Estate planning involves a variety of legal instruments designed to ensure that your assets are managed and distributed according to your wishes. Among these, wills, trusts, and powers of attorney play crucial roles.
A will is a legal document that expresses your wishes regarding the distribution of your assets after your death. You can specify who gets what, including money, property, and other possessions. You can also designate guardians for your minor children in your will. Without a will, state laws (known as “intestacy laws”) dictate how your assets are divided, which might not align with your intentions.
A trust is another estate planning tool where you (the “grantor”) transfer assets to a trust, to be managed by a trustee for the benefit of your chosen beneficiaries. Trusts can be designed to become effective during your lifetime (living trusts) or upon your death (testamentary trusts). They offer several advantages over wills, including potentially avoiding probate (the often lengthy and costly legal process of validating a will), preserving privacy, and providing for management of assets in case of incapacity.
One commonly used type of trust is a “revocable living trust,” which allows you to maintain control over your assets during your lifetime and determine their distribution upon your death.
Powers of Attorney
A power of attorney (POA) is a legal document where you appoint someone (the “attorney-in-fact” or “agent”) to act on your behalf in financial and legal matters if you become incapacitated and are unable to make decisions. This can cover a range of activities, including paying bills, managing investments, selling property, or making healthcare decisions.
There are different types of POAs – a healthcare power of attorney authorizes someone to make medical decisions for you, while a durable power of attorney remains in effect even if you become incapacitated.
Each of these tools serves different purposes but used together, they provide a comprehensive plan to ensure that your wishes are carried out and your loved ones are protected. In the next chapter, we’ll emphasize the importance of initiating this planning process early.