No one likes to think about the inevitable, but it’s important to plan for the future of your estate after you’re no longer around. Estate planning is an important process of creating a plan for how a person’s assets will be distributed at the end of his or her life. Although estate planning is largely focused on financial elements, these plans affect every aspect of a person’s life, and, as such, should be meticulously considered to ensure the best decisions are made.
Estate Planning Basics
There’s a lot that goes into estate planning. From wills and trusts to various powers of attorney, every step of the estate planning process is intricately detailed. To learn about everything that’s involved in estate planning, your best decision would be to sit down with a seasoned tax professional—such as a CPA from DeFreitas and Minsky LLP—who can explain everything you need to know about the decisions you need to make.
To get a general understanding of estate planning basics, here’s a short list:
Wills: Your will is the official document that states your final wishes. It details how you want everything to be carried out when you’re no longer able to make decisions for yourself. In your will, you can name the executor of your estate, guardians for your children and their property, dictate how debts and taxes will be paid, and detail any other provisions you’d like to be made.
Trusts: A trust is a fiduciary agreement that appoints a trustee to hold assets on behalf of one or more beneficiaries. Trusts are often used as a means to minimize estate taxes. Trusts have flexible structures to allow individuals to control their wealth very specifically, designating when and to whom distributions may be made.
Health Care Directives: Also called a “living will” or “advance decision,” this is a legal document that specifies what should be done medically in the event that you’re no longer able to make decisions on your own. Your health care directive can authorize another individual to make decisions on your behalf when you’re incapacitated, called a “health care proxy.”
Durable Financial Power of Attorney: A document that names the individual you’ve chosen to make financial decisions for you when you become unable. This document can also designate when the terms go into effect; some couples have financial power of attorney documents that go into effect immediately, so that they can make decisions for each other at any time. Alternatively, you can specify that your power of attorney cannot go into effect until you’ve been medically certified as incapacitated. Many states require that your financial power of attorney be specified as “durable,” otherwise it may become void if you become incapacitated.
Beneficiaries: You’ll have to name beneficiaries for a variety of things, including bank accounts, retirement plans, and life insurance policies. You can name one, two, or more people, a trust, a charity, or your estate as the beneficiary of your death benefits.
Life Insurance: This is a contract with an insurance company that states that in exchange for the premiums that you pay over a certain duration of time, the insurance company will provide a death benefit (in a lump-sum payment) to your beneficiaries upon your death.
Estate Taxes: These are complex and vary greatly depending on location and circumstance, so they’re best left to be discussed with an experienced tax professional. Call DeFreitas and Minsky LLP today at (516) 746-6322 for more information.
Final Arrangements: You should draft a document that instructs how you’d like your final arrangements to be made. This includes whether you’d want your remains to be buried or cremated, where you would like the services to be performed, who you want your pallbearers to be if you choose to have them, and any other details of the handlings of your remains and the associated ceremonies. In addition, you can make arrangements to cover the cost of your funeral to relieve your loved ones of the financial burden during an already emotional time. You can set up a “payable-on-death” account through your bank that will immediately pay for your funeral and related expenses when necessary.