People often mistakenly assume estate planning is only for older ultra-wealthy people who are attempting to limit tax exposure. While limiting tax exposure is important component of estate planning, a comprehensive estate plan encompasses more than just tax avoidance.
An estate plan is the legal mechanism that allows people to communicate their unique directives to their families, friends, and the world in the event they become incompetent, incapacitated, or die.
If you have children, are in a blended family, have a domestic partner, or own a business with another person, estate planning is critically important regardless of your net worth.
A comprehensive estate generally includes: (1) a Last Will and Testament, (2) Living Will, (3) General Durable Power of Attorney, and (4) Health Care Power of Attorney. An estate plan may also include a trust depending on the size of your estate and other unique factors.
Number 1: A comprehensive estate plan sets forth your specific directives regarding end of life decisions through a Living Will. Life can change in an instant. Executing a Living Will allows you to clearly state your end of life wishes when you cannot communicate. A Living Will alleviates the uncertainty surrounding difficult end of life decisions. Your Living Will puts the world on notice regarding your wishes on issues such as continuing life support, pain management, feeding tubes, and organ donation.
Number 2: A comprehensive estate plan allows you to appoint a responsible person to manage your affairs should you become incompetent through a General Durable Power of Attorney. If you become incompetent, who would take care of your business, legal, and financial affairs? If you execute a General Durable Power of Attorney, you can specifically authorize someone your trust to seamlessly make these decisions on your behalf. However, without a General Durable Power of Attorney, a court would be responsible for appointing someone to act on your behalf.
Number 3: A comprehensive estate plan allows you to appoint a responsible person to make health care decisions when you are incapacitated through a Heath Care Power of Attorney. A Health Care Power of Attorney allows you to appoint someone you trust to make health care decisions on your behalf if you become incapacitated. It also allows the person you appoint to obtain your medical information and records. The Health Care Power of Attorney is particularly critical if you want to appoint someone other than a family member to make health care decisions. For example, conflict can arise between a person's domestic partner and family members when emergency medical decisions must be made.
Number 4: A comprehensive estate plan eliminates unnecessary court interference with your personal affairs. Without an estate plan, a court may be required to appoint someone to make important decisions on your behalf if you become incompetent or incapacitated. There could be contentious issues about who is appointed as a conservator and ultimately determining your wishes. Whenever courts are involved, you will likely need to hire attorneys. The court may also appoint a guardian at litem or a receiver to ensure your interests are protected. All of this additional time and expense could be avoided if you had executed a Living Will, General Durable Power of Attorney, and Health Care Power of Attorney.
Number 5: You can appoint a responsible guardian for your minor children or disabled family member through a Last Will and Testament. Who will care for your minor children or disabled family member if you’re gone? If you don’t have a properly executed estate plan, the determination of a new legal guardian will rest entirely with the judicial system. By appointing a guardian in your Last Will and Testament you can alleviate the need for a custody battle between family members and potentially save thousands of dollars in additional legal expenses.