Estate plans are an important part of planning for the future. They help ensure that your desires regarding critical matters are clear and legal, hence minimizing conflicts and confusion when you're gone. To help you better understand what goes into creating an estate plan, we've put together a list of six key documents that are typically used in estate planning.
A last will and testament is used to transfer property that's in your name, to the person(s) and/or organization(s) that you wish to have when you die. Dying without a will is to die intestate. This means that instead of you appointing someone to distribute your assets according to your wishes, a court-appointed executor will compile your assets, pay any liabilities (such as debts and taxes), and distribute what's left to individuals who are considered to be beneficiaries.
Living will or directive
A living will or directive is a document that gives hospitals, physicians, and other medical care givers specific instructions regarding the type and extent of the care you desire should you become incapacitated and unable to communicate due to an accident, serious illness, dementia or coma.
Much like a will, a living trust spells out your wishes regarding your assets, dependents, and your heirs. The primary difference between a will and a living trust is that a will becomes effective only after you die, whereas living trust typically goes into effect immediately and remains in force your entire lifetime and even after you die. Most living trusts are revocable, which allow you to make future changes, modifications, or even terminate the document at any time - if you so desire.
Durable power of attorney for property
If you are unable or unavailable to manage your financial matters, this document appoints a person of your choosing to handle them for you.
Durable power of attorney for health care or health care proxy
With a durable power of attorney, you to appoint a health care agent who makes decisions regarding your medical care. With a health care proxy, you empower the agent to act on your behalf. The health care agent and proxy do not become effective until your doctor declares you medically unable to understand the consequences of your care or unable to communicate.
Family limited partnership
This document works much like a trust, but allows for some additional tax planning strategies. If you have a large estate and feel that you need specialized estate planning, a family limited partnership may be used to help minimize federal/state estate, death, and inheritance taxes.
Disclaimer: The information contained in this article is meant to provide a high-level overview of the typical documents that are generally used in creating an estate plan. It is not all inclusive. Note that the laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation, consult with an attorney.