Back to Basics #3: Important Estate Planning Documents
A few months ago, I started a new series of monthly articles called “BACK TO BASICS.” In each article, we examine one of the basics of financial planning and investing.
Many people, young and old, don’t have a will, let alone a broader estate plan. Yet an estate plan is important, even for families who are not wealthy.
You may be thinking, “I have a will so I’m all set.” While having a will is a very important part of your estate plan, it’s not the only part. A will doesn’t specify how you want to be treated should your health fail. It doesn’t dictate who will carry out your wishes or handle your financial affairs should you ever become incapacitated. It doesn’t help your heirs limit their tax burden. In other words, it doesn’t cover all of the purposes of an estate plan as listed above. To ensure that both you and your loved ones will be cared for, I’ve created a list of four key documents that should be in every estate plan: I mentioned that creating your will is an important aspect of estate planning, so let’s cover that first. A will states how you want your belongings divvied up amongst your loved ones after you pass away. Otherwise, the laws will determine how to distribute your property, which may even end up belonging to the state if you don’t have an appropriate will stating otherwise. Will
An estate plan serves four major purposes:
1. It directs who will receive your property when you die.
2. It minimizes probate costs and any estate or income taxes that might be owed on that property. It’s the estate tax that people tend to think about when they think of an estate plan, and because many people believe they don’t have an estate large enough to be taxed, they don’t bother drawing one up. This can be a big mistake because the income tax on inherited assets can be substantial.
3. It provides for care of minors and management of financial resources for their care.
It provides for your care if you are unable to provide for yourself. A proper plan ensures that you get to pick the caregivers, not the state. This is critical for young people, singles, and older persons.
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