Some people think that estate planning is only for the wealthy. But it doesn’t really matter how much or how little you have accumulated. Everyone needs three basic estate planning documents to ensure that the things they have worked for and the people they have cared about will be taken care of according to their wishes after they are gone. Without a plan, the state you live in may become the final arbiter of your wishes.
Where there’s a will
A will is a written statement of how and to whom your property will pass upon your death. It doesn’t have to detail the specific disposition of each piece of art work or china that you own—those can be handled in a separate list—but it should spell out your wishes on items of major worth, such as your house, your investments and any other valuable property. In your will, you should designate an executor—a person or an institution that will represent you in executing your will. If you have minor children, you should also name a guardian in your will.
Medical decisions
If you were incapacitated, you would want to know that someone who is close to you and who has your best interest at heart is in charge of health care decisions. A medical power of attorney names someone to act as your representative if you are unable to do so. It can also include specific directions for your health care representative to follow if you are judged to be terminally ill. However, a separate document can also be created to set forth your wishes regarding medical intervention.
Other decisions
It’s also a good idea to create a durable power of attorney to name someone who can handle your financial transactions and any other non-medical decisions in case you are incapacitated.
A word about beneficiaries
Even if you name beneficiaries for your assets and belongings in your will, you need to name beneficiaries for your retirement accounts on special beneficiary forms that are recognized by the investment companies that hold your accounts. Your beneficiary form is the will for your retirement assets. By naming beneficiaries on an appropriate form, you ensure that your retirement assets will pass directly to them without being subject to probate and you preserve a variety of favorable tax options for your heirs.
Seek professional guidance
Your financial professional can help you sort out the financial implications of your bequests and may be able to recommend a legal professional who can draw up your essential estate planning documents. Each document must be written, signed, witnessed and notarized. You should review your estate plan every two or three years, or whenever there is a significant change in your finances or family circumstances.