Estate planning is a difficult topic for families to address, but it’s a necessary one. If you don’t prepare documentation, then assets, like houses, retirement plans and savings accounts, can end up in limbo for years. And after that, you’ll need expensive legal assistance just to straighten matters out which knowing a few basic estate planning requirements can prevent.
At a minimum, you should have the following three items, estate planning requirements, in place:
Requirement #1: An up-to-date will or trust:
Wills are easy to create, but they require the distribution of assets to go through probate, which can be a complex and expensive legal process. A trust can be more expensive to set up and requires professional assistance, but it provides benefits that a will cannot. A properly structured trust will help avoid guardianship or conservatorship if you become incapacitated, for example. One of the great advantages of trusts is that they usually avoid probate, which helps beneficiaries gain access to assets more quickly, as well as save time and court fees. A wide variety of trusts are available; your particular needs will determine which ones are best for you.
Learn more on our blog post When and How Often to Review Trusts.
Requirement #2: A durable power of attorney:
A power of attorney lets someone else make financial and legal decisions for a person if that person should become hospitalized, disabled or otherwise incapacitated.
Not all powers of attorney are created equal. Some are put in place for short periods of time only—while a person is vacationing overseas, but dealing with legal matters at home, for instance. That’s why it’s important to have a durable power of attorney in place—the agreement is not for a temporary period of time. It may be valid immediately when it’s signed, or it may go into effect at a later point.
What makes it a POA durable is that it will survive your later incapacity. Powers of attorney for property should only be given to trusted individuals, those who are good with financial and legal matters. Medical powers of attorney can be separated and given to someone else, if desired.
Requirement #3: Updated beneficiary designation forms:
Beneficiary designation forms on life insurance policies, 401(k) accounts and other assets will generally override any conflicting provisions within a will or trust. It’s essential to keep forms current. Failure to do this can lead to all kinds of nightmare scenarios, such as when an account is left to an ex-spouse because of failure to update it after a divorce.
An estate planning professional can help anyone create or update these basic items, as well as provide suggestions for additional steps, if needed.
It’s easy to procrastinate, especially if you don’t know what documents best serve your individual needs. But estate planning doesn’t have to be difficult. Understanding the different documents and how these estate planning requirements work will help you weigh your options and choose what’s best for you and your family.
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