An estate plan is the process of electing how assets will be distributed after death.
Normally, an estate plan consists of a will and/or trust, power of attorney for property, power of attorney for healthcare and custodial account designation. Other documents may be necessary to conform with specific estate planning goals.
A will and a trust are both vehicles used to transfer assets to selected beneficiaries after death. Differences between the two are: trusts offer more privacy than wills as wills are filed with the probate court and are of public record; wills are less complex than trusts as trusts require additional steps such as funding; real property can be placed within a trust in the attempt to avoid probate, but a transfer on death instrument can achieve the same result if executing a will; and the time-frame for creditors to file claims against an estate can be shorter under a will as compared to a trust.
Other than ensuring assets are transferred or not transferred to selected individuals after death, an estate plan is important to reduce the possible risk and potential cost of an estate becoming contested. Another important aspect is it allows for the nomination of a guardian for minor children if an unexpected death occurs.
A power of attorney for property and power of attorney for healthcare plan for the possibility of becoming incapacitated or developing a mental disability. A power of attorney for property allows an agent to manage the financial affairs of a principal. This is especially important as it allows the agent to pay the mortgage bill to avoid default or potential foreclosure on the principal’s residence. A power of attorney for healthcare allows an agent to abide by a principal’s wishes regarding medical-care and life-sustaining treatment.
An estate plan should be reviewed every three (3) to five (5) years to ensure that it conforms to a person’s current estate planning goals and wishes. An estate plan should also be reviewed if a subsequent divorce, death of a spouse, child or other beneficiary has occurred.