Estate Planning Basics
There’s a lot that goes into estate planning. From wills and trusts to various powers of attorney, every step of the estate planning process is intricately detailed. To learn about everything that’s involved in estate planning, your best decision would be to sit down with a seasoned tax professional—such as a CPA from DeFreitas and Minsky, LLP—who can explain everything you need to know about the decisions you need to make.
Wills
Your will is the official document that states your final wishes. In your will, you can name the executor of your estate, guardians for your children and their property, dictate how debts and taxes will be paid, and detail any other provisions you’d like to be made.
Trusts
A trust is a fiduciary agreement that appoints a trustee to hold assets on behalf of one or more beneficiaries. Trusts are often used as a means to minimize estate taxes. Trusts have flexible structures to allow individuals to control their wealth very specifically, designating when and to whom distributions may be made.
Health Care Directives
Also called a “living will” or “advance decision,” this is a legal document that specifies what should be done medically in the event that you’re no longer able to make decisions on your own. Your health care directive can authorize another individual to make decisions on your behalf when you’re incapacitated, called a “health care proxy.”
Durable Financial Power of Attorney
A document that names the individual you’ve chosen to make financial decisions for you when you become unable. This document can also designate when the terms go into effect; some couples have financial power of attorney documents that go into effect immediately so that they can make decisions for each other at any time. Alternatively, you can specify that your power of attorney cannot go into effect until you’ve been medically certified as incapacitated. Many states require that your financial power of attorney be specified as “durable,” otherwise it may become void if you become incapacitated.
Beneficiaries
You’ll have to name beneficiaries for a variety of things, including bank accounts, retirement plans, and life insurance policies. You can name one, two, or more people, a trust, a charity, or your estate as the beneficiary of your death benefits.
Life Insurance
This is a contract with an insurance company that states that in exchange for the premiums that you pay over a certain duration of time, the insurance company will provide a death benefit (in a lump-sum payment) to your beneficiaries upon your death.
Estate Taxes
These are complex and vary greatly depending on location and circumstance, so they’re best left to be discussed with an experienced tax professional.
Individuals with estates exceeding the applicable exclusion amount:
Final Arrangements
You should draft a document that instructs how you’d like your final arrangements to be made. This includes whether you’d want your remains to be buried or cremated, where you would like the services to be performed, who you want your pallbearers to be if you choose to have them, and any other details of the handlings of your remains and the associated ceremonies.
In addition, you can make arrangements to cover the cost of your funeral to relieve your loved ones of the financial burden during an already emotional time. You can set up a “payable-on-death” account through your bank that will immediately pay for your funeral and related expenses when necessary.
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