Let’s set the record straight: Estate planning is more about preparing for the future, rather than wealth distribution. The reason our firm takes this approach is that an estate plan may account for both financial and medical contingencies. In addition to a will, an estate plan may also include a healthcare proxy or living will, a power of attorney, and/or various types of revocable or irrevocable trusts.
First, we advise taking an inventory of assets. Even individuals with limited wealth may have certain assets, such as a car, personal items, and retirement accounts. Unless a will or trust is in place, a court will get involved and determine how those assets will be distributed, generally according to the state intestacy laws. In order to avoid court involvement, it may also be a good idea to have a pour-over will to account for any property not specifically identified in a will or trust.
Next, we advise planning for medical contingencies. A living will can indicate whether a patient wishes to decline life-sustaining treatments in the event of a terminal condition or emergency. However, a health-care proxy can address even more contingencies, going into effect whenever an individual lacks the capacity to make his or her own medical decisions.
Finally, a trust may be a good idea if an individual wants to impose certain conditions on the way that his or her beneficiaries claim their inheritance. Whereas property identified in a will is generally distributed upon the testator’s death, a trust can specify that beneficiaries are paid only when they reach a certain age, when a certain life event occurs, or perhaps structured so as to remain out of reach of a beneficiary’s creditors.
Source: Wall Street Journal, “Three Common Estate-Planning Mistakes,” Jan. 7, 2015