These key documents are at the heart of any estate plan. Understanding what they can do to protect you and those you love will make it easy to see how important they are.
Estate planning is so important, and it’s not as complicated as people think. According to a post on NJ 101.5, titled “Here are the important estate planning documents you should have,” all estate plans should include these three documents: a will, a general durable power of attorney and a health care proxy. Here’s what each document is for, and why they matter:
A will lets you give away your assets at your death in the way you want and in a way that’s appropriate for your beneficiaries. In addition, it allows you to name an executor to handle the administration of your estate. If you don’t name one in your will, an administrator will be appointed to settle your affairs. The process goes a lot more easily when you name an executor in your will.
A general durable power of attorney is a document in which you designate a trusted individual as your agent to act on your behalf on financial and property issues in the event you’re unable to do so. If the power of attorney is durable, its effectiveness continues after your incapacity. This will allow someone to act on your behalf if you become incapacitated in the future. Giving this power to an agent—along with the designation of a health care agent in a health care proxy—may eliminate an expensive guardianship proceeding if you become disabled or incapacitated down the road.
A health care proxy lets you designate an individual to act on your behalf for medical decisions if you are unable to make those yourself. A health care proxy is usually coupled with a living will. A living will stipulates your wishes on your continuing care under certain circumstances.
You should review all of your beneficiary designations to be certain they’re current and reflect your wishes on the disposition of each asset. An asset with a beneficiary designation generally deems it a non-probate asset, so it won’t be distributed under your will. Changes to your will do not change the distribution of that property. Retirement accounts and life insurance policies are the most common assets that pass by beneficiary designation, as well as POD (payable on death) and TOD (transfer on death) accounts.
The “Big Three” are the starting point. In some instances, the creation of a revocable living trust that holds property during your lifetime may have a role in your estate plan. Another type of trust is an irrevocable trust. And an irrevocable life insurance trust (ILIT) is used to eliminate the value of the insurance policy proceeds, also known as death benefits, from your taxable estate when you pass.
Every family’s estate planning needs are different, but an experienced estate planning attorney will be able to explain what you need and create the necessary documents.
Reference: NJ 101.5 (September 13, 2016) “Here are the important estate planning documents you should have”