When most people think of estate planning, they think “wills.” However, there is much more to estate planning than just creating a will. There are five components of a complete estate plan that will cover all areas of your life and death as well as protect your assets upon passing.
A will is a legally binding statement that dictates who will receive your property upon your passing. It is important to know a will only covers probate property which is property that is in an individual’s estate. Property that is jointly owned or has a named beneficiary, like life insurance, 401(k), or an IRA, can usually be settled without a will by automatically passing to the named beneficiary. A will can also name a guardian of any minor children you have.
A trust involves the transfer of property from one person (settlor) to the control of another person (trustee) to be held and used for the benefit of a third person (beneficiary). The settlor and trustee can be the same person.
Trusts can have multiple sets of beneficiaries—for example, a set of grandparents can be both the settlors and the trustees with their children named as the direct beneficiaries and their grandchildren as the next set of beneficiaries who stand to benefit from the trust when their parents pass away. There are many different forms of trusts and reasons to have trusts varying from tax planning and asset protection to ensuring for the care of a dependent or disabled adult child. Trusts can even result in tax advantages for both the trustee and the beneficiaries. Many small business owners, those who own more than one parcel of real estate, or individuals with investment accounts may benefit from trust planning.
Power of Attorney, or attorney-in-fact, allows you to appoint someone to act in your stead on financial and medical matters if you were to ever become incapacitated. Establishing a Power of Attorney in advance saves valuable time and money to avoid the expensive process of guardianship after you become incapacitated. There is also the risk someone other than whom you would have chosen could become your guardian if you do not designate this person yourself with a Power of Attorney.
Depending on your state’s laws and the choices that you make, a medical directive can include several types of documents including:
Medical directives – Medical instructions should you become seriously ill and cannot direct your own health care.
When creating your estate plan, you should also ensure any policy you own including life insurance, retirement plans, or 401(k) have beneficiaries listed, is up to date, and complete. The only way to ensure the money and assets you leave behind go to whom you want, is to ensure you have named beneficiaries. Naming beneficiaries on the direct policy can expedite receipt of benefits and reduce confusion compared to only naming beneficiaries in your will.
In today’s day and age, many families consist of a combination of stepparents, stepchildren, and/or half-siblings—commonly referred to as a blended family. Proper estate planning becomes especially important if you are a part of a blended family to ensure your estate is distributed as you desire. Under Florida’s intestate inheritance law, stepchildren do not have the same inheritance rights as naturally born or legally adopted children do, so the wording of the will also must be specific to include stepchildren. Simply listing that your estate should pass to “your children” can legally leave a stepchild out of the inheritance.