Estate planning involves preparing yourself and your family for the possibility of incapacity and the inevitability of death. Different estate planning tools can be used to create a plan depending on which type of plan you need. You can certainly prepare for both by creating a comprehensive plan.
Planning for the future is very important. For one thing, planning ahead will allow you to ensure that your property is inherited by the people you choose, while reducing the amount of estate taxes that will be assessed after your death. It is also wise to plan for the unfortunate event that you become incapacitated, either temporarily or permanently. In doing so, you can provide protection for you and your family if you are unable to make decisions for yourself.
Planning for Your Death
A two part estate plan is best, in order to provide for the payment of your debts and designate who will receive the remainder of your property. A Will is the most basic estate planning tool. Wills allow you to leave written instructions describing how you want your estate to be managed when you pass away. The only down side to a will is that it will require your estate to pass through the probate process, a lengthy and expensive court proceeding, before your assets will be distributed.
Planning for Mental Incapacity
There are different life situations that can lead to incapacity, including medical and mental health conditions. Some incapacity is only temporary. Planning for mental incapacity requires a two-part plan, as well. One part of the plan must consider the personal decisions that need to be made and the other part must deal with necessary financial decisions. If you become incapacitated, and you do not have a plan, a court-supervised guardianship or conservatorship may be appointed to take care of you. At that point, you will no longer have control.
Advance Medical Directive
An Advance Medical Directive, also known as a Medical Power of Attorney in some states, allows you to delegate medical decisions to someone you trust in the event that you are either temporarily or permanently incapable of making those decisions yourself. You can choose that person now, while you still have the capacity to do so.
Financial Power of Attorney
A power of attorney can be executed solely for the purpose of allowing a chosen agent to make financial decision on your behalf. That way, you can choose someone you trust to manage your affairs if you become incapacitated in the future. A “durable” power of attorney allows your chosen agent to immediately care for your financial affairs and continued to have that power in the event you become mentally incapacitated.
Revocable Living Trust
A Revocable Living Trust can be used to plan for both mental disabilities and death. Both sets of provisions can actually be included in the same document. A revocable living trust allows you to control your assets while you are still alive, and then designate someone to manage your finances and your personal welfare if you ever become incapacitated. You can also provide instructions for your family regarding how your assets should be handled and distributed after your death.