More often than not, people hear the words “estate planning” and immediately presume that if they don't have a lot of money they don't have to think about it. You might call that the albatross-style of estate planning.
It is true that for most people, estate taxes and even probate are not a major consideration. Sadly though, nearly 60% of people don't even have a will.
However, even if you don't have a lot of money or assets, there are other reasons for creating an estate plan. For instance, if you have assets (any assets) or minor children, you probably still need an estate plan, even if you don't have to worry about estate taxes. While no one wants to dwell on their death, if you postpone planning until it is too late, you run the risk that your intended beneficiaries — those you love the most — may not receive what you would want them to receive whether due to extra administration costs, unnecessary taxes or squabbling among your heirs. Estate Planning affords the comfort that your loved ones can mourn your loss without being simultaneously burdened with unnecessary red tape and financial confusion
Typically, an estate plan includes several elements, including a will, assignment of power of attorney, and a living will or health-care proxy (medical power of attorney). For some people, a trust may also make sense.
Here is an explanation of some elements that can make up an estate plan:
Will — A will is a legal document that sets forth your wishes regarding distributing your property and the care of any minor children. If you pass away without a will, your assets will go into probate, where the courts will decide how they will be distributed according to the laws of your state. This may or may not be what you planned with your last wishes.
Health Care/Medical Power of Attorney — This is a document that allows a person of your choosing to make medical decisions on your behalf should you have an accident or become incompetent.
Durable Financial Power of Attorney — This is a document that allows a person of your choosing to make financial and legal decisions and financial transactions on your behalf. Unlike other powers of attorney, which are in effect only while you are of sound mind, a durable power of attorney will still be in effect even if you become incompetent
Trust (Irrevocable or unbreakable and revocable or breakable) — A trust is a great way to control your assets in many situations. If set up in the right way, a trust can be used to provide asset protection for you and your heirsfrom creditors and predators.
While it is possible to pass your estate to your heirs through joint accounts and without an estate plan, there are potential traps you may not even have considered. For example, what happens to those joint accounts if you fail to name a beneficiary or if you have failed to redo the paperwork if the beneficiary predeceases you. Your assets go into to probate, that's what happens.
Another major issue you should consider for estate planning is taking care of you and your loved ones if you become incompetent or mentally disabled. A proper estate plan can help take care of those issues in an efficient and less costly manner by using such tools as a quality durable power of attorney and health care power of attorney and HIPPA authorizations. You may also require a living trust, which can help you and your heirs avoid the need for guardianship or conservatorship. Using these tools can keep your family affairs private and if needed will save you a lot of money, time and aggravation.
Greg Poulos is an estate planning attorney in Phoenix, Scottsdale and Paradise Valley, and has over 25 years of experience helping families protect their heirs and their assets. For more information, you can visit his website at www.pouloslawfirm.com or call 623-252-0292 for a complementary consulation.