of attorney for property.
If you have a living trust, you would name a disability trustee to act as the administrator in the event of your incapacity.
The last must-have document is related to the Health Insurance Portability and Accountability Act (HIPAA). Because of a provision contained within it, doctors are not allowed to share medical information with anyone other than the patient.
You can get around this and give your health care agent the ability to speak freely with your doctors if you sign a HIPAA authorization.
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