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.
Who needs estate planning? Many people believe that only those with multiple real estate holdings and vast wealth need to think through complex issues of inheritance and bequeaths. 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
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. Especially 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. A will should be revised every few years and also after any major life event, such as a move or the birth of a child.
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 — another reason why estate planning is important
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, the courts may 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 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.