One of the most common misconceptions about estate planning is that many believe they don't have an estate so they don't need an estate plan. In reality, what most are getting at is that their "estate" is not the size they would like it to be. Regardless of the amount of assets you have there are many reasons most everyone should consider having an estate plan in place. To cover some of these reasons it would first be helpful to go over what I call the "Four Corners of an Estate Plan".
1) Will: A will is a document that outlines what will happen to your assets according to your wishes and not according to intestacy law. Dying "intestate" means you pass away without a written will. This means that intestacy law will control and not any specific wishes you may have. It is possible they line up, but the process is more time consuming and costly for your loved ones. In cases for families who have minor children a will is imperative to establish who will care for your children when you are gone. It allows the chosen guardian to manage and care for your children. Failing to appoint a guardian could result in the court appointing a guardian that is different from one you would have chosen. A will also appoints an "executor" who is a person that ensures your wishes in your will are carried out. A will covers all your "probate" assets, however, "non-probate assets" pass outside of the will and have a named beneficiary established when they are opened. Examples of non-probate assets include: IRA's, life insurance, 401(k), property in a trust, and jointly owned property.
2) Medical Directive / Living will: This is a declaration of your desires concerning what medical decisions you want made for your life that you don't want left up to chance. This document lays out what shall be done concerning life support or if you are terminally ill and generally includes your desires concerning organ donation. This document allows the designated agent the authority to make health care decisions for you guided by what is listed in the directive in the event you are incapable of making them yourself.
3) Power of Attorney: This is a document that appoints an individual as your attorney-in-fact and allows them to take care of your financial affairs should you be unable to. Without this no one can manage your affairs without first attaining a court order, which takes time and money and also may not be the agent you yourself would choose. There are 2 types that are commonly used: "springing" power of attorney that "springs" into action when you become incapacitated and unable to manage your affairs. The other is called a durable power of attorney and appoints an agent upon execution of the document. When deciding between the two you should speak with a licensed attorney about the pro's and con's for your situation.
4) Trust: While not essential in all cases, a trust is a very useful document in which a fiduciary arrangement is established between the grantor(s), the trustee(s) and beneficiary(s). This document can be used to avoid probate and enable you to manage your estate both before and after death. Avoiding probate means you save your heirs time and money because they don't have to go through the probate process with your local court to handle your estate. It also means that your assets are kept private. When you probate assets the record of them becomes public for all to see. In contrast a trust is a private document and will generally only be known by the grantor, the trustee and the beneficiary. Since trusts can be tailored specifically to your wishes they are an excellent vehicle to transfer your wealth as they can handle a wide range of possibilities, family structures and tax consequences.
This article is to provide general knowledge to the public. For situation specific questions you should consult an attorney licensed to practice in your state. Please visit our website for more information and ways to get in contact with our licensed attorneys who can assist you with your estate planning needs.