Tuesday, April 27, 2010

What Is Estate Planning?

The definition of Estate Planning is easy: it is a plan for your estate.  Your estate is what you own; it is your stuff. 

If you become mentally incapacitated, perhaps by accident or illness, you can no longer manage your stuff.  You can't buy or sell what you need, pay you bills, or file your taxes.  Someone will have to do this for you.  If you plan for this with Powers of Attoney or Trusts, you get to choose who helps you manage your stuff.  If you don't, a judge will choose someone for you after an expensive court proceeding.  You may not agree with the judges choice and it may be a stranger who is charging you hourly.

When you pass away, the ownership of you stuff must pass to someone else (sorry).  If you plan in advance for this, you get to choose who gets what, when they get it and how they get it.  You even get to avoid taxes that will be due if no planning is done.  You can do this by getting a Will or Revocable Living Trust.  You can also control who gets what with beneficiary designations such as with life insurance and retirement accounts.  Bank accounts can be designated Payable on Death (POD) to your beneficiary.  You can also own an asset jointly with someone else so that they become the sole owner if you die.  If you do not plan in advance, the law sets forth who gets what.

A typical Estate Plan may have a Will, Trust, Financial Power of Attorney, Healthcare Power of Attorney and a Living Will.  This planning is really not so much for you but for your loved ones.  If you have an Estate Plan, check to see if it needs an update.  If you don't have a plan, get one.  Your loved one's will thank you someday.

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