Estate planning: Understanding the basics
Protecting your children, providing for your health care and offering legal directives if you are unable: Those are just a few reasons why estate planning is important.
What is estate planning and who needs it? Many people believe that only those with multiple real estate holdings and vast wealth need to think through complex issues of inheritance and bequeathment. But estate planning isn't just for the ultra-wealthy. In fact, everyone could benefit from some thoughtful consideration of the future and what will happen to their assets. Here are four estate planning considerations, regardless of your income bracket.
Guardianship as part of estate planning
Write a will
A will doesn't just divide up assets for heirs. It's also the legal document that allows you to designate an executor of your estate, and a guardian for your children in the event something happens to both parents. Consider revising your will every few years and after any major life event, such as a move or the birth of a child.
Guardianship of a child
If your children are minors, an estate plan can help with directives about who will manage and guard their money until they're of age. An estate plan can also designate who you choose to raise your children — acting as a parent — if both you and your spouse die, or the remaining parent is unfit or unable to care for the children. If you don’t designate a guardian, the courts will decide who will get custody of your children.
Guardianship for a child with special needs takes even more planning. In addition to designating a guardian, you’ll need to consider someone who would best handle having power of attorney for your child and/or being the trustee for a special needs trust. The guardian and trustee do not need to be the same person, and it can be beneficial to have them be different people, as that may provide some checks and balances.
Include health care proxies and directives in estate planning
A proxy (sometimes called a health care "agent" or "surrogate") is someone you name to make health care decisions on your behalf, if needed. If you don't have a designated medical proxy or advance medical directives, a court-appointed guardian will make medical decisions for you if you become incapacitated. By completing a medical advance directive, you can make your wishes known now about what types of treatments you would and would not want to undergo.
Power of attorney
By granting durable power of attorney to someone you trust, you give that person the ability to manage your financial affairs if you become physically or mentally incapacitated. ("Financial affairs" here can mean something as simple as accessing your checking account to make your mortgage payment while you recover from emergency surgery.) Again, if you haven't designated someone for this role, a court may appoint someone for you. Not only might that create a complicated situation for your family, but the courts may also appoint someone you would not have chosen yourself.
Estate planning that includes financial planning
Even if you don't have a large estate, planning for the financial future of your dependents is still important. By appropriately designating beneficiaries for your accounts and buying life insurance to help protect loved ones, you can be sure that your family will be able to maintain their standard of living if something should happen to you — regardless of your net worth.